Goodbye to Call of Duty? The Frontlines of the War on Competition

In January 2022, Microsoft entered into a $68.7 billion acquisition of US video game publisher Activision Blizzard Inc (Activision). Activision is one of the biggest third-party game developers and publishers in the world, whose titles include Call of Duty (CoD), Overwatch, World of Warcraft (WoW) and Candy Crush. The transaction will be the largest video game acquisition in history if it goes ahead.

Microsoft is a big player on multiple levels:

• Its Xbox console is the rival console to Sony’s PlayStation.
• Windows is the leading operating system for PC games.
• Microsoft also owns a fast-growing cloud gaming service (as an alternative for those gamers who wish to purchase something other than an expensive gaming console or PC).

Microsoft accounts for an estimated 60-70% of global cloud gaming services and has global cloud computing infrastructure via Azure and Xbox Cloud Gaming.

In September 2022, the CMA and other competition authorities in the EU and US began an in-depth investigation into the proposed deal with Activision to assess its risk to competition. 

As part of this investigation, alongside site visits, analysis of internal documents and other evidence gathered from game publishers and developers and cloud service providers, the CMA polled a sample of 40,000 gamers who play CoD on PlayStation to get a sense of how important the game is to them and what they might do if the game became partially or totally exclusive to Xbox following the merger. 

In February 2023, the CMA stated that it considers the takeover could substantially cut competition in the UK market for both console gaming and cloud gaming services, resulting in “higher prices, fewer choices or less innovation for UK gamers”. 

The CMA considers that the merger could make Microsoft even stronger in cloud gaming, which could stifle competition in a growing market and harm UK gamers who cannot afford expensive consoles – as lower-income players particularly use cloud gaming services.

The CMA has powers to investigate activities which may breach competition law, impose legally binding remedies, issue fines for non-compliance, and disqualify directors.

Other than blocking the Microsoft merger with Activision, the CMA has suggested three structural remedies, none of which are likely to be attractive to Microsoft, which involve: 

1. selling the particular business associated with CoD; 
2. divesting Activision Publishing (the group company that owns CoD); or 
3. divesting Activision Publishing and Blizzard Entertainment (the group company that owns Warcraft).  

Alternatively, and more attractively from Microsoft’s view, are behavioural remedies, which typically aim to regulate the future conduct of the merged company (such as via licensing agreements with other game providers), which may alleviate some of the competition concerns or their adverse effects.

However, behavioural remedies are only used where the divestitures set out above are not feasible, or the behavioural measures will preserve substantial relevant customer benefits, which would be removed by the structural remedies (and the CMA does not believe this to be the case). 

If you need any advice regarding mergers, you can get in touch with our Merger & Acuisition Solicitors.

With the CMA’s biggest concern being games becoming console-exclusive, perhaps Microsoft’s promises and steps to licence CoD to its rivals will satisfy the regulator. For many gamers, these promises may be welcome news.

Sony acquired Bungie (the creators of sci-fi games Halo and Destiny) in mid-2022 in a $3.6 billion acquisition, and Bungie’s games remained available on a cross-platform basis, and now with Activision’s CoD and Warcraft looking to remain cross-platform, the deal may herald a new era where, despite a major console manufacturer purchasing a big game publisher, those games do not become console-exclusive.