Microsoft deal for Activision might be dead thanks to UK's CMA - The UpStream

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Microsoft deal for Activision might be dead thanks to UK's CMA

posted Monday May 1, 2023 by Scott Ertz

Microsoft deal for Activision might be dead thanks to UK's CMA

It has been just over a year since Microsoft announced its intention to purchase gaming company, Activision Blizzard. The merged company would have brought a ton of games from Activision and Blizzard's catalog to the Game Pass subscription service, making it an even better deal for gamers. The companies even committed to keeping high-profile franchises on competitors' hardware. Despite all of this, the UK's Competition and Markets Authority (CMA) has decided to block the acquisition, but that doesn't mean this is the end.

Why does Microsoft want Activision Blizzard?

The company has a lot of big brands in its catalog - many of which are high movers. The most obvious property is Call of Duty, a franchise that essentially prints money for the publisher. The company has more than one studio working on the franchise so that they can continuously release new titles into the gaming world to continue to push the franchise forward.

But, outside of the money printer comes the Blizzard camp, with another collection of well-known names. The Warcraft franchise, currently championed by World of Warcraft, and Diablo, whose next installment, Diablo IV comes out soon, are big names in PC gaming. The Blizzard studio also oversees Overwatch and Hearthstone. Activision Blizzard also owns King, the mobile development powerhouse behind Candy Crush.

The commitments from Microsoft

The company has made a number of commitments to the industry in regard to current and future game releases. The most important one came in response to Sony's concerns about the possibility of Call of Duty becoming an Xbox exclusive. Microsoft committed to bringing new releases for the popular franchise to both Sony and Nintendo consoles. This is an important commitment, because Call of Duty is not currently available on the Nintendo Switch.

Unfortunately for Microsoft, that commitment came back to bite them in the CMA decision. According to the final report, the organization decided that the commitment wasn't possible because the Switch was not capable of running Call of Duty. The assessment, of course, is absolutely absurd, as Call of Duty: Black Ops was available for Wii, showing that Nintendo hardware is capable of running games in the franchise. Their expert analysis said,

Nintendo does not currently offer CoD, and we have seen no evidence to suggest that its consoles would be technically capable of running a version of CoD that is similar to those in Xbox and PlayStation in terms of quality of gameplay and content.

Additional CMA complaints

The organization didn't just complaint about the graphics powers of the Nintendo Switch. In addition, they pointed to two of Microsoft's big subscription services: Game Pass and Xbox Cloud Gaming (part of Game Pass). They specifically call out that the increase in games for the service from the Activision Blizzard acquisition would increase the cost of the Game Pass subscription. The report says,

Having Activision's content on Game Pass would represent a new option to pay for content that is already available on a buy-to-play basis on Xbox, and it would only represent better value than the status quo for some consumers (which, in any event, would only start to accrue some time after the Merger completes). Moreover, we expect Microsoft to have the incentive to increase the price of Game Pass commensurate with the value enhancement of adding Activision's valuable content to it, and we found that even a modest price increase would significantly reduce or eliminate any potential RCB (relevant customer benefits).

This idea comes from pure theory, as past acquisitions and partnerships did not end this way. The inclusion of Bethesda games did not raise the price. The introduction of EA Play to the subscription service did not raise the price. Even the creation of Xbox Cloud Gaming did not raise the price. So, the pitch is not based in historical information. So, what is the real complaint? Likely it's about the increased competition that Microsoft would pose to Sony and Nintendo. The report says,

We recognise that having Activision's content available on Game Pass is an attractive prospect to some customers and something that, based on the comments we received from the public during this investigation, seems to explain much of the support for this Merger by those in favour of it. On balance, we found that having this new option to pay for content that is already available on a buy-to-play basis on Xbox would not outweigh the overall harm to competition (and, ultimately, consumers) arising from this Merger in the sizeable and rapidly expanding market for cloud gaming services.

Sony has been the sales dominator in this generation of hardware. Part of this is because of the availability of consoles in the early days of the hardware, but the company hit a record milestone of 6.3 million PS5 consoles sold in the 4th quarter of 2022.

What's next?

Just because the CMA has ruled against Microsoft's merger goals, the process is not complete. There is a process for appealing the decision, which could bring the deal back to life. But, unlike the initial approval (or disapproval as the case may be), the appeals process can be quick and painful. The company has already sunk a lot of money into the merger, so walking away is unlikely. They really want this to enhance their brand offering to compete with Sony, and giving up does not seem to be in the cards.

The company has 4 weeks in order to file its appeal. That will go to a judge, where Microsoft must argue that the CMA has acted with appropriate discression and thought in its decision. Then, the court will have a couple of months to decide on the pitch, at which point the merger will either be dead on the table or will be able to continue moving forward. In the meantime, they will continue to work with any remaining global regulators on continuing the process, in the event the CMA decision is overturned.

So, while the process is not over, the outlook is not great. We will know relatively soon, however, what the future looks like.


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