The UK’s antitrust watchdog has tightened its investigation into Microsoft’s $68.7 billion bid for video game giant Activision Blizzard, it said today.
In February, the Competition and Markets Authority (CMA) provisionally concluded that the merger “could harm UK players” due to higher prices, less choice or less innovation. Today it updated that stance – saying new evidence ‘temporarily alleviates’ concerns over the supply of games consoles in the UK.
However, a previously stated tentative conclusion – that the deal raises cloud gaming concerns – remains unchanged; and the investigation is continuing, with a final report from the watchdog by April 26, 2023.
“The CMA has received a significant amount of new evidence in response to its initial interim findings. After carefully reviewing this new evidence, as well as the wide range of information gathered prior to the issuance of these interim findings, the CMA’s Investigative Panel has updated its interim findings and reached the interim conclusion that , taken as a whole, the transaction will not result in a substantial lessening of competition with regard to console gaming in the UK,” he wrote in an update on the case.
The watchdog said the most significant new evidence it has received relates to Microsoft’s financial incentives to make Activision’s games, including Call of Duty (CoD), exclusive to its own consoles. “While the original CMA analysis indicated that this strategy would be profitable in most scenarios, new data (which provides greater insight into the actual buying behavior of CoD players) indicates that this strategy would be significantly loss-making in any plausible scenario,” the CMA wrote. “Based on this, the updated analysis now shows that it would not be commercially advantageous for Microsoft to make CoD exclusive to Xbox after the deal, but that Microsoft will still have the incentive to continue making the game available on Playstation.”
Microsoft had criticized CMA’s analysis and financial modeling in response to its interim findings – arguing that if it were to implement a “restraint strategy”, i.e. making CoD exclusive to its own console of games, it would give up “substantial” income generated by the title on Sony’s PlayStation.
Additionally, he claimed that the CMA made a fundamental error in its financial modeling by not using the same time period when calculating the lifetime value (“LTV”) of customers likely to switch to Xbox versus losses – like the calculation of “gain”. used a five-year gross profit figure while the “loss” was calculated for a single year — adding: “Comparing five-year gains to one-year losses massively skews the results. Once this error is corrected, it is clear that there is no incentive to hold back.
The CMA has not publicly admitted that it was wrong in its calculations. It simply says that “new evidence,” tied to Microsoft’s financial incentives around Activision’s games, suggests the tech giant would lose significantly if it withheld them from rival game consoles. Therefore, we now provisionally consider that this is not a competition issue.
“The most important new evidence provided to the CMA relates to Microsoft’s financial incentives to create Activision’s games, including [CoD], exclusive to its own consoles,” he wrote. “While the initial CMA analysis indicated that this strategy would be profitable in most scenarios, new data (which provides greater insight into the actual buying behavior of CoD players) indicates that this strategy would be significantly loss-making in any plausible scenario. Based on this, the updated analysis now shows that it would not be commercially advantageous for Microsoft to make CoD exclusive to Xbox following the deal, but instead Microsoft will have an incentive to continue to make the game available on PlayStation.
The UK regulator has not reviewed its concerns about the deal’s impact on cloud gaming – and it said it was “continuing to carefully review the responses provided in relation to the initial tentative findings”.
Commenting in a statement, Martin Coleman, Chairman of the Independent Expert Panel conducting the CMA investigation, added:
The interim findings are a key aspect of the merger process and are explicitly designed to give affected companies, and any interested third parties, the opportunity to respond with new evidence before we make a final decision.
After reviewing the additional evidence provided, we have now tentatively concluded that the merger will not result in a substantial lessening of competition in console gaming services, as the cost to Microsoft of retaining Call of Duty from PlayStation the would outweigh any gain resulting from such action.
Our preliminary view that this deal raises concerns in the cloud gaming market remains unaffected by today’s announcement. Our investigation is on track to be completed by the end of April.
Microsoft previously called the CMA’s interim cloud gaming concerns “misplaced”, arguing in its response to the interim findings that proposed ten-year licensing deals – with Nintendo and NVIDIA to bring CoD to more gamers on console and cloud gaming services – means UK gamers will benefit “significantly” if they are allowed to own Activision.
The company has been contacted to comment on the latest developments.
