In context: Microsoft has been on the defensive since announcing its acquisition of Activision Blizzard King (Activision) for $69.7 billion. Regulators around the world put the takeover under the microscope, blocking Microsoft’s timeline and forcing it to offer concessions it had planned to provide all along. Now the CMA says it may not grant approval because it thinks it’s bad for UK consumers.
Last week, the UK’s Competition and Markets Authority (CMA) reached a tentative conclusion that Microsoft’s acquisition of Activision could harm players in the UK. Specifically, the government watchdog cited the potential for higher prices, less choice and less innovation.
In its heavily redacted report of findings, the CMA said Microsoft’s internal documents admitted that games on Game Pass tended to cannibalize buy-to-play (B2P) sales. According to Redmond’s bean counters, games placed on its Multi-Game Subscription (MGS) showed a significant drop in B2P sales in the twelve months since they were added to the service. This correlation makes sense but goes against what Microsoft has been telling developers and customers for several years.
In a 2018 interview with Levelup, Xbox Boss Phil Spencer said that having titles on Game Pass improved B2P sales (below). He claimed that while GP members could play the game for free, the added exposure enticed non-subscribers to buy the game.
“When you put a game like Forza Horizon 4 on Game Pass, you instantly get more players of the game, which actually leads to more sales of the game,” Spencer said. “You say, ‘Well, isn’t everyone just going to subscribe for $10 and go play this thing? But no, players find things to play based on what everyone else is playing.”
His theory now appears to be hogwash, but it’s unclear whether the company knew it then since the information the AMC discussed came from a more recent earnings analysis. However, Microsoft admits that Activision was hesitant to put its IP addresses on Game Pass or any other MGS platform for fear it would “severely cannibalize B2P sales, especially in the case of newer releases.”
Regarding the CMA preliminary report, Microsoft/Activision OK is at best on shaky foundations. Although he has not made his final decision, it appears that he will advise the parties to cancel the acquisition. Does this mean that Microsoft will never have Activision under its umbrella? No, but it would completely destroy any planned timeline affecting Activision’s immediate valuation, possibly leading to a full renegotiation of a new deal that regulators will likely be considering just as much.