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UK says Microsoft could gain ‘unprecedented advantage’ with Activision

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The Competition and Markets Authority (or CMA), a UK regulator, warned on Thursday that Microsoft’s proposed acquisition of Activision Blizzard could give the tech giant an “unprecedented advantage” over competitors.

In July, the CMA launched its own investigation into Microsoft’s $68.7 billion acquisition of Activision Blizzard to determine whether the merger could significantly reduce healthy competition in the UK games market. After completing the first phase of its investigation on Thursday, the CMA concluded that the deal could result in a “substantial lessening of competition” for game consoles, subscription services and cloud gaming after reviewing more than a thousand internal documents from Microsoft and Activision Blizzard. In particular, the CMA said Microsoft’s current assets combined with those of Activision Blizzard could block future competitors as the gaming industry as a whole shifts from digital storefronts to cloud gaming and subscription services.

“Following our Phase 1 investigation,” Sorcha O’Carroll, senior director of mergers at CMA, wrote in the agency’s press release. “We are concerned that Microsoft could use its control over popular games like Call of Duty and World of Warcraft after the merger to hurt rivals, including recent and future rivals in multi-game subscription services and online games. cloud.”

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The US Federal Trade Commission and regulators around the world have also been investigating how the deal could affect competition in their respective markets. Saudi Arabia’s General Competition Authority was the first regulator to publicly declare its approval.

Microsoft has already amassed an incredibly powerful gaming empire through its Xbox series of consoles, its Windows operating system (the most popular operating system in the world, including on gaming PCs), by buying up companies from top-tier games such as Bethesda and its Xbox Game Pass subscription service (which is continually bolstered by the company’s aforementioned acquisitions). Along with Activision Blizzard, Microsoft would take control of a dozen other legendary gaming properties, including Call of Duty, Diablo, and Candy Crush.

In August, Microsoft’s main gaming rival, Sony, argued that Call of Duty was too powerful a brand to compete with, and so popular that the military shooter series should be considered its own genre. In its press release, the CMA cited Call of Duty as a property that could crush one of Microsoft’s potential competitors if the company decides to make it an Xbox exclusive after acquiring Activision Blizzard.

“As the market for multi-game subscription gaming services expands,” the AMC wrote in its summary. “Microsoft could use its control over [Activision Blizzard] content to exclude rivals, including recent and future entrants to the game as well as more established players such as Sony.

The CMA has asked Microsoft and Activision Blizzard to provide the CMA with a proposal on how to comply with Section 73 of the Enterprise Act 2002, which guides fair trade policies in the UK. If the companies do not provide a satisfactory response, the CMA will shift its inquiry into the deal in a second phase, to “assess whether it is more likely than not that a substantial lessening of competition will occur as a result of the merger,” according to the press release.

“We stand ready to work with the CMA on next steps and address any concerns,” Microsoft president and vice president Brad Smith wrote in a statement to The Washington Post. “Sony, as an industry leader, says they’re worried about Call of Duty, but we said we’re committed to making the same game available the same day on Xbox and PlayStation. We want people have more access to games, not less.

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Regulators and gamers have expressed concern that Call of Duty, a gargantuan gaming property that has earned Activision Blizzard more than $30 billion over the franchise’s lifetime, could become an exclusive. Xbox if Microsoft takes control of Activision Blizzard. Microsoft has repeatedly assured regulators and gamers that it will not take Call of Duty exclusive and remove it from PlayStation. The company would risk a huge backlash from gamers and a cut in profits for the Call of Duty franchise if the titles were to leave Sony’s platform. Regulators may seek commitments as part of the terms of the merger, fearing a situation in which Microsoft could try to renege on its promises to keep Call of Duty on PlayStation.

To that end, Phil Spencer, CEO of Microsoft Gaming and Head of Xbox, wrote that Microsoft “will continue to engage with regulators in the spirit of transparency and openness as they review this acquisition” in a Microsoft blog post. Thursday, the same day the CMA released its findings. Spencer reiterated her commitment from January to keep Call of Duty on PlayStation and highlighted Tencent and Sony as other industry giants that have also made major acquisitions in the ongoing video game market consolidation.

“We believe a thorough review will show that the combination of Microsoft and Activision Blizzard will benefit the industry and gamers,” Spencer wrote in the blog post. “To all gamers and game developers, you remain at the center of everything we do, and we will continue to listen to your feedback and do all we can to nurture this industry that we all love.”

But antitrust authorities and academics have also become more suspicious of companies that promise to police themselves post-merger. Bill Baer, ​​an analyst at the Brookings Institution and former head of the FTC, said courts are now trying to kill mergers rather than drafting safeguards to ensure good behavior and then approving them.

“The tendency is to seek to block [the] rather than trying to allow it subject to post-merger terms,” Baer wrote in an email to the Post.

Bobby Kotick, CEO of Activision Blizzard, discussed the merger in a press release Thursday. Kotick said he expects the deal to close in June 2023 and announced plans to hold town halls to update employees on Activision Blizzard’s upcoming plans.

Shannon Liao contributed to this report.