Far from over: Gaming mega deal keeps regulators busy

At the beginning of the year, we blogged about the video-gaming industry and outlined some of the reasons why it might face more scrutiny from antitrust regulators in the future. The obvious trigger for our post was Microsoft’s announcement to acquire Activision Blizzard in a mega $69 billion deal. Although the antitrust proceedings worldwide seem to be far from over, it is worth to share some key observations which can already be drawn from public announcements and press reports thus far, and which might have an impact on the broader antitrust landscape.

When Microsoft announced its intention to acquire Activision Blizzard in January this year, many observers quickly pointed out the antirust hurdles the deal would face in key jurisdictions. Whilst the deal size and the merging parties being tech companies alone put the deal in the antitrust spotlight, it was already speculated back then that the key concern could be that Microsoft might make Activision’s games (in particular bestseller Call of Duty) exclusive to its Xbox platform – especially to the detriment of key competitor Sony with its PlayStation console.

Where things stand

These concerns were not shared by every regulator dealing with the case. Not only Saudi Arabia and Serbia, normally not known for being at the forefront in terms of timing, but also the Brazilian regulator had no concerns and unconditionally gave its green light back in October.

In its report, the Brazilian regulator mainly emphasized that Activision’s games are not essential for competitors in the Brazilian markets for game consoles and digital distribution as they are not as popular as in other jurisdictions. So, Brazilian customers would still buy consoles from Microsoft’s competitors even without Activision’s gaming portfolio.

On the other hand, the British CMA and the European Commission initiated in-depth phase 2 reviews and expressed their preliminary concerns and only yesterday, the US FTC announced that it will sue to block the deal:

  • Different from Brazil, the three regulators stressed potential foreclosure effects with regard to key games being potentially not available on competing consoles post-merger. The FTC most prominently emphasized that Microsoft has shown in the past that it “can and will withhold content from its gaming rivals”, pointing to previous acquisitions where Microsoft had decided to make certain titles exclusive despite assurances it had given before.
  • The EC also pointed out, to the surprise of many, that the acquisition could have a negative effect on the market for PC operating systems. The EC argued that by combining Activision’s games and Microsoft’s distribution of games via cloud game streaming to Windows, customers could be discouraged to buy non-Windows PCs. 
  • On a different note, the CMA argued that the merger could have a negative impact on the market for cloud gaming services which has seen several new market entrants. The CMA feared that the merger could put Microsoft in a uniquely strong position to offer cloud gaming services together with one of the industry’s strongest gaming catalogues, which in turn could result in the market tipping in favour of Microsoft – and deny consumers the benefits of competition between new and emerging providers.

Not giving up

From the outset, it seems like Microsoft is following a twofold strategy:

For one and unsurprisingly, Microsoft is working on a remedy package to address the concerns raised by regulators. Confirmed by Microsoft president Brad Smith (see e.g. here), Microsoft offered Sony a 10-year contract to make each new release of Call of Duty available on the PlayStation at the same time as on its Xbox. Reading Sony’s submission to the CMA and statements of Microsoft, it seems as if Sony is not satisfied. This is different from Nintendo, which has agreed to a 10-year commitment from Microsoft to bring, for the very first time, Call of Duty to Nintendo’s consoles, conditional on closing the deal. Even though Sony is sceptical, the offers could nonetheless have an impact on the regulatory proceedings.

On top of that, Microsoft seems to have heavily invested in its public affairs strategy. It has, inter alia, created a dedicated website emphasizing the benefits of the transaction for players, creators, and the gaming industry as a whole (a popular approach in controversial tech cases lately). Opinions, press reports and statements of Microsoft officials supporting the transaction can be found there.

Next level?

The case obviously has its very own peculiarities, and all stakeholders seem to be heavily involved in the regulatory proceedings. How the different proceedings will ultimately turn out seems more open than ever. In any event, the case already seems to be a good fit for our series “A history of challenging big tech”.  

On a more general note, the transaction shows that vertical mergers have become more of a focus point for regulators worldwide, also considering how market players could leverage their overall ecosystem. In addition, especially the CMA and FTC statements indicate that these regulators look more closely at the indirect effects and the danger of tipping in digital markets.

Photo by Nick Night on Unsplash