UK Regulator Worried Microsoft’s Acquisition of Activision-Blizzard Could Lessen Competition

Following Microsoft’s acquisition of Activision-Blizzard being approved by Brazil’s Administrative Council for Economic Defense (CADE), the Competition and Markets Authority in the UK has detailed its concerns. It initially didn’t approve the acquisition, and in the second phase, it outlined how it would harm subscription offerings, PlayStation, and the game streaming space in general.

As reported by GamesIndustry, the regulator said, “There is a realistic prospect of a substantial lessening of competition in gaming consoles, multi-game subscription services, and cloud gaming services.” The “network effect” of the market, which causes a console with more gamers to attract more content and thus more gamers, was cited as a concern with any potential exclusivity.

“The CMA is concerned that having full control over this powerful catalogue, especially in light of Microsoft’s already strong position in gaming consoles, operating systems, and cloud infrastructure, could result in Microsoft harming consumers by impairing Sony’s – Microsoft’s closest gaming rival – ability to compete as well as that of other existing rivals and potential new entrants who could otherwise bring healthy competition through innovative multi-game subscriptions and cloud gaming services.”

The CMA also feels that Activision-Blizzard titles could have eventually arrived on other subscription services if this deal didn’t go through. “The CMA recognises that ABK’s newest games are not currently available on any subscription service on the day of release but considers that this may change as subscription services continue to grow. After the Merger, Microsoft would gain control of this important input, and could use it to harm the competitiveness of its rivals.” Microsoft’s Azure cloud service, not to mention its dominance with PC operating systems, could result in an “unparalleled advantage” if its acquisition of Activision-Blizzard goes through.

Of course, Microsoft has responded in kind. It noted, “These unsupported theories of harm are not sufficient to justify a reference to Phase 2.” It also said there were numerous reasons why the CMA’s concerns over the deal’s impact on PlayStation were “misplaced.” Some of these include PlayStation having a market-leading position with an install base of 150 million consoles versus Xbox’s 63.7 million consoles. There’s also the fact that Sony’s market leadership allows for raising the PS5’s price “without fear of losing market share.”

Microsoft told GamesIndustry, “The suggestion that the incumbent market leader, with clear and enduring market power, could be foreclosed by the third largest provider as a result of losing access to one title is not credible.” It also added that if every Call of Duty player shifted to Xbox, “the PlayStation gamer base would remain significantly larger than Xbox.” It didn’t provide any figures to back this assumption up, however.

It further noted Sony’s acquisitions and the fact that it saw more than 280 first and third-party exclusives on PlayStation in 2021, five times that of Xbox’s offerings. “In short, Sony is not vulnerable to a hypothetical foreclosure strategy, and the Referral Decision incorrectly relies on self-serving statements by Sony, which significantly exaggerate the importance of Call of Duty to it and neglect to account for Sony’s clear ability to competitively respond.

“While Sony may not welcome increased competition, it can adapt and compete. Gamers will ultimately benefit from this increased competition and choice.” Microsoft reiterated that it would keep Call of Duty on PlayStation and that taking it away would “alienate” the console’s fanbase and “tarnish both the Call of Duty and Xbox brands.”

As for the decision to bring Activision-Blizzard titles to Game Pass, Microsoft believes this would offer more choices for gamers. While it didn’t indicate whether it would allow Call of Duty to release on other subscription services, Microsoft noted that Game Pass wasn’t on PlayStation. Thus any concerns from the CMA of it “tipping” subscription services in favor of Xbox were inaccurate. It also pointed to the popularity of “buy to play” and free-to-play models that continue provide ample competition for Game Pass.

In the end, Microsoft says, “Should any consumers decide to switch from a gaming platform that does not give them a choice as to how to pay for new games (PlayStation) to one that does (Xbox), then that is the sort of consumer switching behavior that the CMA should consider welfare enhancing and indeed encouraged. It is not something that the CMA should be trying to prevent.”

Regarding streaming, Microsoft feels the regulator’s concerns are somewhat flawed. It noted that Xbox Cloud Gaming doesn’t use Azure, and also doesn’t stream titles from PC hardware. As a result, Xbox would be facing “significant disadvantages compared to rival providers of infrastructure for game streaming.”

“There is no advantage. Indeed, Xbox considers that it faces many significant disadvantages as compared to rival providers of infrastructure for game streaming.” While the CMA feels that acquiring Activision-Blizzard and using it in conjunction with other services could “foreclose” on cloud gaming rivals, Microsoft said this is counter to its objective.

“Consumer adoption of cloud gaming remains low. Harming or degrading rival services would significantly set back the adoption of this technology – protecting market-leading incumbents (i.e., Sony on console, Apple and Google on mobile, as well as Steam on PC).

“Xbox as a platform which is in last place in console, seventh place in PC and nowhere in mobile game distribution globally, has no incentive to do this. Instead, its incentive is to encourage the widespread adoption of cloud gaming technologies by as many providers as possible to encourage the major shift in consumer behavior required for cloud gaming to succeed.”

Preliminary findings for the investigation’s second phase will be revealed in January 2023, followed by a final report on March 1st, 2023. Stay tuned for more details in the meantime.