Microsoft Buying Activision Blizzard Hits Its Toughest Roadblock Yet

Microsoft’s acquisition of Activision Blizzard hit its latest, and perhaps most serious, hurdle with the UK Competition & Markets Authority’s (CMA) stronger-than-expected opposition to the $69 billion Microsoft Activision deal. On top of concluding that Microsoft buying Activision Blizzard would substantially lessen competition, the CMA proposed Microsoft divest parts of Activision Blizzard.

Wednesday’s announcement confirmed that the CMA's major concerns line up with those of the FTC in the US and European authorities.

  • The primary worry is reduced competition in console gaming if franchises like Call of Duty (COD) are foreclosed (made Xbox exclusive).
    • The CMA takes a similar stance to the FTC in limiting the console market to only Xbox and PlayStation, excluding both the Switch and PC.
  • There's also fears of reduced competition in cloud gaming due to foreclosing franchises like World of Warcraft.
The bottom line is UK regulators do no trust that Microsoft will keep COD on other platforms, arguing the company would benefit financially from making it an Xbox and/or cloud gaming exclusive. Ultimately, the CMA argues “evidence consistently points towards Activision’s content, especially COD, as being important and capable of making a material difference to the competitiveness of rivals’ gaming platforms.” 
Between a Rock and a Hard Place
Where matters gets particularly serious for Microsoft buying Activision is in the UK's preference for structural remedies over behavioral ones, such as contracts. The CMA offered several options – ranging from very painful to complete deal breakers –for Microsoft to spin off parts of Activision Blizzard.
  • Option 1: Divest the business associated with Call of Duty.
    • Spinning off COD while keeping its developers may be the least appealing outcome for the Microsoft Activision marriage.
    • Microsoft would be left without COD’s income and dozen studios without projects.
  • Option 2: Divest the entire Activision segment of Activision Blizzard.
    • This would leave Microsoft without Activision Blizzard’s largest revenue generator.
    • Activision accounted for 44% of the company’s revenue in 2021.
  • Option 3: Divestiture of the Activision segment and the Blizzard segment.
    • Microsoft would be left with the mobile-focused King segment.
    • The loss of Blizzard would significantly limit future access to the Chinese market
The silver lining for Microsoft buying Activision is that these options are the starting point for negotiations, with the CMA remaining open to behavioral remedies. Additionally, the CMA paid little attention to the mobile-focused King – arguably the most valuable segment to Microsoft.
  • Mobile gaming at Activision Blizzard overtook both console gaming and PC revenue in 2021.
    • Mobile: $3.2 billion
    • Console: $2.6 billion
    • PC: $2.3 billion
And the Survey Says…
In contrast to the EU and FTC, the CMA’s argument hinges heavily on a polling from DJS Research. This figures to be one of the main points of contention between proponents and opponents of the deal.

Microsoft Buying Activision

Source: CMA

When asked what influenced their console purchase, availability of games was the most important reason, followed by wanting to play with friends or family who already own a PlayStation.
  • For those who bought based on game availability, COD was the most influential title (73%).
  • If COD had not been available on PlayStation, 15% would have bought another gaming device.
    • 53% would have bought the PlayStation still, while 16% would have bought the PlayStation and another device.
    • If buying another device, 30% would have chosen an Xbox and only 9% would have chosen a PC.
While the survey makes a strong case for COD’s importance in the console market, Microsoft does have ample ammunition to contest its validity.
  • The survey's limited sample (only COD players on PlayStation) and low response rate (4.4%) could be challenged.
  • The survey’s finding that the number of PS5 (63%) and PS4 (62%) owners are roughly equal – despite the PS5’s well documented supply challenges in recent years – raises questions of whether or not the survey’s sample is representative.
Back to the Bargaining Table
Microsoft has its work cut out between now and April 26, the deadline for the CMA to file its final report. If it wasn’t clear before, Activision Blizzard CEO Bobby Kotick’s recent attempt to pressure UK regulators into approving the Microsoft Activision deal suggests that they underestimated the opposition. Concluding the deal by its summer deadline is still possible, but it’s increasingly likely that Microsoft will be forced to make concessions if it wants to limp across the finish line with Activision Blizzard. 
Featured image courtesy of Activision Blizzard