The UK’s Competition and Markets Authority (CMA) announced on Friday that the new Microsoft/Activision deal addresses previous CMA concerns surrounding cloud gaming.
Under the restructured deal, Microsoft pledged it would not acquire cloud rights for existing Activision PC and console games, or for new games released by Activision during the next 15 years.
Instead, these rights would be divested to Ubisoft Entertainment SA (Ubisoft) prior to Microsoft’s acquisition of Activision.
The CMA announced last month it would study Microsoft’s proposal in a stage one investigation, and now the British competition regulator has concluded the concession will allay its cloud computing concerns.
The CMA had been the world’s last remaining competition regulator (other than the US) opposing the deal, when in April it officially blocked the acquisition, citing potential harm to the nascent market for cloud gaming.
And now it seems that Microsoft’s concession has done the trick.
“While the CMA has identified limited residual concerns with the new deal, Microsoft has put forward remedies which the CMA has provisionally concluded should address these issues,” the CMA confirmed. “The CMA is now consulting on the remedies before making a final decision.”
It said that in contrast to the original deal, Microsoft will no longer control cloud gaming rights for Activision’s content, so it would not be in a position to limit access to Activision’s key content to its own cloud gaming service or to withhold those games from rivals.
The CMA said that it considers that the restructured deal makes important changes, but that while the restructured deal is materially different to the previous transaction, the CMA has limited residual concerns that certain provisions in the sale of Activision’s cloud streaming rights to Ubisoft could be circumvented, terminated, or not enforced.
To address these concerns, Microsoft has offered remedies to ensure that the terms of the sale of Activision’s rights to Ubisoft are enforceable by the CMA. The CMA has provisionally concluded that this additional protection should resolve those residual concerns.
The CMA has now opened a consultation, until 6 October, on Microsoft’s proposed remedies.
“This is a new and substantially different deal, which keeps the cloud distribution of these important games in the hands of a strong independent supplier, Ubisoft, rather than under the control of Microsoft,” noted Colin Raftery, senior director of mergers and Phase 1 decision maker.
“With additional protections to make sure that the deal is properly implemented, this will maintain the structure of the market, enabling open competition to continue to shape the development of cloud gaming in the years to come, and giving UK gamers the opportunity to access Activision’s games in many different ways, including through cloud-based multigame subscription services,” said Raftery.
“The CMA’s position has been consistent throughout – this merger could only go ahead if competition, innovation, and choice in cloud gaming was preserved,” added Sarah Cardell, CEO of the CMA. “In response to our original prohibition, Microsoft has now substantially restructured the deal, taking the necessary steps to address our original concerns.”
Sarah Cardell, chief executive of the Competition and Markets Authority. Image credit CMA
“It would have been far better, though, if Microsoft had put forward this restructure during our original investigation,” said Cardell. “This case illustrates the costs, uncertainty and delay that parties can incur if a credible and effective remedy option exists but is not put on the table at the right time.”
Bruising saga
Gareth Mills, partner at law firm Charles Russell Speechlys noted that the acceptance of similar, although not identical, remedies by the EU competition authority after the CMA had initially blocked the Activision deal had already put the CMA in an invidious position.
“The accusation that the CMA was “anti-business” made by Microsoft’s senior management at the time of the rejection of the initial proposed merger was undoubtedly, and almost certainly intentionally, politically incendiary and following the FTC’s failure to block the merger in the US in federal court, the CMA’s appetite for a protracted argument before the Competition Appeals Tribunal was clearly dimmed,” said Mills.
“The remedies offered by Microsoft allows the CMA to plausibly justify their original rejection whilst at the same time allowing Microsoft to complete a deal that allows them to take a significant stake in an exciting and growing market,” said Mills.
“The CMA’s announcement does raise some residual concerns on the consumer protection side but it now seems that subject to a total volte face by either party, that both sides can put this bruising and protracted saga behind them following the phase 2 consultation process being completed,” Mills concluded.
Desired outcome
Meanwhile Alex Haffner, specialist competition lawyer and partner at UK law firm Fladgate, said that assuming that is the end result, both sides will (publicly at least) feel that they have achieved the desired outcome.
“Microsoft by removing the last major impediment to completing this important deal and the CMA in securing sufficient concessions from the parties to demonstrate that its concerns about any negative impact on competition and consumers have been met,” said Haffner.
“Nonetheless, once the dust settles on what has been a tumultuous investigatory process there will be important lessons to be learned by all concerned and the ongoing spotlight on the way that competition regulators such as the CMA deal with “Big Tech” will continue to attract significant attention,” said Haffner.
“Microsoft had already set out, in the terms of a ‘new deal’ put before the regulator that it was willing to sell important rights to sell cloud gaming versions of Activision gaming titles to Ubisoft,” said Haffner.
“In its announcement today, the CMA has effectively endorsed that concession as being sufficient to mitigate the competition concerns which the CMA had previously raised as being an insurmountable barrier to the transaction getting UK regulatory clearance (under the terms of the original deal put forward by the merging parties),” said Haffner.
“In practical terms, it has given interested parties two weeks to comment on the remedies proposed before reaching a final decision, but it now seems inevitable that the deal with receive full and final clearance,” Haffner concluded.