UK watchdog’s block on Microsoft-Activision deal had an eye on the future
It is rare for a decision by the UK’s competition regulator to make waves globally.
The Competition & Markets Authority (CMA) has traditionally not been as significant a force in preventing corporate deals as the European Commission or the US Federal Trade Commission.
So the CMA’s decision to block Microsoft’s $75bn takeover of the games publisher Activision Blizzard is one of its most far-reaching decisions in years.
It is also huge for a sector – video gaming – that is of more importance to the UK and to the global economy than is widely appreciated.
This was the biggest acquisition in Microsoft‘s history – and the CMA’s intervention may yet scupper the deal.
It has sent Activision shares down more than 11% in pre-market trading.
The decision has come as a surprise for a couple of reasons. The first is that the CMA has not blocked the decision due to concerns over the competition in the supply of games consoles.
Microsoft had pledged to make Call of Duty available on other platforms for at least a decade to satisfy regulators’ early concerns
This was of particular importance in the UK. Elsewhere around the world, in particular the US, playing games on large PCs is commonplace.
The UK, by contrast, is not a nation of PC players but one of console players. This reflects the fact that UK housing is smaller, typically, than in the US and so British gamers are more likely to play on consoles that can easily be fitted under a TV set and take up less space.
Consoles like Microsoft’s Xbox and Sony’s PlayStation are therefore a more important factor in the UK gaming market than in the US one.
The concern was that armed with Activision’s big money-spinning titles, chiefly Call of Duty, World of Warcraft and Overwatch, Microsoft would have had plenty of scope to hurt PlayStation sales were it to make games exclusive only to the Xbox.
It was seen as particularly significant for the CMA in view of the fact that in the UK, more gamers own a PlayStation 5 than own an Xbox series X or its cheaper sister product, the Xbox series S.
But the CMA said last month it had provisionally concluded that the merger would not result in a substantial lessening of competition in console gaming services “because the cost to Microsoft of withholding Call of Duty from PlayStation would outweigh any gains from taking such action”.
Accordingly, as this was the main area in which the CMA was expected to have competition concerns, it is surprising that the regulator has decided to block the takeover.
The other big surprise is that the ground on which the CMA wants to block the proposed deal is that it would potentially reduce competition in the cloud gaming sector.
This is because the cloud is at present a relatively small part of the way in which video games are played currently.
But it is already a field in which Microsoft has established a lead over Sony and that may well be of concern to the CMA – particularly given Microsoft’s wider market dominance in cloud services (another market the CMA is investigating separately) and given the work Microsoft is doing to deliver many of the services available through Gamepass, its subscription service, through the cloud.
The CMA has clearly made this decision with an eye to the future.
The CMA’s intervention may not be enough to kill this deal.
Microsoft and Activision may find a way of offering remedies to satisfy it, but the size and the complexity of the global gaming market would probably make it too complicated for Microsoft and Activision to unpick it in a way that the UK remained excluded from a tie-up elsewhere around the world.
But there are also competition hurdles elsewhere, particularly the US, where the FTC has said it will sue to block the deal.
And, in other jurisdictions, concerns over competition in consoles may well be a factor. Microsoft has insisted throughout that it has no intention of making Activision’s games exclusive to Xbox, Gamepass and to PCs.
But other watchdogs may choose to consider an interview given last month by Harvey Smith, the director of a game called Redfall, which is published by Bethesda Softworks, a company bought by Microsoft in 2021. The development of Redfall was interrupted by the pandemic, during which, Microsoft bought Bethesda.
Mr Smith told the US video game and entertainment website IGN that, originally, Redfall was to be released on all platforms but that there was a “huge change” once Microsoft bought Bethesda.
He told IGN that, even though work had been started to make a PlayStation version of Redfall, Microsoft had cancelled that work in order to make it exclusive to Xbox.
He said: “We were acquired by Microsoft and it was a capital C change. They came in and said, ‘No PlayStation 5, we’re focusing on Xbox, PC and Game Pass’.”
That interview has already been flagged by Sony in some of its representations to competition watchdogs.
The CMA’s ruling will be music to Sony’s ears. Pic: AP
More from Sky News:
New CBI boss ‘profoundly sorry’ to women let down by business group
A key point to bear in mind is that Microsoft is doing well enough – last night’s quarterly results showed a business firing on all cylinders – for it not to need Activision.
That may not be true for the latter which, shortly before the takeover was announced, was beset by allegations of sexual assault and mistreatment of women at the company in recent years.
That may explain the vituperative response of Bobby Kotick, Activision’s chief executive, to today’s decision. Mr Kotick, who stands to make millions from a sale of the company, has previously accused the CMA of being “co-opted by FTC ideology”.
Bobby Kotick has reacted angrily to the CMA’s decision
He has, though, been careful to praise Rishi Sunak, telling the Financial Times in February this year that the PM was “smart” and understands business, adding: “If I look at our hiring plans, we’re more likely to find the next 3,000 to 5,000 people that we need in the UK than almost any other country.”
That was very much at odds with his assertion today that “the UK is clearly closed for business”.
Some will dismiss that as a man lashing out in disappointment.
Others will view it as a threat.
-
Sports3 years ago‘Storybook stuff’: Inside the night Bryce Harper sent the Phillies to the World Series
-
Sports1 year agoStory injured on diving stop, exits Red Sox game
-
Sports1 year agoGame 1 of WS least-watched in recorded history
-
Sports2 years agoMLB Rank 2023: Ranking baseball’s top 100 players
-
Sports4 years ago
Team Europe easily wins 4th straight Laver Cup
-
Environment2 years agoJapan and South Korea have a lot at stake in a free and open South China Sea
-
Environment2 years agoGame-changing Lectric XPedition launched as affordable electric cargo bike
-
Business3 years agoBank of England’s extraordinary response to government policy is almost unthinkable | Ed Conway