Microsoft, Activision Blizzard have days to show merger won't harm competition

Brit watchdog says what we're all thinking, motions for deeper investigation

Following the launch of a merger inquiry into Microsoft's acquisition of video game developer and publisher Activision Blizzard in July, the UK's Competition and Markets Authority (CMA) said yesterday it had identified potential concerns about the tie-up.

Away from the world of Windows, Azure, and other more business-like products, Microsoft takes gaming just as seriously under the banner of its Xbox console and developer subsidiary Xbox Game Studios.

But recent studio acquisitions, particularly that of Bethesda owner Zenimax (home of hot properties like The Elder Scrolls series), have sent ripples across the industry – intensifying with Microsoft's plan to splash $68.7 billion on the famously toxic Activision Blizzard, which owns some of the highest grossing titles of all time including World of Warcraft and the Call of Duty series.

With Activision Blizzard independent of the home console companies, its properties appear across PC, Xbox, PlayStation, and Nintendo Switch. Yet there is rightful concern from gamers and industry alike that Microsoft's moves could result in these titles being withdrawn from competing systems.

There is also the technological powerhouse behind Microsoft that Sony and Nintendo simply do not have – domination of the desktop PC environment with Windows and one of the big three cloud computing infrastructures, Azure, under its belt.

Microsoft has already used this know-how to its advantage, rolling out the killer app of Xbox Game Pass, a games-as-a-service subscription, to both the Xbox and Windows, as well as Xbox Cloud Gaming, which enables users to play Xbox titles on their phone or outdated PC or console. While Sony has PlayStation Now, the strictly cloud-based service struggled to compete in terms of performance, eventually being subsumed by the PlayStation Plus subscription earlier this year.

Nintendo, on the other hand, is Nintendo. It tends not to concern itself with the movements of Microsoft and Sony, plying family-friendly games to great success, and keeps its IP under lock and key (no Mario on Xbox or PC, ever).

These factors have not been lost on the CMA. Sorcha O'Carroll, Senior Director of Mergers, said: "Following our Phase 1 investigation, we are concerned that Microsoft could use its control over popular games like Call of Duty and World of Warcraft post-merger to harm rivals, including recent and future rivals in multi-game subscription services and cloud gaming.

"If our current concerns are not addressed, we plan to explore this deal in an in-depth Phase 2 investigation to reach a decision that works in the interests of UK gamers and businesses."

Specifically, the CMA is concerned the merger could "harm rivals, including recent and future entrants into gaming, by refusing them access to Activision Blizzard games or providing access on much worse terms." It is also wary of "combining Activision Blizzard with Microsoft's broader ecosystem," as outlined above. For just one example, rolling World of Warcraft, which requires a monthly fee to play, into the Xbox Game Pass subscription could be an earth-shaking development considering the zeal of its hopelessly addicted player base. The mind boggles.

Microsoft and Activision Blizzard now have five working days to submit proposals to address the CMA's concerns. If these solutions are not satisfactory, the competition watchdog will move the investigation into Phase 2, where an independent panel will consider the deal in more depth, "evaluate whether it is more likely than not that a substantial lessening of competition will occur as a result of the merger," engage with third parties, and rifle through the merging companies' internal paperwork.

Microsoft President and Vice Chair Brad Smith told The Register via email: "We're ready to work with the CMA on next steps and address any of its concerns. Sony, as the industry leader, says it is worried about Call of Duty, but we've said we are committed to making the same game available on the same day on both Xbox and PlayStation. We want people to have more access to games, not less."

Likewise, a spokesperson highlighted a blog post published yesterday by Microsoft Gaming CEO Phil Spencer, where he emphasized the importance of choice, the development of smartphones as gaming systems, and repeated Smith's assertions.

"We will continue to engage with regulators with a spirit of transparency and openness as they review this acquisition. We respect and welcome the hard questions that are being asked," Smith wrote.

"The gaming industry today is robust and dynamic. Industry leaders, including Tencent and Sony, continue to expand their deep and extensive libraries of games as well as other entertainment brands and franchises, which are enjoyed by players everywhere. We believe that a thorough review will show that the combination of Microsoft and Activision Blizzard will benefit the industry and players."

It's interesting that he mentions Tencent and Sony, which this week took a 30 percent stake in Japan's FromSoftware, developer of 2022's biggest game, Elden Ring, as well as the cult Dark Souls series – perhaps in direct response to Microsoft's ever-encroaching tentacles.

Meanwhile, Diablo Immortal, Activision Blizzard's free-to-play, mobile-leaning iteration of the long-running action game, raked in more than $100 million through in-game purchases in a matter of weeks. ®

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