Microsoft’s proposed purchase of Activision, one of the largest video game publishers, has been prevented by the UK Competition and Markets Authority (CMA) over concerns that the merger would limit competition in the cloud gaming market, potentially reducing innovation and limiting choice for UK gamers. The CMA launched an in-depth review of the deal in September 2022, and in February 2023, provisionally found that the merger could reinforce Microsoft’s dominance in the growing cloud gaming market. Microsoft already accounts for an estimated 60-70% of global cloud gaming services, and owning Activision’s games would give it even more control over crucial gaming content such as Call of Duty, Overwatch, and World of Warcraft. In this article, we will delve into the details of the CMA’s decision and why it was necessary to prevent this merger.
Cloud gaming market growth and Microsoft’s position
The UK cloud gaming market has grown tremendously, with monthly active users in the country more than tripling from the start of 2021 to the end of 2022. It is expected to be worth up to £11 billion globally and £1 billion in the UK by 2026. With this in mind, the CMA has deemed it necessary to protect competition in this emerging and exciting market. Microsoft has a strong position in cloud gaming services and owning Activision’s games would make Microsoft even stronger in this market, potentially stifling competition.
Microsoft already accounts for an estimated 60-70% of global cloud gaming services, and owning Activision’s games would give it even more control over crucial gaming content such as Call of Duty, Overwatch, and World of Warcraft. The CMA’s findings suggest that, absent the merger, Activision would start providing games via cloud platforms in the foreseeable future.
Microsoft’s remedy proposal and the CMA’s response
To address the CMA’s concerns, Microsoft submitted a proposal to regulate what games must be offered by Microsoft to what platforms and on what conditions over a ten-year period. However, the CMA found that Microsoft’s proposal had significant shortcomings, including not covering different cloud gaming service business models, not being open to providers who might wish to offer versions of games on PC operating systems other than Windows, and standardizing the terms and conditions on which games are available, which should be determined by the dynamism and creativity of competition in the market.
Furthermore, given the remedy applies only to a defined set of Activision games, which can be streamed only in a defined set of cloud gaming services, provided they are purchased in a defined set of online stores, there are significant risks of disagreement and conflict between Microsoft and cloud gaming service providers, particularly over a ten-year period in a rapidly changing market. The CMA concluded that accepting Microsoft’s remedy would inevitably require some degree of regulatory oversight by the CMA.
Preventing the merger would allow market forces to continue to operate and shape the development of cloud gaming without regulatory intervention. The CMA carefully considered whether the benefit of having Activision’s content available on Game Pass outweighed the harm that the merger would cause to competition in cloud gaming in the UK. The CMA found that this new payment option, while beneficial to some customers, would not outweigh the overall harm to competition (and, ultimately, UK gamers) arising from this merger, particularly given the incentive for Microsoft to increase the cost of a Game Pass subscription post-merger to reflect the addition of Activision’s valuable games.
The importance of protecting innovation and choice in cloud gaming
Gaming is the UK’s largest entertainment sector, and cloud gaming is growing fast with the potential to change gaming by altering the way games are played. Cloud gaming frees people from the need to rely on expensive consoles and gaming PCs, giving them more choice over how and where they play