CMA Blocks Microsoft's Acquisition Of Activision Blizzard; 'Game Over' For Behavioral Remedies?

• Jurisdiction: European Union
• Law Firm: McDermott Will & Emery
• Subject Matter: Corporate/Commercial Law, Antitrust/Competition Law, Media, Telecoms, IT, Entertainment, M&A/Private Equity, Antitrust, EU Competition , Gaming
• Author: Stéphane Dionnet and Max Küttner
• Published date: 11 May 2023

On April 26, 2023, the Competition and Markets Authority (CMA) blocked what would otherwise have been the largest deal in the gaming industry to date. The decision highlights several important trends, such as:

• In dynamic markets, regulators are focusing in on whether a deal harms or could harm future competition (i.e. innovation based on predications raising significant uncertainties). The CMA speculated that the deal would "alter the future of the fast-growing cloud gaming market" and preferred to maintain the status quo with the block.
• Regulators are focusing more and more on non-horizontal relationships and supply chain issues, particularly if one party is vertically integrated. Whereas in the past, concerns could often be remedied via behavioral commitments, more and more deals with a vertical component are now being outright prohibited.
• While the industry expects the European Commission (Commission) to accept the behavioral remedy (license package) offered by Microsoft, this case shows once again that the CMA and the Commission can reach different conclusions when reviewing the same transaction.

In Depth

BACKGROUND

Gaming is the United Kingdom's largest entertainment sector in terms of revenue. In early 2022, Microsoft announced its plans to acquire Activision Blizzard (Activision) for nearly $69 billion, making it the biggest deal ever in the gaming industry.

While Microsoft is best known for its Windows operating system (OS), it is also active in gaming through its Xbox console and 24 game development studios, several of which it acquired in recent years. Through the Xbox console, Microsoft competes most closely with Sony's PlayStation and to a lesser degree with Nintendo's Switch.

Importantly, with Xbox Cloud Gaming and Azure, Microsoft also has a global cloud computing infrastructure.

Cloud gaming is a relatively new alternative to consoles and PCs. Whereas the more traditional methods of gaming require users to download and run games locally on their devices, cloud gaming services dispense with the need for powerful (and often expensive) hardware. These games run on remote servers and can be streamed directly to any device with a stable high-speed internet connection and a display (e.g., a smart TV).

Activision, on the other hand, has no cloud gaming infrastructure. Rather, it is a leading video games publisher whose most popular titles include Call of Duty, World of Warcraft and Candy Crush. These games run on PCs and consoles, as well as on...