There are still a few more scenes to play out in the tangled regulatory saga of Microsoft’s attempt to buy the Call of Duty creator, Activision Blizzard, for $69bn (£53bn) but, for the first time in months, one can probably say this: the deal is more likely to proceed than not.
Look at what’s happened since the UK regulator, the Competition and Markets Authority, said no in April. First, the European Commission rolled over when it accepted Microsoft’s proposed remedies and cleared the transaction. Then the Federal Trade Commission in the US, which was minded to fight the deal, was blocked in court last week from gaining an injunction to halt it. Now Sony, the main corporate opponent of the transaction, appears to have concluded that continued resistance is futile: it has agreed a licensing deal with Microsoft covering Call of Duty.
So where does that leave the plucky CMA? Well, for starters, it looks less robust in its opposition. After last week’s news from the US courts, it said it would be prepared to look at new and unspecified “modifications” to the deal recently proposed by Microsoft. It sounded suspiciously like the start of a retreat.
Except it’s not quite that simple. A modification has to be different in character from Microsoft’s original proposed remedy that the CMA has already considered and rejected – the remedy being an offer to license Activision games royalty-free to certain cloud gaming providers for 10 years.
In the view of many experts, then, Microsoft would have to produce something akin to a carve-out of the UK business, or at least the cloud-based part of it (the CMA is more relaxed about traditional console-based platforms). In essence, the UK marketing rights to the games would be sold to a third party; Bloomberg suggested telecoms companies or even a private equity-backed company might want to buy those rights.
There’s no guarantee that the CMA would accept a UK carve-out, of course. But, assuming it did, one has to wonder if such a regulatory victory would be pyrrhic. On one hand, the CMA would be able to claim that it had forced Microsoft to go further than its inadequate first remedies. On the other, the UK gaming market might quickly come to be seen from overseas as an oddball place where different rules apply, which doesn’t sound great from the point of view of attracting inward investment into an industry where the UK has traditionally done well.
The shame is that the CMA’s objections back in April sounded principled and coherent. The takeover of a big content company (Activision) by a big platform provider (Microsoft) would be a major event, and the specific concern was that it would happen just as the market was transitioning from consoles to cloud-based streaming. The CMA wanted to allow competition to flourish freely in cloud-based services during the development stage. That was one reason it wasn’t impressed with time-limited behavioural remedies – they require constant policing by regulators and can work against innovation and dynamism. The argument had a certain pro-competition purity about it.
It is a hard argument to sustain in isolation, however. If the US has been thwarted from adopting a similarly robust stance, the danger for the CMA is that its virtuous approach ends up making the UK games market an international outlier, to no domestic benefit. To repeat, there are more laps of the regulatory track to complete, so it’s still possible that the CMA will find an elegant solution. It is hard to see what it could be, though.
