EC to probe Microsoft/Activision Blizzard deal
November 10, 2022
By Colin Mann
The European Commission has opened an in-depth investigation to assess the proposed acquisition of Activision Blizzard by Microsoft under the EU Merger Regulation. The Commission is concerned that the proposed acquisition may reduce competition in the markets for the distribution of console and PC video games and for PC operating systems. The deal is already under scrutiny by the UK’s Competition and Markets Authority.
Microsoft and Activision Blizzard are both developers and publishers of games for PCs, game consoles and mobile devices as well as distributors of games for PCs. In addition, Microsoft also distributes games for consoles, offers the Xbox gaming console and related services as well a wide range of products and services, including the PC operating system Windows and the cloud computing service Azure.
The Commission’s preliminary competition concerns
The Commission’s preliminary investigation shows that the transaction may significantly reduce competition on the markets for the distribution of console and PC video games, including multi-game subscription services and/or cloud game streaming services, and for PC operating systems.
In particular, the Commission is concerned that, by acquiring Activision Blizzard, Microsoft may foreclose access to Activision Blizzard’s console and PC video games, especially to high-profile and highly successful games (so-called ‘AAA’ games) such as Call of Duty.
The preliminary investigation suggests that Microsoft may have the ability, as well as a potential economic incentive, to engage in foreclosure strategies vis-à-vis Microsoft’s rival distributors of console video games, such as preventing these companies from distributing Activision Blizzard’s console video games on consoles or degrading the terms and conditions for their use of or access to these video games.
When it comes to multi-game subscription services and/or cloud game streaming services in particular, the Commission is concerned that, by acquiring Activision Blizzard, Microsoft may foreclose access, to the detriment of its rival distributors of console and PC video games that offer such services, to its own PC and console video games, which are key for the provision of the nascent services of multi-game subscription and cloud game streaming.
Such foreclosure strategies could reduce competition in the markets for the distribution of console and PC video games, leading to higher prices, lower quality and less innovation for console game distributors, which may in turn be passed on to consumers.
Finally, at this stage of the investigation, the Commission has concerns that the proposed acquisition may reduce competition on the market for PC operating systems. In particular, the Commission is concerned that Microsoft may reduce the ability of rival providers of PC operating systems to compete with Microsoft’s operating system Windows, by combining Activision Blizzard’s games and Microsoft’s distribution of games via cloud game streaming to Windows. This would discourage users to buy non-Windows PCs.
The preliminary investigation suggests that Microsoft may have the ability, as well as a potential economic incentive, to engage in such conduct vis-à-vis rival providers of PC operating systems.
The Commission will now carry out an in-depth investigation into the effects of the transaction to determine whether its initial competition concerns are confirmed.
The proposed transaction was notified to the Commission on September 30th 2022.
The Commission now has until March 23rd 2023 to take a decision. The opening of an in-depth inquiry does not prejudge the outcome of the investigation.
“Video games attract billions of users all over the world and are among the fastest growing forms of digital entertainment,” notes Margrethe Vestager, Executive Vice-President in charge on competition policy. “For years, Microsoft has been a major player across the gaming supply chain. It is acquiring Activision Blizzard, a highly successful producer of gaming content. We must ensure that opportunities remain for future and existing distributors of PC and console video games, as well as for rival suppliers of PC operating systems. The point is to ensure that the gaming ecosystem remains vibrant to the benefit of users in a sector that is evolving at a fast pace. Our in-depth investigation will assess how the deal affects the gaming supply chain.”