CMA presses pause on Microsoft’s expansion in the gaming sector

23 February 2023

The UK Competition and Markets Authority (the CMA) recently published provisional findings that cast serious doubt over whether Microsoft’s acquisition of video game content creator Activision Blizzard, Inc. (Activision) can proceed without significant remedies.

The CMA has identified concerns about Microsoft's proposed acquisition of Activision’s catalogue of gaming titles, as certain titles, notably Call of Duty (CoD), are key inputs for Microsoft’s rivals in console gaming, and potentially also for the growing market for cloud gaming services. The CMA has provisionally found that, given Microsoft’s strong position in gaming consoles, operating systems, and cloud infrastructure, its acquisition of Activision could harm consumers through an input foreclosure strategy. This would limit competition from rivals like Sony (in consoles) and nascent competition in the evolving cloud gaming space, by withholding access to these key titles or providing access on materially worse terms. The CMA noted that this would likely have a knock-on detrimental effect for consumers, with a softening of competition giving rise to the potential for higher prices, reduced range, lower quality, worse service and/or reduced innovation.

The deal is also being closely scrutinised by the European Commission and by the Federal Trade Commission in the US (the FTC). The FTC has sued in its administrative court to block the deal in its current form. Whilst the CMA’s findings are provisional, it now seems likely that the question is what remedies will be sufficient to satisfy the CMA, rather than whether clearance might be unconditional.  The conclusion of the CMA review process over the next couple of months will provide an indication as to whether there is any remedy, short of the divestment of the CoD business, that will satisfy competition authorities and allow the deal to get over the line.

Microsoft’s position within the gaming industry

Microsoft is already a key player in the gaming industry, through its leading gaming console (Xbox). The company is one of three major players, along with Sony (PlayStation) and Nintendo (Switch), that have led the gaming console market for the past 20 years, with Microsoft and Sony being particularly fierce competitors. With the acquisition of Activision, a company known for its popular gaming franchises such as CoD and World of Warcraft, Microsoft would significantly expand its influence within the gaming industry. The CoD franchise in particular is an important title that enables multiplayer gaming across gaming console platforms.

Microsoft’s existing business lines such as its cloud architecture (Azure), cloud gaming platform (Xbox Cloud Gaming or xCloud) and PC operating systems (Windows) make it an important operator within the gaming industry and the nascent cloud gaming market. Cloud gaming differs from traditional gaming by utilising the power of external cloud servers to facilitate gaming on a range of non-console devices.

Theories of harm

The CMA put forward two potential theories of harm:

  • vertical foreclosure effects in relation to console gaming; and
  • vertical foreclosure effects cloud gaming.

In each case, concerns would arise as a result of Microsoft either refusing to supply competitors (or supplying such competitors on materially worse terms) with access to Activision’s leading titles, most notably CoD.

Competition authorities intervene less frequently on the basis of vertical theories of harm as compared to horizontal theories of harm, as the former are not concerned with a direct loss of competition between the merging parties. However, the CMA’s Merger Assessment Guidelines note that vertical mergers are capable of giving rise to competition concerns, particularly where one of the merging firms has a degree of pre-existing market power which it would be able to use to foreclose its rivals.1 Vertical concerns might arise where a merged entity could use an increase in market power at one level of the market (games development and publishing) to foreclose competitors at a different level of the market (console manufacturing and cloud gaming provision).

Gaming consoles

In relation to the first theory of harm, the CMA focused on whether Microsoft would find it commercially beneficial to limit its competitors’ (mainly Sony’s) access to CoD, and the potential effect of such a strategy. Evidence gathered by the CMA suggested that CoD had a “high level of gamer awareness and loyalty to the brand, which may be difficult to replicate for a new game”.2

The console gaming market is characterised by strong network effects, so consoles and games with a larger user base tend to attract more users. As the CMA put it: “Console platforms with a lot of gamers attract better content, which in turn attracts more gamers to that console platform, which in turn attract better content, and so on.3 Similarly, games like CoD, which offer a significant cross-platform multiplayer experience, can be expected to attract more gamers and in turn better content from developers (and so on). 

The CMA found that CoD is currently available on PC as well as the two leading gaming consoles (Xbox and PlayStation), which compete closely with each other, and that CoD is an important title to PlayStation. A CMA survey of CoD gamers found that if CoD were no longer available on PlayStation, 24% of respondents would divert away from PlayStation and even those who remained would likely spend less time and money on the PlayStation platform, which would have a material impact on its revenue and ability to compete, and would make the console less attractive to developers.

The CMA further found that Microsoft would have the incentive to make CoD either partially or totally exclusive to Xbox after the acquisition of Activision. The CMA argued that Microsoft's commercial strategy in the past has shown that limiting the availability of acquired gaming content had brought strategic benefits.4 In addition, CMA modelling suggested that making CoD exclusive to Xbox would be profitable for Microsoft. Although the merger would bring an efficiency in making CoD available on Game Pass on its release date, the CMA considered that this was not enough to make up for the reduction in competition caused by the merger.

Cloud gaming 

The CMA recognises that cloud gaming is still nascent but considers that it has the potential to greatly impact the gaming industry in the future. Although cloud gaming has faced challenges such as the need for a fast and stable internet connection and latency, evidence suggests these issues may be overcome in the future (to the extent they haven’t already been). The market is already large and growing, and providers are working to find ways to monetize the service.

The CMA provisionally found that Microsoft has a strong position in the cloud gaming services market due to its ownership of Windows (the OS on which most PC games are played) and its cloud infrastructure. The CMA argued that Microsoft has both a short-term solution (xCloud) and longer-term solution (Azure) to host cloud gaming without having to pay a fee to third-party cloud platforms, and could in the long term leverage its large and well distributed global cloud infrastructure to its competitive advantage.5

The CMA provisionally concluded that Activision's games, including CoD and World of Warcraft, could be particularly important for cloud gaming success in the future, given their popularity among gamers. The CMA found that Microsoft may have an incentive to limit access to these games and make them exclusive to, or released preferentially on, their cloud gaming service, limiting rivals’ ability to compete. The CMA also noted that that there are significant barriers to entry for new competitors in the cloud gaming space, including the cost of cloud infrastructure, the cost of acquiring content and the need for economies of scale to drive down costs. As a result, the CMA provisionally concluded that the merger may result in a substantial lessening of competition in cloud gaming services in the UK.

Possible remedies

The CMA identified three possible solutions to address these concerns: a full prohibition; structural remedies (such as the divestiture of certain Activision titles or business lines); or behavioural remedies.

As regards structural remedies, the CMA is considering the possibility of the divestiture of, at the very least, the business associated with CoD, or, in the alternative, broader parts of the target business. The CMA is currently seeking views from third parties on the scope and configuration of any potential divestiture package, the risks involved and the necessary timescale for divestiture.

The CMA is also considering the possibility of a behavioural remedy, such as an obligation for Microsoft and Activision to maintain the current multi-platform status of games like CoD, through long-term licensing arrangements on specified terms and with appropriate protections to ensure consistent quality across platforms.

Microsoft purport to have offered a 10-year contract to make each new CoD game available on Sony’s PlayStation console at the same time as it would be available on Xbox.6 Specifically, Microsoft has stated the company is: “committed to offering effective and easily enforceable solutions that address the CMA’s concerns. Our commitment to grant long-term 100% equal access to Call of Duty to Sony, Nintendo, Steam and others preserves the deal’s benefits to gamers and developers and increases competition in the market.”7

However, the CMA expressed concern about the effectiveness of such a remedy in these dynamic and complex markets, particularly in the context of cloud gaming where the customer offerings and business models of market participants are evolving rapidly. It has invited the parties to provide evidence on how the “material effectiveness” risks of such a remedy can be managed effectively. However, ominously for the merging parties, the CMA’s remedies notice states that the circumstances on which it might select a behavioural remedy as the primary source of remedial action are not present in this case. With that in mind, it seems that the parties will have a lot of work to do getting the CMA comfortable with a remedy that is solely behavioural in nature.

Next steps and takeaways

It was clear from the outset that this case, a high-profile tech acquisition with a strong consumer element, an outspoken competitor/customer in Sony, and vocal consumers, would be subject to significant scrutiny. Indeed, it provides a prominent example of the trend towards greater scrutiny of the actions of the largest digital firms by competition authorities across the globe. It is also a case where there has been a convergence of views between UK and US competition authorities, with the FTC advancing similar vertical theories of harm in the Complaint filed in its administrative court on 8 December 2022.

The CMA’s findings are still provisional; however, it would take a dramatic change of position for the CMA to clear the transaction unconditionally.  The battleground may rather be whether the CMA can be persuaded to accept a behavioural remedy. 

The CMA is inviting comments on its provisional findings by 1 March 2023. The final report is due to be published by 26 April 2023.

This article was authored by Andrew Morrison, Matthew Jones and co-authored by Roque Botas Armero in our competition practice.


1See paragraph 7.7, CMA129 Merger Assessment Guidelines.

2See Provisional findings report of Anticipated acquisition by Microsoft of Activision Blizzard, Inc. of 8 February 2023. Paragraph 9.36.

3Ibid, Paragraph 4.6.

4Ibid, Paragraphs 49 and 50.

5Ibid, Paragraph 63 and paragraphs 8.192 to 8.195

6See Microsoft offers Sony 10-year deal for Call of Duty on PlayStation (

7This quote was reported in the Financial Times on 8 February 2023: see