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  Press release

Microsoft / Activision deal prevented to protect innovation and choice in
cloud gaming

  The CMA has prevented Microsoft’s proposed purchase of Activision over
  concerns the deal would alter the future of the fast-growing cloud
  gaming market, leading to reduced innovation and less choice for UK
  gamers over the years to come.

  From:
         [39]Competition and Markets Authority

  Published
         26 April 2023

  Close up of an iPhone, computer keyboard, mouse, headset and gaming
  controller
    * Microsoft’s solution had significant shortcomings and would require
      regulatory oversight by CMA
    * Panel Chair: “Cloud gaming needs a free, competitive market to
      drive innovation and choice”

  The final decision to prevent the deal comes after Microsoft’s proposed
  solution failed to effectively address the concerns in the cloud gaming
  sector, outlined in the Competition and Markets Authority’s (CMA)
  provisional findings published in February.

  Microsoft entered into a $68.7 billion deal to buy Activision, one of
  the most popular video games publishers in the world, in January 2022.
  The CMA launched an in-depth review of the deal in September 2022, and
  in February 2023 provisionally found that the merger could make
  Microsoft even stronger in cloud gaming, stifling competition in this
  growing market.

Cloud gaming concerns

  The UK cloud gaming market is growing fast. Monthly active users in the
  UK more than tripled from the start of 2021 to the end of 2022. It is
  forecast to be worth up to £11 billion globally and £1 billion in the
  UK by 2026. By way of comparison, sales of recorded music in the UK in
  2021 amounted to £1.1billion.

  Microsoft has a strong position in cloud gaming services and the
  evidence available to the CMA showed that Microsoft would find it
  commercially beneficial to make Activision’s games exclusive to its own
  cloud gaming service.

  Microsoft already accounts for an estimated 60-70% of global cloud
  gaming services and 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).

  The deal would reinforce Microsoft’s advantage in the market by giving
  it control over important gaming content such as Call of Duty,
  Overwatch, and World of Warcraft. The evidence available to the CMA
  indicates that, absent the merger, Activision would start providing
  games via cloud platforms in the foreseeable future.

  The cloud allows UK gamers to avoid buying expensive gaming consoles
  and PCs and gives them much more flexibility and choice as to how they
  play. Allowing Microsoft to take such a strong position in the cloud
  gaming market just as it begins to grow rapidly would risk undermining
  the innovation that is crucial to the development of these
  opportunities.

The remedy

  Microsoft submitted a proposal to address some of these concerns which
  the CMA examined in considerable depth. The proposed remedy set out
  requirements governing what games must be offered by Microsoft to what
  platforms and on what conditions over a ten-year period.

  Such remedies are described as ‘behavioural’ because they seek to
  regulate the behaviour of the businesses involved in a merger,
  requiring them to behave in a way which may be contrary to their
  commercial incentives. This therefore takes the form of a type of
  ongoing regulation of the sector, replacing market forces in a growing
  and dynamic market with mandated regulatory obligations ultimately
  overseen, and enforced by, the CMA – in this case at a global level.

  Microsoft’s proposal contained a number of significant shortcomings
  connected with the growing and fast-moving nature of cloud gaming
  services:
    * It did not sufficiently cover different cloud gaming service
      business models, including multigame subscription services.
    * It was not sufficiently open to providers who might wish to offer
      versions of games on PC operating systems other than Windows.
    * It would standardise the terms and conditions on which games are
      available, as opposed to them being determined by the dynamism and
      creativity of competition in the market, as would be expected in
      the absence of the merger.

  Given the remedy applies only to a defined set of Activision games,
  which can be streamed only in a defined set of cloud gaming services,
  provided they are purchased in a defined set of online stores, there
  are significant risks of disagreement and conflict between Microsoft
  and cloud gaming service providers, particularly over a ten-year period
  in a rapidly changing market.

  Accepting Microsoft’s remedy would inevitably require some degree of
  regulatory oversight by the CMA. By contrast, preventing the merger
  would effectively allow market forces to continue to operate and shape
  the development of cloud gaming without this regulatory intervention.

Considering the potential benefits of the merger

  The CMA carefully considered whether the benefit of having Activision’s
  content available on Game Pass outweighed the harm that the merger
  would cause to competition in cloud gaming in the UK. The CMA found
  that this new payment option, while beneficial to some customers, would
  not outweigh the overall harm to competition (and, ultimately, UK
  gamers) arising from this merger, particularly given the incentive for
  Microsoft to increase the cost of a Game Pass subscription post-merger
  to reflect the addition of Activision’s valuable games.

  Martin Coleman, chair of the independent panel of experts conducting
  this investigation, said:

    Gaming is the UK’s largest entertainment sector. Cloud gaming is
    growing fast with the potential to change gaming by altering the way
    games are played, freeing people from the need to rely on expensive
    consoles and gaming PCs and giving them more choice over how and
    where they play games. This means that it is vital that we protect
    competition in this emerging and exciting market.

    Microsoft already enjoys a powerful position and head start over
    other competitors in cloud gaming and this deal would strengthen
    that advantage giving it the ability to undermine new and innovative
    competitors.

    Microsoft engaged constructively with us to try to address these
    issues and we are grateful for that, but their proposals were not
    effective to remedy our concerns and would have replaced competition
    with ineffective regulation in a new and dynamic market.

    Cloud gaming needs a free, competitive market to drive innovation
    and choice. That is best achieved by allowing the current
    competitive dynamics in cloud gaming to continue to do their job.

Notes to editors

   1. For media enquiries, contact the CMA press office on 020 3738 6460
      or [40][email protected].
   2. Microsoft is a global technology company offering a wide range of
      products and services, with a global turnover of nearly £125
      billion the financial year 2021. Since 2001, it has sold various
      generations of Xbox gaming consoles. Gamers typically download
      digital copies of the games they want to play on Xbox from
      Microsoft’s Xbox Store. Microsoft also offers a multigame
      subscription service, Xbox Game Pass, where gamers pay a monthly
      fee to gain access to a library of games.
   3. Activision Blizzard is a game developer and publisher with global
      turnover of £6.3 billion in the financial year 2021, with over £700
      million of this in the UK. It develops popular gaming content for
      consoles, PC, and mobile, which includes titles such as Call of
      Duty, World of Warcraft, and Candy Crush.
   4. In an update to its provisional findings, the CMA said in March
      that it provisionally had no concerns about the impact of the deal
      on the console gaming market. This followed analysis which found
      that Microsoft would not have a financial incentive to make Call of
      Duty exclusive to Xbox. The CMA has today concluded that the deal
      may not be expected to result in a significant lessening of
      competition in console gaming services in the UK.
   5. For more information, visit the [41]Microsoft / Activision inquiry
      page.

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  Published 26 April 2023

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