Despite reports, the UK regulator is NOT backing down over Xbox's Activision deal

UK CMA vs Microsoft
(Image credit: Windows Central)

What you need to know

  • Microsoft is trying to buy Activision-Blizzard-King for $69 billion.
  • The acquisition of the Call of Duty maker would keep Microsoft and Xbox in the gaming industry, which has been gradually slipping away from it owing to competition from mobile devices, and Sony's dominating market position. 
  • Microsoft defeated the FTC's application for an injunction in U.S. Federal Court this week, but Microsoft still faces another big battle. 
  • DESPITE THE EU'S APPROVAL, the UK regulator continues to oppose the deal. 
  • There were some reports that Microsoft and the CMA would reach a quick resolution, but the CMA poured cold water on those reports this morning. 
  • It seems the CMA is open to re-opening negotiations if Microsoft "restructures" the deal. It's unknown what form that will take right now. 
  • Read on for some analysis. 

Microsoft has potentially cleared a major hurdle in its goal to buy up Activision-Blizzard-King for Xbox, defeating the FTC in a federal U.S. court case. Microsoft won against the FTC's injunction attempts, with Judge Corley siding with the firm over the United States competition commission. 

It wasn't long after that the UK regulator, known as the CMA, chimed in. The UK CMA has been a major headache for Microsoft throughout this process, blocking the deal outright a few months ago. The CMA has exuded a generalized misunderstanding of the video game industry and made no secret of its intent to follow the U.S. FTC's lead, even if it's to the detriment of UK consumers. Despite this, Microsoft and the UK CMA have tentatively agreed to re-open negotiations, putting in a joint request to end its CAT litigation proceedings. The CAT is essentially an entity that regulates the UK regulator and has been known to overturn the CMA when the CMA makes silly judgments. 

The revelation led to a report in CNBC that suggested Microsoft had already agreed to make a "small divestiture" to appease the CMA. A divestiture in this context would mean that Microsoft would agree to specific rules to its detriment to ensure the CMA's "concerns" are mitigated. Some had speculated that Microsoft might agree to not include Call of Duty or other games into its Xbox Cloud Gaming service since the UK CMA is apparently "very concerned" about the hundreds-strong nascent consumer market in the country. Despite the fact having Call of Duty in Xbox Cloud Gaming would provide access to the title for people who don't necessarily want to buy any video game console, the CMA is worried that it would give Microsoft "too much power" despite the fact the market barely exists, and likely will never exist owing to Google and Apple's duopolistic hindrance of its potential on mobile devices. But I digress. 

In any case, it seems CNBC's report of a rapid turnaround was inaccurate. The UK CMA came out today and said that it isn't prepared to accept new remedies without a total restructuring of the deal, subsequently re-opening the investigation in its entirety. Which increasingly could be the path Microsoft and the CMA choose to take. The CMA seems eager to avoid being the only regulator blocking the deal, with the FTC on the ropes and the European Commission (along with dozens of others) approving the deal. 

FTC, CMA, and European Commission imagined as people in suits standing in front of a cloudy background

Microsoft's battles with regulators have dogged its ABK acquisition.  (Image credit: Bing Image Creator | Windows Central)

This could open a huge can of worms for all involved — a deal that offers a lot of concessions in the UK could raise eyebrows in other regulatory jurisdictions that have passed the deal without such things. The U.S. FTC still has some court hearings on the docket to that end and reportedly wants to lean towards appealing Judge Corley's decision. Despite this, Microsoft seems eager to re-enter negotiations rather than proceed with the CAT hearings. But why?

We asked antitrust expert and litigation watcher Florian Mueller (@FOSSPatents) for his take on the matter: "No litigant in Microsoft's position would first urge the appeals court to expedite the proceedings and then stipulate to a stay [on the CAT proceedings] unless there's a way to consummate the transaction in the nearest term. Litigants always keep up the pressure on the litigation front if necessary. Here, it appears that a solution is in sight."

Mueller emphasized that the UK CMA is expected to issue a final order on the merger in the coming days. With the CMA's interest in re-opening the investigation, it seems likely that the final order will leave the door open for Activision-Blizzard and Microsoft to close the deal ahead of its contracted deadline of July 19th. If Microsoft and ABK haven't closed the deal on that date, contractually, either party can walk away — but Microsoft would have to pay a $3 billion breakup fee to ABK. 

I can't help but wonder if it's a tactical error to assume the CMA wishes to negotiate in good faith. UK institutions are notorious for back-scratching and careerism to the detriment of the public good. I presume Microsoft's teams are far smarter than me on the matter. Right now, we'll have to wait and see what happens next. 

Jez Corden
Co-Managing Editor

Jez Corden is a Managing Editor at Windows Central, focusing primarily on all things Xbox and gaming. Jez is known for breaking exclusive news and analysis as relates to the Microsoft ecosystem while being powered by tea. Follow on Twitter @JezCorden and listen to his XB2 Podcast, all about, you guessed it, Xbox!