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The UK’s antitrust watchdog has narrowed its probe of 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 the merger “could harm U.K. gamers” through higher prices, fewer choices, or less innovation. Today it’s updated that position — saying new evidence “provisionally alleviates” concerns in relation to the supply of games consoles in the UK.
However a previously stated provisional finding — that the deal raises concerns in relation to cloud gaming — remains unaffected; and the investigation continues, with a final report due from the watchdog by April 26, 2023.
“The CMA has received a significant amount of new evidence in response to its original provisional findings. Having considered this new evidence carefully, together with the wide range of information gathered before those provisional findings were issued, the CMA inquiry group has 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,” it wrote in a an update on the case.
The watchdog said the most significant new evidence it’s received relates to Microsoft’s financial incentives to make Activision’s games, including Call of Duty (CoD), exclusive to its own consoles. “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,” the CMA wrote. “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.”
Microsoft had criticized the CMA’s analysis and financial modelling in a response to its provisional findings — arguing that if it were to implement a “withholding strategy”, i.e. by making CoD exclusive to its own games console, it would forego “substantial” revenue generated by the title on Sony’s PlayStation.
Moreover, it claimed the CMA had made a basic error in its financial modelling by not using the same time period when calculating the Life Time Value (“LTV”) of customers that might divert to Xbox vs the losses — as the ‘gain’ calculation used a five-year gross profit figure while the ‘loss’ was calculated just for a single year — adding: “Comparing gains on a five-year basis to losses on a one-year basis massively skews the results. Once this error is corrected it is clear there is no incentive to withhold.”
The CMA hasn’t ‘fessed up publicly to getting its sums wrong. It just says “new evidence”, related to Microsoft’s financial incentives around Activision’s games, suggests the tech giant would significantly lose out if it withheld them from rival games consoles. Hence now taking a provisional view that this is not a competition concern.
“The most significant new evidence provided to the CMA relates to Microsoft’s financial incentives to make Activision’s games, including [CoD], exclusive to its own consoles,” it writes. “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.”
The UK regulator has not revised its concerns about the deal’s impact on cloud gaming — and it said it is “continuing to carefully consider the responses provided in relation to the original provisional findings”.
Commenting in a statement, Martin Coleman, chair of the independent panel of experts conducting the CMA investigation, added:
Provisional findings are a key aspect of the merger process and are explicitly designed to give the businesses involved, and any interested third parties, the chance to respond with new evidence before we make a final decision.
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.
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.
Microsoft has previously dubbed the CMA’s provisional cloud gaming concerns “misplaced”, arguing in its response to the provisional findings that proposed ten-year licensing agreements — with Nintendo and NVIDIA to bring CoD to more gamers on both console and cloud gaming services — mean that UK gamers stand to benefit “significantly” if it’s allowed to become the owner of Activision.
The company was contacted for comment on the latest development.
Update: A Microsoft spokesperson sent this statement:
We appreciate the CMA’s rigorous and thorough evaluation of the evidence and welcome its updated provisional findings. This deal will provide more players with more choice in how they play Call of Duty and their favourite games. We look forward to working with the CMA to resolve any outstanding concerns.
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