Mission complete: how Microsoft rescued its Activision merger from the CMA’s veto

12 January 2024

Microsoft’s acquisition of Activision was one of the focal points of global competition law during 2023. The varying views and approaches of the CMA, the European Commission (the Commission), the FTC and the US Courts thrust the transaction, and with it, the role of merger control, firmly into a matter of public debate.

Perhaps we shouldn’t be surprised that a merger between two video game giants was resurrected out of the doldrums of a CMA prohibition – after all, in the world of video games, you can always play another round. Here we discuss how the CMA reached its decision to clear the Microsoft/Activision transaction at the second attempt, and how this transaction highlights a peculiarity with the CMA procedure which may be mitigated in light of the CMA’s proposals to amend its Phase 2 procedure (which we discuss in more detail in our article).


The key steps in the CMA’s review process were as follows.

  • 18 January 2022, Microsoft enters into an agreement to acquire Activision.
  • 6 July 2022, CMA launches Phase 1 investigation.
  • 15 September 2022, CMA refers deal to Phase 2.
  • 26 April 2023, CMA publishes final report on the Phase 2 investigation (the Final Report).
  • 19 May 2023, CMA publishes notice of intention to make final order (the Notice of Intention).
  • 25 July 2023, Microsoft makes material change of circumstances submission in the response to the Notice of Intention (the MCC Submission).
  • 22 August 2023, CMA issues final order prohibiting the original merger (the Final Order).
  • 22 August 2023, Microsoft submits a revised deal to the CMA excluding Activision’s non-EEA cloud streaming rights (the Second Transaction) and CMA launches Phase 1 investigation.
  • 21 September 2023, Microsoft and Activision offer undertakings in lieu of a Phase 2 reference (UILs).
  • 22 September 2023, CMA publishes Phase 1 decision on the revised merger.
  • 13 October 2023, CMA publishes decision accepting UILs and gives its green light to the merger.

Initial substantive assessment

The main concern, identified by both the CMA and European Commission, was the potential harm to the nascent and growing market for cloud gaming, which allows users to stream games over the internet without downloading or installing them on a device. Both agencies were concerned that Microsoft could use Activision’s popular games to harm other cloud gaming services by denying or limiting access to them. To address this issue, the Commission accepted a remedy from Microsoft to license Activision’s games to all rival cloud gaming services in the EEA for 10 years. The CMA, however, rejected Microsoft’s proposed remedy and blocked the deal.

In its Final Report, the CMA found that the proposed remedy failed to address its concerns in three fundamental ways:

  • the proposed remedy was too narrow in scope. Whilst the license applied to making Activision games available for outright purchase on cloud gaming platforms, it did not apply to making games available through multi-game subscription services (e.g. those competing with Microsoft’s gamepass);
  • the remedy was not sufficiently open to providers who might wish to offer games outside of a Windows ecosystem; and
  • the remedy would standardise terms and conditions, rather than allowing such terms to develop organically through competition in the market.

This led the CMA to block the deal and to issue a Final Order that prevented Microsoft from acquiring an interest in Activision for a period of 10 years, without the CMA’s prior consent. As such, following the Final Order, Microsoft faced divergent outcomes in the UK and the EU, and consequently an inability to complete the transaction.

The Second Transaction

Following the publication of the CMA’s Final Report, Microsoft and Activision notified the CMA of an updated deal structure, which involved the sale of Activision’s cloud gaming rights to Ubisoft. Specifically, Ubisoft would acquire Activision’s non-EEA cloud streaming rights for the next 15 years allowing Ubisoft to license Activision’s games to cloud gaming services, including Microsoft’s, to allow competition to develop in the cloud gaming space.


In response to the Notice of Intention, the parties set out in the MCC Submission that the CMA’s analysis no longer held true for the following reasons:

  • since the CMA’s Final Report, the Commission had accepted Microsoft’s commitments, thereby providing a legal commitment by Microsoft to comply with certain cloud gaming licences entered into with NVIDIA, Boosteroid and Ubitus. Microsoft had also entered into a similar license with Nware. As such, the commitments agreed with the Commission were binding on Microsoft and resolved the CMA’s concerns;
  • Sony, one of the most vociferous complainants, had entered into an agreement with Activision to ensure the availability of Call of Duty on Sony consoles. This ensured that Sony, Microsoft’s key console competitor, would retain long term access to the Activision title that it considered most important;
  • additional relevant material had emerged as a result of a FTC injunctive relief hearing in the United States that was not previously available to the CMA. Similarly, following additional disclosure as part of the parties’ appeal of the CMA’s Decision, the parties had undertaken additional analysis that undermined the CMA’s case; and
  • the arrangements being discussed with Ubisoft amounted to a material change of circumstances.

The CMA concluded that none of the above factors, either individually or cumulatively, amounted to a material change of circumstances or otherwise justified a deviation from the findings of the CMA’s Final Report. In dismissing the parties’ submissions, the CMA made three key points:

  • first, the CMA noted that its concerns in relation to cloud gaming related to a “nascent, dynamic and rapidly growing market” such that developments concerning relationships between Microsoft and a limited number of its existing rivals would not “address the fundamental concern about the risk of foreclosure of other current and future rivals in the market more generally, including those with innovative and new business models.” In reaching this conclusion, the CMA noted that it had already assessed in detail Microsoft’s proposed remedies, which closely mirrored those accepted by the Commission and upon which Microsoft relied. The CMA had intentionally placed a particular emphasis on the ability for competitors to enter the market with new business models – which could be stifled if Microsoft had adopted a de facto set of standard industry licensing terms that may not be appropriate for the future and yet unforeseen business models;
  • second, the CMA concluded that the simple fact that a party had entered into new commercial arrangements in the period between the CMA’s Final Report and Final Order was unlikely to lead to a material change of circumstances. The additional agreements described by Microsoft would have only a limited effect on parts of the analysis and the reasoning in the Final Report was not significantly impacted; and
  • third, the CMA did not consider that the additional information arising from the US and UK proceedings had any meaningful impact on any of the reasoning or conclusions set out in the CMA’s Final Report.

Following the CMA’s rejection of the MCC Submission, Microsoft submitted a new merger notification requesting approval for the Second Transaction. The CMA assessed the extent to which the Second Transaction amounted to a sufficiently different transaction to justify a further review.

In assessing the extent to which the Second Transaction amounted to a new transaction, the CMA found that it would “significantly change the way in which Activision’s PC and console games are commercialised and distributed to cloud gaming services.  Unlike the First Proposed Merger, Microsoft would not be in a position to unilaterally make Activision’s games available only on its own cloud gaming service, or to withhold those games from rivals”. As such, the CMA concluded that the deal was materially different and accordingly conducted a review of the Second Transaction. It subsequently accepted the UILs offered by the parties in the Second Transaction, allowing the transaction to proceed.

Finally, the CMA was required to grant its permission both under the Enterprise Act 2002 and the Final Order to allow Microsoft to acquire an interest in Activision that would otherwise have breached the provisions of the Final Order.

Substantive Assessment of the Second Transaction

In order to obtain approval for the acquisition of Activision, Microsoft entered into an agreement with French games developer Ubisoft which agreed to acquire all cloud gaming rights for Activision’s games for the next 15 years. The Ubisoft agreement also provided that:

  • Ubisoft may not grant Microsoft an exclusive licence to the Activision games and any such purported licence would be null and void.
  • Ubisoft may not offer Microsoft preferential pricing nor material preferential treatment with respect to cloud streaming rights that are not available to other third parties.
  • Microsoft must offer the Activision games to Ubisoft at a wholesale price that is no higher than the lower of the wholesale price for digital download and retail sales of PC and console versions of the same content, and must ensure that Ubisoft is not competitively compromised, whether through timing of release, quality, content or performance of the Activision games.
  • Microsoft must port the Activision games to non-Windows OS formats following a request from Ubisoft (including providing technical modifications and supporting emulators) in each case charging its reasonable costs and performing these activities at its normal pace and to its usual standards.
  • Microsoft must provide reasonable technical support to Ubisoft and its sub-licensees provided its reasonable costs are covered.

As a result of the Ubisoft agreement, the parties argued that Microsoft would be prevented from limiting other cloud gaming services from getting access to Activision's games, which would preserve competition and innovation in cloud gaming. Ubisoft would be set up as a competitor for streaming rights that had an equivalent position to Activision in the pre-merger counterfactual.  Accordingly, there would be no loss of competition and no foreclosure risk arising from the Second Transaction.

Notwithstanding the above protections, the CMA remained concerned that Microsoft could try to circumvent, terminate or renegotiate the licensing arrangements with Ubisoft thereby restoring the market to the conditions that the CMA had objected to in its original Final Report. The CMA therefore considered that the Second Transaction still gave rise to a risk of a substantial lessening of competition that would justify a reference to Phase 2, unless the parties offered UILs that would ensure that the Second Transaction would be fully implemented and that would give the CMA the ability to enforce Microsoft’s commitments.

The parties therefore submitted UILs, which the CMA accepted, that allowed the CMA to: i) monitor Microsoft’s compliance with its obligations; ii) intervene in the event Microsoft sought to circumvent its licence; and iii) appoint a trustee to oversee the arrangements, provide annual reports, and follow a dispute resolution process in the event that concerns arose.

Implications of the CMA’s decision on the Second Transaction

The Commission considered whether the Second Transaction would need to be re-notified in the EU by assessing the impact of the new deal on its own remedy. The Commission concluded that the Second Transaction would not impact its remedy.

This case is the most prominent example of the diverging outcomes as between the UK and the EU that can arise when dealing with mergers in dynamic and innovative markets, where theories of harm may be more circumspect. It also shows that the Commission remains more open to behavioural remedies than the CMA, which took the novel step of characterising the 15-year licence of the Activision cloud streaming rights as a structural, and not a behavioural, remedy. Relatedly, the case highlights an important difference between the EU and UK Phase 2 merger review processes. Whilst the Commission commonly discusses remedies during its substantive assessment, the CMA’s merger review process is more structurally rigid and in practice provides little opportunity for remedies to be discussed while the substantive assessment remains ongoing.

It appears that one of the challenges with this complex case was that by the time the parties truly appreciated the nature of the CMA’s concerns and the type of remedy the CMA would consider acceptable, it was simply too late to resolve these issues within the 24 weeks allowed for the CMA’s Phase 2 process. This constraint had the unfortunate side effect of creating a complicated and convoluted procedural process that was not in the best interests of either the CMA or the merging parties. 

It is therefore a positive development that the CMA is currently consulting on making changes to its Phase 2 procedure. In particular, it is proposing to provide merger parties with details of its concerns substantially earlier in the Phase 2 process and to encourage earlier engagement on remedies (especially in the case of behavioural remedies). This will hopefully lead to a more efficient process for similar cases in the future.