Microsoft Activision deal: Why is CMA reopening an investigation?

The UK’s Competition & Markets Authority (CMA) has opened an investigation into a new, restructured deal by Microsoft (MSFT) to buy Activision Blizzard (ATVI).

It comes after the CMA said the original $69bn (£54bn) deal would be blocked to protect innovation and choice in cloud gaming.

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However, under the new deal proposed, Microsoft will no longer buy the rights to Activision’s games stored in the cloud.

Instead, Activision’s games, such as Candy Crush and Call of Duty, will be sold to games publisher Ubisoft (UBI.PA) who will supply the content to Microsoft and its competitors.

That means Microsoft won’t be able to release Activision Blizzard’s games exclusively on its own cloud streaming service, Xbox Cloud Gaming, opening up this offering to the wider market.

The CMA said the new investigation will be carried out in line with its “usual Phase 1 processes” and the statutory deadline for a decision is 18 October 2023.

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“Under the restructured deal, Microsoft will not acquire cloud rights for existing Activision PC and console games, or for new games released by Activision during the next 15 years (this excludes the European Economic Area). Instead, these rights will be divested to Ubisoft Entertainment SA (Ubisoft) prior to Microsoft’s acquisition of Activision,” the CMA said.

CMA says investigation “not a green light”

Sarah Cardell, chief executive of the CMA, said that although the new deal is being considered under an investigation, it is not a green light.

“We will carefully and objectively assess the details of the restructured deal and its impact on competition, including in light of third-party comments. Our goal has not changed — any future decision on this new deal will ensure that the growing cloud gaming market continues to benefit from open and effective competition driving innovation and choice,” she said.

Brad Smith, Microsoft's vice chair and president, said: “Since our initial announcement with Activision Blizzard in January last year, we have endeavoured to earn regulatory approval for the transaction, addressing concerns when raised, including by entering into binding legal commitments to bring Call of Duty to rival consoles and Activision Blizzard games to rival cloud streaming platforms.

“As a result, the transaction now is in a position to move forward in more than 40 countries.”

Victoria Scholar, head of investment at Interactive Investor, said the move by Microsoft could allow it to cross the line this time.

“The deal has divided regulators globally, with Microsoft winning the antitrust green light in the EU while facing hurdles in the US and the UK. When the CMA blocked the deal in April, Microsoft’s president Brad Smith described it as the tech giant’s ‘darkest days’ of working with the UK and said the decision was ‘bad for Britain.’ While today’s update is a step in the right direction towards regulatory approval, it is not a done deal just yet,” she said.

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Following the update, shares in Ubisoft were trading sharply higher on Tuesday — up 7.43% in late morning London trade.

Meanwhile, shares in Microsoft closed nearly 2% higher in the US on Monday and are expected to extend gains again on Tuesday.

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