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| 2 minutes read

What could the competition concerns be for the Microsoft / Activision Blizzard deal?

There has been a lot of chatter over the last few days about the game-changing announcement that Microsoft is acquiring Activision Blizzard in a massive $70bn transaction. My colleague Charlie has explained why this transaction is such a big deal here. As he notes, press reports have suggested that the transaction is likely to be the subject of intense antitrust scrutiny. However, none of the press articles really explain why this is. I just wanted to give a quick flavour of the sorts of issues that competition authorities might be looking at when assessing the deal.

We actually have quite a good idea, at least from a European perspective, because the European Commission considered a very similar (albeit much smaller) deal as recently as March last year when Microsoft acquired ZeniMax for $7.5bn. ZeniMax was the parent company of Bethesda Softworks, which publishes popular game franchises such as The Elder Scrolls and Fallout.

In its decision on that transaction, the Commission explained that there were (broadly speaking, and without reaching a firm conclusion) two relevant markets to consider:

  • The market for game software development and publishing (the upstream market, where both Microsoft and ZeniMax are active).
  • The market for physical and digital video game distribution for PCs and consoles (the downstream market, where Microsoft is active).

The test the European Commission applies is whether a merger would significantly impede effective competition. However, even combined, Microsoft and ZeniMax had a market share of less than 5% on the upstream games market, so the Commission quickly concluded no concerns arose there. The Commission focussed its analysis on the downstream distribution market, where Microsoft held a 30-40% share. Here, it considered two potential theories of harm:

  • Whether Microsoft, due to its increased portfolio of games, might refuse to carry any competing video games on Xbox or only do so on unfair terms.
  • Whether Microsoft might foreclose rival console manufacturers by making ZeniMax games available exclusively on Xbox.

The Commission thought that both options were unlikely for a variety of reasons, not least because Microsoft and ZeniMax did not publish enough games between them to make a strategy of only publishing Microsoft/ZeniMax games on Xbox viable or to really give them the ability to weaken the position of other competitors like Sony and Nintendo.

The Microsoft / Activision Blizzard transaction is likely to raise similar issues, but on a much larger scale. Activision Blizzard publishes some of the world’s most popular games, including the Call of Duty franchise. While there a number of other big, high-profile games publishers (including e.g. Take Two, EA, Ubisoft, etc.) the possibility of a game like Call of Duty becoming an Xbox exclusive might give the Commission more to think about.

A further point of interest is that Activision Blizzard also publishes Candy Crush Saga, one of the world’s most popular mobile games. As well as giving Microsoft a foothold into mobile gaming, from a competition perspective the question of the extent of competition between console games and mobile games is an interesting one that could well receive further attention in the coming years.

Tags

competition law, interactive entertainment

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