Microsoft wins battle with Sony as UK reverses finding on Activision merger

UK regulators reviewing Microsoft’s proposed acquisition of Activision Blizzard reversed their stance on a key question today, saying they no longer believe Microsoft would remove the Call of Duty franchise from Sony’s PlayStation consoles. Last month, the UK Competition and Markets Authority (CMA) tentatively concluded that a combined Microsoft/Activision Blizzard would harm competition in console gaming. At the time, the CMA said evidence showed that “Microsoft would find it commercially beneficial to make Activision’s games exclusive to its own consoles (or only available on PlayStation under materially worse conditions).” The agency also raised concerns about the merger affecting rivals in cloud gaming. The preliminary finding was a victory for Sony, which has consistently expressed doubts about Microsoft’s promise to keep putting Call of Duty games on PlayStation. But Microsoft argued that the CMA’s financial model was flawed and was able to convince the agency to reverse its conclusion. In an announcement today, the CMA said it “received a significant amount of new evidence.” “Having considered the additional evidence provided, we have now provisionally concluded that the merger will not result in a substantial lessening of competition in console gaming services because the cost to Microsoft of withholding Call of Duty from PlayStation would outweigh any gains from taking such action,” CMA Panel Chair Martin Coleman said. As a result, the CMA panel investigating the deal “updated its provisional findings and reached the provisional conclusion that, overall, the transaction will not result in a substantial lessening of competition in relation to console gaming in the UK,” the agency announcement said.

Pulling CoD would cause “significant” financial loss

The updated findings said pulling Call of Duty off PlayStation would cause “a significant net financial loss for the Parties under all scenarios that we considered plausible,” but numbers were redacted from the public version of the document. The CMA said the “most significant new evidence” submitted to the agency relates to Microsoft’s financial incentives to make Activision games exclusive to Xbox consoles, adding:

While the CMA’s original analysis indicated that this strategy would be profitable under most scenarios, new data (which provides better insight into the actual purchasing behaviour of CoD gamers) indicates that this strategy would be significantly loss-making under any plausible scenario. On this basis, the updated analysis now shows that it would not be commercially beneficial to Microsoft to make CoD exclusive to Xbox following the deal, but that Microsoft will instead still have the incentive to continue to make the game available on PlayStation.

UK hasn’t dropped cloud gaming concerns

This should make it easier for Microsoft to get UK approval for the merger, but the company still needs to convince regulators that the deal won’t harm competition in cloud gaming. “Our provisional view that this deal raises concerns in the cloud gaming market is not affected by today’s announcement. Our investigation remains on course for completion by the end of April,” Coleman said. The CMA’s provisional findings last month said evidence “indicates that Microsoft would find it commercially beneficial to make Activision’s games exclusive to its own cloud gaming service (or only available on other services under materially worse conditions). Microsoft already accounts for an estimated 60-70 percent of global cloud gaming services and also has other important strengths in cloud gaming from owning Xbox, the leading PC operating system (Windows) and a global cloud computing infrastructure (Azure and Xbox Cloud Gaming).” Buying Activision Blizzard, the CMA said, “would reinforce this strong position and substantially reduce the competition that Microsoft would otherwise face in the cloud gaming market in the UK. This could alter the future of gaming, potentially harming UK gamers, particularly those who cannot afford or do not want to buy an expensive gaming console or gaming PC.” Microsoft, in response, told the CMA that “Activision games would not have been available to cloud gaming services absent the Merger,” and that there’s “no evidence that Activision content would have been an important input for cloud gaming providers.” Microsoft also said its proposed licensing remedies would “ensure wide availability of CoD and other Activision titles on cloud gaming services.”