Microsoft Appeals CMA’s Block of Activision Blizzard Acquisition, Citing Errors in Assessment of Cloud Gaming Services

Microsoft's proposed acquisition of Activision Blizzard has been approved by China, adding to the clearance decisions from other jurisdictions such as the European Union and Japan, bringing the total to 37 countries representing more than two billion people.^[0] The acquisition, combined with Microsoft's recent commitments to the European Commission, will empower consumers worldwide to play more games on more devices.^[1] However, the UK's Competition & Markets Authority (CMA) and the FTC in the US have raised concerns about the acquisition, with the CMA blocking the $68.7 billion buyout of Activision Blizzard, citing concerns that it would stifle competition in the growing market for cloud gaming.

Microsoft has formally filed its appeal against the CMA's decision, and a summary of its arguments is now available for perusal. These outline five key grounds on which Microsoft challenges the decision, starting with its claim that the CMA made “fundamental errors in its assessment of [Microsoft's] current position in cloud gaming services by failing to take account of constraints from native gaming.”^[2] Microsoft also claims that the CMA made an “irrational and procedurally unfair” decision regarding Activision's availability on cloud gaming services without the merger, and that Microsoft “would have the ability and incentive to foreclose rival cloud gaming services by withholding access to Activision's gaming content” after the acquisition, which would be unlawful.^[3]

The CMA's decision came as a shock to Microsoft and Activision Blizzard, with the anti-trust organization's biggest concern pertaining to the cloud gaming market, not Call of Duty exclusivity.^[4] Expressing concerns about the deal, Sony feared that Microsoft could potentially prevent widely popular games such as Call of Duty from being playable on PlayStation, despite contractual obligations indicating otherwise.^[5] In key markets like the UK, Sony's actions had a noteworthy influence on the inquiry into the acquisition.^[6] The area where there is a difference between EU regulators and UK regulators is in the realm of cloud gaming.^[7] The UK observed that the deal would ultimately harm the cloud gaming industry by reducing competition from Microsoft.^[7] The remedies presented by Microsoft were viewed favorably by the EU.^[7] Microsoft has signed a decade-long free contract with several cloud gaming providers to allow their games to be streamed on their platforms, which is a plus in the EU regulator's eyes, as prior, there was no intention for Activision Blizzard to provide games for cloud gaming services.^[7]

European Union antitrust chief Margrethe Vestager discussed the reasons as to why the European Commission approved Microsoft's Activision Blizzard acquisition.^[8] She noted that the overall market share for Microsoft and Activision Blizzard was “generally low” in Europe compared to the rest of the world.^[9] According to Vestager, Sony holds a dominant position in the EU market for console sales by selling approximately four times more PlayStation units compared to Xbox consoles sold by Microsoft.^[9] With this context, the EU did not think the merger raised a vertical issue.^[10] Microsoft's remedies facilitated the approval of the deal, although Vestager acknowledged some areas of agreement with the CMA.^[7] For instance, it was noted that Microsoft wouldn't make Call of Duty an exclusive title for Microsoft console platforms.^[7] The impact on Microsoft's profits would be significant if this were to occur.^[7]

Gareth Mills, a partner at law firm Charles Russell Speechlys, said Microsoft's rhetoric shows the company is taking “an extremely robust approach” to the appeal.^[11] He added that the company is willing to use its “considerable resources to test the CMA's resolve.”^[12] The EU's approval of the Activision acquisition (albeit with conditions attached) may give both parties an opportunity to find a third way, although such would represent a considerable change in tone and attitude from those currently being expressed.^[13] Microsoft's appeal will require the company to present its case to the UK's Competition Appeal Tribunal, and its summary of arguments is now available for scrutiny.

0. “Microsoft news recap: China approves Activision Blizzard acquisition, iMessage can be accessed on Windows 11, and …” OnMSFT.com, 21 May. 2023, https://www.onmsft.com/news/microsoft-news-recap-china-approves-activision-blizzard-acquisition-imessage-can-be-accessed-on-windows-11-and-more

1. “Microsoft's Activision Blizzard deal approved in China” Esports Insider, 22 May. 2023, https://esportsinsider.com/2023/05/microsoft-activision-blizzard-china

2. “Microsoft reveals CMA appeal grounds and says UK regulator ‘overestimates the role of cloud streaming' | VGC” Video Games Chronicle, 26 May. 2023, https://www.videogameschronicle.com/news/microsoft-reveals-cma-appeal-grounds-and-says-uk-regulator-overestimates-the-role-of-cloud-streaming/

3. “Microsoft's Arguments Published for Appeal Against UK's CMA in Activision Blizzard Acquisition Case” TechRaptor, 26 May. 2023, https://techraptor.net/gaming/news/microsoft-arguments-appeal-against-uk-cma-activision-blizzard

4. “Microsoft Files Appeal Over Activision Blizzard Deal In The UK” GameSpot, 24 May. 2023, https://www.gamespot.com/articles/microsoft-files-appeal-over-activision-blizzard-deal-in-the-uk/1100-6514511/

5. “A CMA director, who blocked Microsoft's Xbox-Activision merger, previously worked for a Sony law firm (Update)” Windows Central, 25 May. 2023, https://www.windowscentral.com/gaming/xbox/the-cmas-senior-director-who-blocked-microsofts-xbox-activision-merger-previously-worked-for-a-sony-google-law-firm

6. “CMA Senior Director Used to Work for Law Firm Representing Sony” GameRant, 25 May. 2023, https://gamerant.com/cma-senior-director-law-firm-sony

7. “EU Regulator Explains Where They Disagreed With UK’s Microsoft ABK Block” Gameranx, 26 May. 2023, https://gameranx.com/updates/id/467120/article/eu-regulator-explains-where-they-disagreed-with-uks-microsoft-abk-block/

8. “Microsoft UK Veto Versus EU Nod Poses Questions, Vestager Says” Bloomberg, 25 May. 2023, https://www.bloomberg.com/news/articles/2023-05-25/microsoft-uk-veto-versus-eu-nod-poses-questions-vestager-says

9. “EU Boss Comments On Microsoft-Activision Deal And PlayStation Outselling Xbox 4:1” GameSpot, 26 May. 2023, https://www.gamespot.com/articles/eu-boss-comments-on-microsoft-activision-deal-and-playstation-outselling-xbox-41/1100-6514596/

10. “EU Antitrust Chief: Microsoft's Activision Blizzard Deal Has ‘Significant Procompetitive Effects' – News” VGChartz, 25 May. 2023, https://www.vgchartz.com/article/457312/eu-antitrust-chief-microsofts-activision-blizzard-deal-has-significant-procompetitive-effects/

11. “The esports report – China backs Microsoft and Activision Blizzard deal – Insider Sport” Insider Sport, 25 May. 2023, https://insidersport.com/2023/05/25/esports-report-microsoft-activision/

12. “Microsoft's appeal over Activision veto is ‘chance to find a third way'” TNW, 25 May. 2023, https://thenextweb.com/news/microsoft-appeal-against-uk-activision-blizzard-veto-chance-to-find-a-third-way

13. “Microsoft appeals against UK watchdog’s veto of Activision Blizzard takeover” The Guardian, 24 May. 2023, https://www.theguardian.com/technology/2023/may/24/microsoft-appeals-uk-watchdogs-veto-of-activision-blizzard-takeover