Can the CMA Block the Activision Blizzard Merger? A Saga of Regulation, Innovation, and Gaming’s Future
The answer, as of late October 2023, is no. The U.K.’s Competition and Markets Authority (CMA) initially blocked Microsoft’s acquisition of Activision Blizzard due to concerns about the cloud gaming market. However, after Microsoft restructured the deal to address these concerns, specifically by selling cloud streaming rights to Ubisoft, the CMA ultimately approved the merger. The road to approval was long and fraught with legal challenges, highlighting the complex interplay of antitrust regulations, technological innovation, and global market competition.
The Initial Blockade: Cloud Gaming Concerns
The CMA’s initial stance against the merger centered on the potential for Microsoft to dominate the burgeoning cloud gaming market. Their concern wasn’t primarily about console exclusivity or traditional game distribution. It was about cloud gaming, a technology where games are streamed over the internet to devices, eliminating the need for powerful local hardware.
The CMA feared that acquiring Activision Blizzard, with its blockbuster titles like Call of Duty, would give Microsoft an unfair advantage. They argued that Microsoft could either make Activision games exclusive to its own Xbox Cloud Gaming service, stifling competition, or offer them on competing services under unfavorable terms. This, the CMA argued, would reduce innovation and limit consumer choice in the long run.
The proposed remedies from Microsoft, which initially involved contractual agreements with other cloud gaming providers, were deemed insufficient. The CMA argued that these agreements were difficult to monitor, didn’t cover all potential business models, and presented a high risk of circumvention.
Microsoft’s Restructuring: The Ubisoft Solution
Faced with the CMA’s opposition, Microsoft took a significant step to alleviate the regulator’s concerns. They agreed to sell the cloud streaming rights for Activision Blizzard’s games to Ubisoft. This meant that Ubisoft, not Microsoft, would control how Activision Blizzard games are distributed via cloud gaming services outside the European Economic Area (EEA).
This restructuring addressed the CMA’s core concern: that Microsoft would control access to Activision Blizzard’s content in the cloud gaming market. By handing over those rights to a neutral third party, Microsoft essentially removed its ability to leverage Activision Blizzard’s games to gain an unfair advantage in cloud gaming.
Navigating the Global Regulatory Landscape: The FTC’s Role
While the CMA’s approval was a major hurdle, it was not the only one. The Federal Trade Commission (FTC) in the United States also challenged the merger, arguing that it would harm competition in the video game industry.
However, a federal judge ruled against the FTC, allowing the merger to proceed in the US. The FTC appealed this ruling and even sought an immediate stay on the deal, but those efforts were unsuccessful.
The FTC’s arguments focused more on the potential for Microsoft to make Activision Blizzard games exclusive to the Xbox console, harming competition in the console market. Microsoft countered these concerns by offering legally binding agreements to keep Call of Duty available on PlayStation for many years to come. The ruling demonstrated the difficulty of successfully blocking a merger when the merging parties can prove no real harm to consumers in the established market.
The Final Approval: A Win for Microsoft and Activision Blizzard
After the Ubisoft deal and the US court ruling, the CMA re-evaluated the merger, viewing it as a completely new proposal. They conducted a thorough investigation and ultimately concluded that the restructured deal addressed their initial concerns.
On October 13th, 2023, the CMA officially approved Microsoft’s acquisition of Activision Blizzard, effectively removing the last major obstacle to the deal’s completion. The approval marked the end of a long and complex regulatory battle, paving the way for Microsoft to integrate Activision Blizzard into its gaming empire.
The Broader Implications: A Shifting Gaming Landscape
The Microsoft-Activision Blizzard merger has significant implications for the gaming industry. It consolidates power in the hands of a few large players, potentially leading to greater concentration in the market. However, it could also spur innovation and investment in new technologies, such as cloud gaming.
The regulatory scrutiny surrounding the merger also highlights the growing importance of antitrust enforcement in the digital age. As technology companies continue to acquire smaller competitors, regulators around the world will be closely watching to ensure that these deals do not harm competition or limit consumer choice.
One aspect that is sometimes forgotten in all this is education and skills. As games become more powerful and more intertwined with other technologies, understanding their development, design, and impact will be more important than ever. Organizations like the Games Learning Society, or GamesLearningSociety.org, are dedicated to advancing knowledge in these areas.
Frequently Asked Questions (FAQs)
Here are 15 frequently asked questions about the CMA and the Microsoft-Activision Blizzard merger:
1. What is the CMA?
The Competition and Markets Authority (CMA) is a non-ministerial government department in the United Kingdom responsible for strengthening business competition and preventing and reducing anti-competitive activities.
2. Why did the CMA initially block the Microsoft-Activision Blizzard deal?
The CMA’s initial concerns centered on the potential for Microsoft to dominate the cloud gaming market, reducing innovation and limiting consumer choice.
3. How did Microsoft address the CMA’s concerns?
Microsoft restructured the deal by agreeing to sell the cloud streaming rights for Activision Blizzard’s games to Ubisoft.
4. What is cloud gaming?
Cloud gaming is a technology that allows games to be streamed over the internet to devices, eliminating the need for powerful local hardware.
5. Did the FTC approve the Microsoft-Activision Blizzard deal?
No, the FTC challenged the merger in the US, but a federal judge ruled against the FTC, allowing the deal to proceed.
6. What were the FTC’s concerns about the merger?
The FTC argued that the merger would harm competition in the console market by potentially making Activision Blizzard games exclusive to Xbox.
7. What happens to Activision Blizzard stock after the acquisition?
Activision Blizzard stockholders will receive $95 for each share of Activision they owned prior to the close.
8. When did the CMA approve the Microsoft-Activision Blizzard deal?
The CMA officially approved the merger on October 13th, 2023.
9. What is Ubisoft’s role in the restructured deal?
Ubisoft controls the cloud streaming rights for Activision Blizzard’s games outside the European Economic Area (EEA).
10. What are the potential benefits of the Microsoft-Activision Blizzard merger?
The merger could potentially spur innovation and investment in new technologies, such as cloud gaming.
11. What are the potential downsides of the Microsoft-Activision Blizzard merger?
The merger could lead to greater concentration in the gaming market, potentially reducing competition.
12. What is the CMA’s limitation?
The CMA can’t identify: Balanced chromosomal rearrangements (balanced translocations, inversions), Small changes in the sequence of single genes (point mutations), Tiny duplications and deletions of DNA segments within a single gene (Fragile X syndrome, for example), Uniparental disomy (UPD).
13. Can Microsoft ignore CMA ruling?
It is unlikely that Microsoft would ignore the CMA ruling, as the CMA has the power to apply heavy fines. However, this was at the time it was blocked, before the deal with Ubisoft.
14. What happens if Activision deal fails?
If the deal had failed, Microsoft would have had to pay Activision a break fee of $3 billion.
15. Does Microsoft need CMA approval?
Yes, previously the C.M.A. was the last regulator that needed to approve the deal before it could be finalized. Now, the approval is a major victory for Microsoft.