The UK regulator has published its provisional findings claiming that the merger could reduce competition in the console and cloud gaming markets which will lead to "higher prices, reduced range, lower quality, worse service, and/or reduced innovation."
The UK's Competition and Markets Authority has unveiled its provisional findings regarding its investigation into Microsoft's proposed acquisition of Activision Blizzard stating that it believes the merger could reduce competition in the console and cloud gaming markets.
The CMA claims that Microsoft would benefit commercially from either making Call of Duty exclusive to Xbox or offering it on Xbox at significantly better terms than on PlayStation. According to the regulator, this would greatly diminish competition in the gaming console market as it would result in "higher prices, reduced range, lower quality, worse service, and/or reduced innovation."
In addition, the CMA is concerned that the deal could curb competition in the cloud market as well. The regulator stated that Activision's games, including Call of Duty and other PC titles such as World of Warcraft, will be crucial for the competitiveness of cloud gaming services as the market continues to evolve. The CMA alleged that after the merger, Microsoft could make Activision's games exclusive to its own cloud gaming service or make them available on its cloud gaming platform on better terms.
According to the regulator, Microsoft already has a strong presence in this market "through its ownership of Xbox, a global cloud computing service, and the leading PC operating system," which is why it is concerned that even a "moderate" increase in its power could greatly decrease competition in the cloud gaming market hurting current and future users of cloud gaming platforms.
The CMA has invited Microsoft and other interested parties to respond to its findings by March 1, 2023. The regulator states that it is willing to explore potential solutions and prefers "structural remedies", such as divestiture of a part of Activision’s business. However, it will also consider "behavioral commitments", such as a proposed licensing agreement with companies like the one Microsoft offered Sony.
Microsoft has already proposed an offer regarding Call of Duty to Sony, Steam, and Nintendo, and the CMA stated that it will take this into consideration.
Responding to the CMA's provisional report, Microsoft issued a statement stating that it would provide "100% equal access to Call of Duty" across all major platforms.
"Our commitment to grant long term 100% equal access to Call of Duty to Sony, Nintendo, Steam and others preserves the deal’s benefits to gamers and developers and increases competition in the market. 75% of respondents to the CMA‘s public consultation agree that this deal is good for competition in UK gaming," Microsoft's corporate VP and deputy general counsel Rima Alaily said.
She added: "When we say equal, we mean equal. 10 years of parity. On content. On pricing. On features. On quality. On playability."
Activision Blizzard stated that the CMA's provisional findings just outline the regulator's concerns in writing and give both parties an opportunity to respond which means that the companies have time before April to "help the CMA better understand our industry."
"We hope between now and April we will be able to help the CMA better understand our industry to ensure they can achieve their stated mandate to promote an environment where people can be confident they are getting great choices and fair deals, where competitive, fair-dealing business can innovate and thrive, and where the whole UK economy can grow productively and sustainably," the company stated.
As reported by GamesIndustry.biz, in an email to staff Activision Blizzard CEO Bobby Kotick added that when the two companies merge, they will "bring more competition to an already crowded field of world-class gaming competitors."
"We believe this merger gives us additional resources to compete with such giants. When you combine Activision Blizzard’s iconic franchises and mobile expertise with Microsoft’s history of innovation and Xbox’s creative culture and distribution capabilities, we all gain an even brighter future for gaming," Kotick wrote.
Earlier, in the interview with CNBC, the Activision Blizzard head criticized regulators, including the CMA, FTC, and European Commission, saying that they "don't know" the game industry claiming that they don't realize that it's the Japanese and Chinese companies, including Tencent, ByteDance, Sony, and Nintendo, that "dominate the industry".
"We've struggled to enter the Japanese market, we can't enter the Chinese market without a joint venture partner, and so the competition actually isn't European companies, American companies, it's really those companies in Japan and China," Kotick said.
He also spoke about the UK game market noting that the UK is "not going to be Silicon Valley" but will be "Death Valley" instead if the CMA doesn't approve Microsoft's acquisition of Activision Blizzard.
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