Brussels, 8 November 2022
The European Commission has opened an in-depth investigation to assess the proposed acquisition of Activision Blizzard by Microsoft under the EU Merger Regulation. The Commission is concerned that the proposed acquisition may reduce competition in the markets for the distribution of console and personal computers (‘PCs’) video games and for PC operating systems.
Microsoft and Activision Blizzard are both developers and publishers of games for PCs, game consoles and mobile devices as well as distributors of games for PCs. In addition, Microsoft also distributes games for consoles, offers the Xbox gaming console and related services as well a wide range of products and services, including the PC operating system Windows and the cloud computing service Azure.
The Commission’s preliminary competition concerns
The Commission’s preliminary investigation shows that the transaction may significantly reduce competition on the markets for the distribution of console and PC video games, including multi-game subscription services and/or cloud game streaming services, and for PC operating systems.
In particular, the Commission is concerned that, by acquiring Activision Blizzard, Microsoft may foreclose access to Activision Blizzard’s console and PC video games, especially to high-profile and highly successful games (so-called ‘AAA’ games) such as ‘Call of Duty’.
The preliminary investigation suggests that Microsoft may have the ability, as well as a potential economic incentive, to engage in foreclosure strategies vis-à-vis Microsoft’s rival distributors of console video games, such as preventing these companies from distributing Activision Blizzard’s console video games on consoles or degrading the terms and conditions for their use of or access to these video games.
When it comes to multi-game subscription services and/or cloud game streaming services in particular, the Commission is concerned that, by acquiring Activision Blizzard, Microsoft may foreclose access, to the detriment of its rival distributors of console and PC video games that offer such services, to its own PC and console video games, which are key for the provision of the nascent services of multi-game subscription and cloud game streaming.
Such foreclosure strategies could reduce competition in the markets for the distribution of console and PC video games, leading to higher prices, lower quality and less innovation for console game distributors, which may in turn be passed on to consumers.
Finally, at this stage of the investigation, the Commission has concerns that the proposed acquisition may reduce competition on the market for PC operating systems. In particular, the Commission is concerned that Microsoft may reduce the ability of rival providers of PC operating systems to compete with Microsoft’s operating system Windows, by combining Activision Blizzard’s games and Microsoft’s distribution of games via cloud game streaming to Windows. This would discourage users to buy non-Windows PCs.
The preliminary investigation suggests that Microsoft may have the ability, as well as a potential economic incentive, to engage in such conduct vis-à-vis rival providers of PC operating systems.
The Commission will now carry out an in-depth investigation into the effects of the transaction to determine whether its initial competition concerns are confirmed.
The proposed transaction was notified to the Commission on 30 September 2022.
The Commission now has 90 working days, until 23 March 2023, to take a decision. The opening of an in-depth inquiry does not prejudge the outcome of the investigation.
Companies and products
Microsoft is a global technology company headquartered in Redmond, Washington, US. Microsoft offers a wide range of products and services to customers through the following operating segments: (i) Productivity and Business Processes; (ii) Intelligent Cloud; and (iii) More Personal Computing. Microsoft is active as a developer and publisher of games for PCs, game consoles and mobile devices as well as a distributor of games for PCs and consoles. In addition, Microsoft offers the Xbox gaming console and related services.
Activision Blizzard is a publicly listed company headquartered in Santa Monica, California, US. Activision Blizzard is active as a developer and publisher of games for PCs, game consoles and mobile devices as well as a distributor of games for PCs.
Merger control and procedure
The Commission has the duty to assess mergers and acquisitions involving companies with a turnover above certain thresholds (see Article 1 of the Merger Regulation) and to prevent concentrations that would significantly impede effective competition in the EEA or any substantial part of it.
The vast majority of notified mergers do not pose competition problems and are cleared after a routine review. From the moment a transaction is notified, the Commission generally has 25 working days to decide whether to grant approval (Phase I) or to start an in-depth investigation (Phase II).
In addition to the current transaction, there are currently four on-going Phase II merger investigations: (i) the proposed acquisition of Pfleiderer Polska by Kronospan; (ii) the proposed acquisition of OMV Slovenija by MOL; (iii) the proposed acquisition of VOO and Brutélé by Orange; and (iv) the proposed acquisition of Alumetal by Hydro.
“Video games attract billions of users all over the world and are among the fastest growing forms of digital entertainment. For years, Microsoft has been a major player across the gaming supply chain. It is acquiring Activision Blizzard, a highly successful producer of gaming content. We must ensure that opportunities remain for future and existing distributors of PC and console video games, as well as for rival suppliers of PC operating systems. The point is to ensure that the gaming ecosystem remains vibrant to the benefit of users in a sector that is evolving at a fast pace. Our in-depth investigation will assess how the deal affects the gaming supply chain.”