Microsoft claims that UK relied on “exaggerated” claims made by Sony regarding Call of Duty.
In response to a challenge to its proposed acquisition of Activision Blizzard, Microsoft blasted Sony and UK regulators, claiming that the UK had relied excessively on Sony’s “self-serving” arguments.
Last month, the UK Competition & Markets Authority (CMA) referred the $68.7 billion deal to a Phase 2 investigation, which could result in the merger being prohibited or a requirement to sell some parts of the business. The CMA released the full text of its referral decision today, and Microsoft provided Ars with the executive summary of its latest response to the regulatory agency.
Sony claims Microsoft’s offer to keep the Activision Blizzard game franchise on PlayStation for at least another three years beyond the current agreement is incomplete and that Microsoft could yank Call of Duty from the PlayStation platform.
It’s “not credible” to suggest “that the incumbent market leader, with clear and enduring market power, could be foreclosed by the third largest provider as a result of losing access to one title,” according to Microsoft, which claimed in its filing with UK regulators that PlayStation “has been the largest console platform for over 20 years.” Microsoft’s reply to the CMA continued:
In other words, Sony is not at risk from a potential foreclosure plan. The Referral Decision incorrectly relies on Sony’s self-serving claims, which vastly overstate the importance of Call of Duty to the company and fail to consider Sony’s obvious capacity to respond in a competitive manner. The CMA’s evaluation of this theory ignores that it recognized the “dynamic” nature of the gaming industry in the Referral Decision. Even though Sony might not enjoy more competition, it can adapt and win. Ultimately, this increased competition and choice will be advantageous to gamers.
Microsoft: Call of Duty concerns overblown
Microsoft submitted a comprehensive response to the CMA’s Phase 1 analysis this week. Although the complete document isn’t available, Microsoft made the executive summary available today.
“The CMA’s theories of harm related to one overarching concern: that Activision Blizzard’s game catalog—particularly the Call of Duty franchise—will enable Xbox to foreclose its competitors in gaming markets. This worry is unfounded, according to Microsoft’s response. This worry is unfounded, Microsoft responded. The Referral Decision exaggerates the significance of Activision Blizzard’s content to compete in the gaming industry. It fails to acknowledge the enormous variety of popular and diverse gaming content available to market participants.
Compared to the counterfactual, Microsoft “plans to make the Call of Duty franchise available to gamers in more ways.” The company also said Sony wields its market power by “increasing prices of its consoles without fear of losing market share.”
Microsoft also cited Sony’s recent purchases of video game studios, such as Bungie, creator of Destiny 2. Additionally, Sony holds minor stakes in Epic Games and Elden Ring-maker From Software. In 2021, PlayStation had “over 280 exclusive first- and third-party titles, nearly five times as many as on Xbox,” according to Microsoft.
We reached out to Sony today, and we’ll update this post if we hear back.
The UK scrutinizes gaming competition.
The CMA said last month that the Microsoft/Activision Blizzard merger “could substantially lessen competition,” citing concerns about “competition in gaming consoles, multi-game subscription services, and cloud gaming services (game streaming).”
In its decision to refer the merger, the CMA said Microsoft could withhold Call of Duty and other franchises “from other consoles or multi-game subscription services” or “degrad[e]” the games on non-Xbox platforms. The regulator said:
Acquiring [Activision Blizzard] would significantly expand Microsoft’s gaming library, adding some of the world’s best-selling and most recognizable franchises, including Call of Duty, World of Warcraft, and Candy Crush. The CMA is concerned about having full control over this powerful catalog, especially considering Microsoft’s already strong position in gaming consoles and operating systems. Cloud infrastructure could result in Microsoft harming consumers by impairing Sony’s—Microsoft’s closest gaming rival—ability to compete as well as that of other existing competitors and potential new entrants who could otherwise bring healthy competition through innovative multi-game subscriptions and cloud gaming services.
Microsoft is waiting for a merger decision from the Federal Trade Commission in the US. Microsoft has been touting that it won merger approval in Brazil, saying the regulator’s decision backs up its arguments. According to Microsoft, there is “no evidence that Call of Duty is essential to rival game distributors.” The company “would have clear incentives to continue licensing Activision Blizzard games to third-party consoles and other platforms.”
Microsoft aims to close the merger in fiscal-year 2023
The CMA has a deadline of March 1, 2023, to issue a final report. After a final report, under UK rules, “The CMA has a statutory deadline of 12 weeks to make an order or accept commitments to give effect to its Phase 2 remedies, which may be extended by up to six weeks for special circumstances.”
Hearings are scheduled for December, and “provisional findings and possible remedies” could be announced in January under the published timeline. The parties would then have until February for final responses and submissions.
Microsoft said it’s confident the UK will ultimately approve the merger. “We’re committed to answering the CMA’s questions. We are hopeful that a careful examination will help the deal close. We’re still on track for it to close in the fiscal year 2023 as initially anticipated,” Microsoft said in a statement provided to Ars.
The Phase 2 investigation could be a significant hurdle, though. In another high-profile case, Nvidia and ARM scrapped a planned merger after the CMA launched a Phase 2 investigation. The companies canceled the deal during the inquiry but shortly before the scheduled Phase 2 hearings.