The Competition and Markets Authority (“CMA”) finally cleared Microsoft’s acquisition of Activision Blizzard inc. (“Activision”) last month following a restructured transaction proposal.  The clearance is subject to the concession that Activision’s global cloud gaming rights (excluding those in the EEA), covering existing games and games to be released in the next 15 years, will instead be sold to Ubisoft. 

The clearance has been a long time coming, with Microsoft first announcing its intention to purchase Activision in January 2022 in a deal worth around £55 billion. The proposed acquisition was subject to investigation in several jurisdictions including the United States as well as the European Union which had approved the transaction prior to the CMA clearance.  

It became a focus of mainstream media and was subject to widespread debate in the UK, following the CMA’s original decision to block the acquisition back in April 2023. At the time, Activision declared that the CMA’s decision demonstrated that the UK was “closed for business”. 

What is Cloud Gaming?

Cloud gaming allows games to be streamed directly from a remote server, rather than requiring the games to be downloaded onto a device or run using a physical copy. Increased internet speeds have improved the accessibility of cloud gaming, making it a fast-growing market. One of the key features of cloud gaming is that players can stream games without the expense of purchasing a specific device, making the market more accessible to consumers. 

The CMA highlighted the importance of cloud gaming as an emerging market, suggesting that monthly users had tripled from the beginning of 2021 to the end of 2022. 

Why was the CMA concerned? 

Prior to the proposed acquisition, it was estimated by the CMA that Microsoft already held 60-70% of the global cloud gaming services market. The proposed acquisition would have brought successful Activision titles such as Call of Duty, Overwatch and World of Warcraft, under Microsoft’s control.

The CMA’s report of April 2023 prohibiting the transaction stated that Activision’s titles would be an important offering on the cloud gaming market. However, the proposed merger would allow Microsoft to restrict access to Activision games, by making them available solely on Microsoft’s own cloud gaming platform. The CMA said the result of this would have been a reduction in competition in a new and developing market, which already has high barriers to entry for newcomers. 

Microsoft did offer a behavioural remedy to address the CMA’s concerns, consisting of an obligation that it would support cloud gaming service providers using certain business models for a 10-year period. However, the CMA found that:

• The scope of the remedy was limited to cloud gaming providers with specific business models.
• The remedy had a high risk of circumvention.
• It was difficult to monitor efficiently.

This proposed remedy was accepted by the European Commission as in its view the proposals adequately addressed the competition law concerns associated with the merger.

Microsoft also told the CMA, at a late stage in the investigation, that it had entered into agreements with Nintendo and three cloud gaming service providers to allow some Activision content to remain on their platforms after the merger. However, the CMA reported that the merger would decrease the incentive Activision would have had, absent the merger, to enter into such agreements. 

As a result, the merger was initially prohibited by the CMA, following its Phase 2 investigation.

Outcome 

In August 2023, the CMA announced that it would launch a new enquiry into a merger between the parties, following new proposals from Microsoft and Activision to address the CMA’s concerns. Principally, it was proposed that Activision would sell the rights to stream Activision games (outside the EEA) to Ubisoft for a term of 15 years. The CMA ultimately accepted these new proposals, and the deal was subsequently cleared on 13 October 2023, completing later that same day. 

The fact that the CMA eventually approved the deal, has led some commentators to suggest that companies with the necessary resources will be encouraged to push back against regulators’ decisions. 

In response to these suggestions, Sarah Cardell, chief executive of the CMA stated “We take our decisions free from political influence and we won’t be swayed by corporate lobbying…. the tactics employed by Microsoft are no way to engage with the CMA. Microsoft had the chance to restructure during our initial investigation but instead continued to insist on a package of measures that we told them simply wouldn’t work. Dragging out proceedings in this way only wastes time and money”. 

If you would like to discuss how the UK merger control rules could impact a potential transaction, please contact our specialist team. 

Written by Thomas Green and Emily Boyd-Nash