Activision Blizzard CEO Bobby Kotick recently took to TV to say that the UK would become “Death Valley” if he did not approve his business $69 billion sale at Microsoft. We now know why. The country’s Competition and Markets Authority announced tentative findings on Wednesday that the deal would threaten competition in the gaming market, and even suggested that to get the merger approved, Activision Blizzard would have to sell the Call duty part of its activity first.
“Xbox and PlayStation compete with each other right now and access to the most important content, like CoD, is an important part of that competition,” the CMA wrote. in a press release. “Reducing this competition between Microsoft and Sony could result in all gamers seeing higher prices, reduced range, lower quality, and poorer service on game consoles over time.”
Regulators specifically tried to consider what the acquisition might mean for the console and cloud gaming markets. In either case, the CMA said its investigation found it would be “commercially advantageous” for Microsoft to make Activision Blizzard games. exclusive to its platformsor at least “materially worse” for its competitors.
Microsoft has repeatedly stated that it will not change the status of Call of Duty on PlayStation after the sale, going so far as to suggest signing a 10 year agreement for this purpose. This agreement would be would have also include the option for Sony to put Call of Duty on its own subscription service, PS Plus. But the CMA is not very enthusiastic about these possibilities, which would require “follow-up and application”. Instead, it offers “structural remedies” that address potentially anticompetitive mergers at source.
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These remedies, as outlined in today’s report, include four startling possibilities:
Disposal of the company associated with Call of Duty
Disposal of the Activision segment of Activision Blizzard, Inc.
Disposal of the Activision segment and the Blizzard segment
Prohibition of merger
Divestiture is a fancy word for sale, and the CMA has basically said its current preference would be for Microsoft to buy just a piece of Activision Blizzard rather than the entire publisher, like the candy Crush part, or the World of Warcraft part, but certainly not the Call of Duty part.
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“These are interim findings, which means that the CMA sets out its concerns in writing and both parties have an opportunity to respond,” said Activision Blizzard spokesperson Joseph Christinat. Kotaku in a report. “We hope that by April we will be able to help CMA better understand our industry to ensure it can fulfill its stated mandate of fostering an environment where people can be confident they are getting great choices and fair deals, where competitive, fair business can innovate and thrive, and where the whole UK economy can grow productively and sustainably.
The mega merger is also the subject of intense scrutiny within the European Union, as well as a real antitrust lawsuit by the Federal Trade Commission in the United States In any case, console exclusivity seems to be at the heart of regulators’ concerns. It doesn’t help that one of the most anticipated blockbusters of the year, star fieldwas originally a cross-platform game before Microsoft bought Bethesda and made it a Xbox Series X/S console exclusive.
In addition to Microsoft’s promises not to take Call of Duty excluding PlayStation 5, it’s also been argued that it wouldn’t make financial sense. But the CMA’s analysis came to a different conclusion:
We tentatively found this calculation alone to be broadly neutral in terms of profitability. The other model considered data used by Xbox in the normal course of business on the “lifetime value” of new customers. This has the benefit of representing five years of spending on the Xbox platform and on CoD. This model, which we currently believe is a better way to estimate long-term financial incentives, suggests that making CoD exclusive to Xbox would be profitable for Microsoft.
He added that in a survey of gamers, 24% said they would move away from PlayStation if Call of Duty was no longer on it.
For now, the CMA will continue to seek consumer feedback over the next month, and Microsoft and Activision Blizzard have until March 1 to file their rebuttals. A final report will be released on April 26. It is possible that companies will find other solutions to satisfy regulators, or threaten to withdraw from the UK market altogether.
Microsoft and Activision Blizzard previously told investors the deal would close by the end of June 2023.” Kotick told staff in an email today. “It’s all part of the normal onboarding process intended to prepare for business continuity on the first day after the conclusion of the agreement.”
Update 2/8/23 10:46 AM ET: Microsoft Deputy General Counsel Rima Alaily issued the following statement:
We are committed to providing effective and easily applicable solutions that address CMA concerns. Our long-term commitment to grant 100% equal access to Call of Duty to Sony, Nintendo, Steam and others preserves the benefits of the agreement for players and developers and increases competition in the marketplace. 75% of respondents to the CMA public consultation agree that this deal is good for competition in UK gaming.
