The UK watchdog bloc had an eye on the future of the Microsoft-Activision deal

The UK’s competition regulator rarely decides to make waves around the world.

The Competition and Markets Authority (CMA) has traditionally not been as significant a force in preventing corporate action as the European Commission or the US Federal Trade Commission.

So the CMA’s decision to block Microsoft’s $75bn takeover of games publisher Activision Blizzard one of the most far-reaching decisions he has made in recent years.

It is also huge for a sector – video gaming – that is more important to the UK and the global economy than is widely realised.

This was the biggest acquisition in Microsoft‘s history – and the CMA’s intervention could still scupper the market.

It sent Activision shares down more than 11% in pre-market trading.

The decision is surprising for a few reasons. The first is that the CMA did not block the decision because of competition concerns in the supply of games consoles.

This was particularly important in the UK. In other parts of the world, especially in the United States, it is quite common to play games on large personal computers.

In contrast, the UK is not a nation of PC gamers but one of console gamers. This shows that housing in the UK is generally smaller than in the US so British gamers are more likely to play on consoles that can easily fit under a TV set and take up less space.

So consoles like Microsoft’s Xbox and Sony’s PlayStation are a more important factor in the UK gaming market than in the US market.

The concern was that Microsoft would have enough scope to hurt PlayStation sales if it only made Xbox-exclusive games armed with Activision’s big money-spinning titles, notably Call of Duty, World of Warcraft and Overwatch.

It was seen as particularly significant by the CMA given the fact that more gamers in the UK own a PlayStation 5 than an Xbox series X or its cheaper sister product, the Xbox S series.

But the CMA said last month that it was tentatively concluded that the merger would not result in a significant reduction in competition in console gaming services “because the cost to Microsoft of withholding Call of Duty from Playstation would outweigh any gains associated with such an action”.

Accordingly, given that this was the main area where the CMA was expected to have competition concerns, it is surprising that the regulator decided to block the takeover.

The other big surprise is that the basis on which the CMA is trying to block the proposed deal is that it would reduce competition in the cloud gaming sector.

This is because the cloud is currently a relatively small part of how video games are played.

But it’s already an area where Microsoft leads Sony and that could be a concern for the CMA – especially given Microsoft’s wider dominance in cloud services (another market the CMA is separately investigating) and given the work that Microsoft is doing. to deliver many of the services available through Gamepass, its subscription service, through the cloud.

It is clear that the CMA has made this decision with an eye on the future.

The CMA’s intervention may not be enough to kill that deal.

Maybe Microsoft and Activision will find a way to offer solutions to satisfy it, but it would probably be too complicated for Microsoft and Activision to unpick it in a way that left the UK excluded from a link due to the size and complexity of the global gambling market. up in other parts of the world.

But there are also barriers to competition elsewhere, particularly in the United States, where the FTC has said it will sue to block the deal.

And, in other jurisdictions, console competition concerns may be a factor. Microsoft has insisted worldwide that it has no intention of making Activision games exclusive to Xbox, Gamepass and PCs.

But other observers may choose to consider an interview given last month by Harvey Smith, director of a game called Redfall, which is published by Bethesda Softworks, a company bought by Microsoft in 2021. The pandemic has affected the development of Redfall, during. a, Microsoft bought Bethesda.

Mr Smith told US video game and entertainment website IGN that Redfall was originally to be released on all platforms but there was a “huge change” when Microsoft bought Bethesda.

He told IGN that while work had begun to make a PlayStation version of Redfall, Microsoft canceled that work to make it an Xbox exclusive.

He said: “Microsoft got us and it was a capital C change. They came in and said, ‘No PlayStation 5, we’re focusing on Xbox, PC and Game Pass’.”

That interview has already been communicated by Sony in some of its representations to the watchers of the competition.

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A key point to remember is that Microsoft is doing well enough – last night’s quarterly results showed business firing on all cylinders – that it wouldn’t need Activision.

That may not be true of the latter who, shortly before the takeover was announced, was under pressure from allegations of sexual assault and abuse of women in the company in recent years.

Perhaps that explains Activision chief executive Bobby Kotick’s calm response to today’s decision. Mr Kotick, who stands to make millions from the sale of the company, has previously accused the CMA of being “co-opted by FTC ideology”.

However, he was careful to praise Rishi Sunak, telling the Financial Times in February this year that the PM was “smart” and understands business, adding: “If I look at our hiring plans, it’s more we are more likely to get the 3,000 to 5,000 more people we need in the UK than almost any other country.”

That was in stark contrast to his assertion today that “the UK is clearly closed for business”.

Some will not dismiss that as a disappointed man.

Others will view it as a threat.

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