Microsoft Acquisition of Activision Blizzard “Could Harm U.K. Gamers,” “Substantially Reduce” Competition, British Regulator Finds

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Microsoft’s proposed acquisition of video game publisher Activision Blizzard “could harm U.K. gamers” and “substantially reduce” competition, a British regulator found in a provisional analysis unveiled on Wednesday. The mega-deal “raises concerns about cloud and console gaming” and “could result in higher prices, fewer choices or less innovation,” the Competition and Markets Authority (CMA) said.

The $68.7 billion transaction “could make Microsoft even stronger in cloud gaming, stifling competition in this growing market and harming U.K. gamers who cannot afford expensive consoles,” it added. It “could also harm U.K. gamers by weakening the important rivalry between (Microsoft’s) Xbox and (Sony’s) PlayStation gaming consoles.”

The CMA published its provisional findings more than a year after the technology giant had unveiled a deal to acquire Activision Blizzard, led by CEO Bobby Kotick. The transaction, which has also faced opposition from such rivals as Sony and U.S. regulators, would bring together Microsoft, which owns the Xbox game platform and Xbox Game Studios (owner of Bethesda Softworks and 343 Industries, among other game publishers) and Activision, maker of the Call of Duty, Warcraft, Tony Hawk and Candy Crush franchises, reshaping the gaming landscape.

The acquisition, the largest in Microsoft’s history, would make the tech powerhouse the world’s third-largest gaming company by revenue, behind Tencent and Sony. 

“It’s been estimated that there are around 45 million gamers in the U.K., and people in the U.K. spend more on gaming than any other form of entertainment including music, movies, TV and books,” said Martin Coleman, chair of the independent panel of experts conducting the CMA’s so-called phase 2 investigation. “Strong competition between Xbox and PlayStation has defined the console gaming market over the last 20 years. Exciting new developments in cloud gaming are giving gamers even more choice. Our job is to make sure that U.K. 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 added: “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.” The CMA is scheduled to make its final decision on April 26.

In December, the Federal Trade Commission sued to block the deal, alleging that it would enable Microsoft to suppress competition in gaming. It pointed to the company’s history of acquiring competitors to “suppress competition from rival consoles,” including its purchase of ZeniMax, parent company of Bethesda Softworks and maker of The Elder Scrolls, Fallout and Starfield.

Microsoft reacted to the CMA findings with a statement. “We are committed to offering effective and easily enforceable solutions that address the CMA’s concerns,” Microsoft corporate vp and deputy general counsel Rima Alaily said in it. “Our commitment to grant long-term 100 percent equal access to Call of Duty to Sony, Nintendo, Steam and others preserves the deal’s benefits to gamers and developers and increases competition in the market. 75 percent of respondents to the CMA‘s public consultation agree that this deal is good for competition in U.K. gaming.”

Microsoft added: “When we say equal, we mean equal. 10 years of parity. On content. On pricing. On features. On quality. On playability.” 

“We need more innovation and investment in content creation, and fewer constraints on distribution,” Microsoft CEO Satya Nadella had said when the deal was unveiled. “Our vision is for a river of entertainment where content and commerce flow freely.”

Activision Blizzard in a Wednesday statement said: “These are provisional findings, which means the CMA sets forth its concerns in writing, and both parties have a chance to respond. We hope between now and April we will be able to help the CMA better understand our industry to ensure they can achieve their stated mandate to promote an environment where people can be confident they are getting great choices and fair deals, where competitive, fair-dealing business can innovate and thrive, and where the whole U.K. economy can grow productively and sustainably.”

Kotick also emailed employees a note. “Several jurisdictions have already approved our deal, and we continue to provide information to regulators around the world. Today, the Competition and Markets Authority in the U.K. released its provisional findings of evaluating the merger,” he wrote. “You may have also seen reports that the European Commission (EC) filed what is called a ‘statement of objections,’ where the EC sets forth its concerns in writing, and both parties have a chance to respond. Both of these steps from the EC and CMA are a normal part of their evaluation process. It opens the door to discuss various commitments Microsoft can make to assuage concerns as part of the ongoing dialogue and engagement with regulators. We are listening carefully and look forward to continuing a constructive discussion with both groups as we work toward deal close.”    

Added Kotick: “We are also confident that the law – and the facts – are on our side. For example, take the role of competition. … In this case, our combined companies will bring more competition to an already crowded field of world-class gaming competitors, including Sony, Tencent, NetEase, Apple, Amazon and Facebook. We believe this merger gives us additional resources to compete with such giants. When you combine Activision Blizzard’s iconic franchises and mobile expertise with Microsoft’s history of innovation and Xbox’s creative culture and distribution capabilities, we all gain an even brighter future for gaming.”

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