As expected, following its initial inquiries into the $68.7 billion deal, the European watchdog said on Tuesday that it had opened a ‘phase II’ investigation due to competition concerns.
“The Commission is concerned that the proposed acquisition may reduce competition in the markets for the distribution of console and personal computers (‘PCs’) video games and for PC operating systems,” it said.
The Commission now has 90 working days, until March 23, 2023, to make a final ruling on the deal.
It said its preliminary investigation showed that the transaction could significantly reduce competition in several areas.
“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’,” it wrote.
“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 proposed acquisition is being scrutinised by regulators around the world amid antitrust concerns during a time of increasing consolidation in the gaming industry.
While the deal has been approved by regulators in Saudi Arabia and Brazil, the UK’s Competition and Markets Authority recently expanded its investigation to a second phase. It is in the process of inviting members of the public to share their views on the acquisition before giving its final decision by March 1.
The US Federal Trade Commission could reportedly make its ruling on the deal this month.
Activision Blizzard CEO Bobby Kotick echoed this sentiment in a message sent to employees on Tuesday, in which he said “the process is moving along as we expected”.
He wrote: “Because so many large global companies across the world are now competing in the nearly $200 billion dollar games industry, it’s understandable that regulators are trying to better understand the games business. This week the European Commission announced that we have entered the second phase of our review in the region. We will continue to cooperate with the European Commission where, in the countries they represent, we have many employees.
“We have been working closely with Microsoft to actively engage regulators in other key countries to answer their questions and provide them with information to assist with their review. People from across our business units and functions have been involved in this regulatory work, and I want to thank each of you for your tireless work and commitment to completing this merger, which we continue to expect to close in Microsoft’s current fiscal year ending June 2023.”
Activision said on Monday that Modern Warfare 2 continues to be the fastest-selling entry in the Call of Duty series following its release on October 28.
Having topped $800 million in sales in its first three days of availability, Modern Warfare 2 crossed the $1 billion mark in 10 days. In doing so it surpassed the record previously held by 2012’s Black Ops 2, which took 15 days to reach $1 billion in sales.