UK says Microsoft’s acquisition of Activision will harm gamers

8 Feb 2023

Image: Dinosaur918 via Wikimedia Commons.

The Competition and Markets Authority in the UK says the Microsoft-Activision deal will substantially reduce competition in the cloud gaming sector.

The regulator quagmire around Microsoft’s acquisition of Activision Blizzard continues as the UK’s top regulator has provisionally found that the deal could harm 45m gamers in the country.

Following an in-depth investigation into the proposed acquisition, the Competition and Markets Authority (CMA) in the UK found that the ability to offer popular games will be important for cloud gaming providers to attract users as the market “continues to grow and develop”.

As per the CMA’s investigation, however, Microsoft will find it “commercially beneficial” to make Activision’s games – such as Call of Duty, World of Warcraft and Diablo – exclusive to its own cloud gaming service or available on other services under “materially worse conditions”.

According to the watchdog, Microsoft already accounts for an estimated 60 to 70pc of global cloud gaming services. It also has an advantage over competitors by virtue of its ownership of Xbox, Windows and global cloud computing infrastructure such as Azure.

“Buying one of the world’s most important game publishers would reinforce this strong position and substantially reduce the competition that Microsoft would otherwise face in the cloud gaming market in the UK,” the CMA said in a statement today (8 February).

“This could alter the future of gaming, potentially harming UK gamers, particularly those who cannot afford or do not want to buy an expensive gaming console or gaming PC.”

How we got here

It has been just over a year since Microsoft first shocked the world by announcing it will acquire Activision – a deal that would make it the third-largest game company in the world by revenue, behind Tencent and Sony.

By July, however, the CMA opened an investigation into the deal to consider whether it raised competition concerns “for example, through higher prices, lower quality or reduced choice”.

Two months later, it said the deal could “harm rivals” and “substantially lessen competition” in the gaming sector by refusing smaller companies access to Activision games or providing access on much worse terms – views it has echoed after the latest five-month investigation.

The watchdog is also concerned that the software giant’s strategy of buying gaming studios and making their content exclusive to Microsoft’s platforms “has been used by Microsoft following several previous acquisitions of games studios”.

Martin Coleman, chair of the independent panel of experts conducting the second round of investigation, said that strong competition between Xbox and PlayStation has “defined the console gaming market” over the last 20 years and that gamers now have even more choice.

“Our job is to make sure that UK gamers are not caught in the crossfire of global deals that, over time, could damage competition and result in higher prices, fewer choices, or less innovation. We have provisionally found that this may be the case here,” he said.

“We have also today sent the companies an explanation of how our concerns might be resolved, inviting their views and any alternative proposals they wish to submit.”

However, Activision chief Bobby Kotick has told The Financial Times a “fragile” UK government could miss an opportunity to attract thousands of jobs if it blocks the acquisition deal.

“[The CMA] seem like they’ve been co-opted by the FTC ideology, and [are] not really using independent thought, or thinking about how this transaction would positively impact the UK,” he said of the long regulatory hold on the deal.

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Activision Blizzard. Image: Dinosaur918 via Wikimedia Commons (CC BY-SA 3.0)

Vish Gain is a journalist with Silicon Republic