Is the Microsoft-Activision Merger Falling Apart?

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Yesterday, the UK’s Competition and Markets Authority told Microsoft that it has to either abandon or seriously rework its proposed $69 billion acquisition of gaming publisher Activision.

The CMA argued that Microsoft has an incentive to make games exclusive to its own platforms, and Activision - particularly because of its control of the Call of Duty franchise - is an important game publisher. More interestingly, this case seems to be less about consoles and more about cloud gaming services, which is how gaming will happen in the future. People will play games on whatever device they have, and the computing will happen elsewhere. Microsoft has 60-70% of the market in that area, and the CMA believes this acquisition will cement its dominance. Like the Meta-Within acquisition, this case is about preventing monopoly in a market that isn’t a big deal now, but is poised to become important.

The CMA’s move follows on the EU Competition Authority offering its own ‘Statement of Objections’ to the merger. Unlike in the U.S., courts in Europe and the UK play a much smaller role in merger challenges. Over the next few weeks, Microsoft will respond to regulatory concerns with proposed changes to the merger. If they don’t satisfy the CMA and EU, the merger will be blocked. There’s an appeal process, but it’s not easy.

So now, the American, European, and British enforcers have all said that this merger is highly problematic or should not go through. Just a few years ago, the near collapse of the biggest merger of the year would have been a massive story. But there’s an endless amount of populist policy coming from the Biden administration, so this kind of action has become normalized.

For instance, just this week, there was not only the State of the Union, but CFPB Director Rohit Chopra banned pay-to-play arrangements in digital comparison mortgage and finance websites, the Antitrust Division blocked a merger in the seamless tubing and production casing industry for oil pipelines, and enforcers withdrew three policy guides allowing health care middlemen to collude with one another.

Nevertheless, the coming apart of the Microsoft-Activision merger isn’t a small deal. Antitrust is impacting policy in unseen ways; the head of Apple’s product design team just let it slip that the iPhone is being redesigned to be more repairable. I doubt Apple would admit it’s because of American and global scrutiny around the ‘right to repair,’ but that’s clearly what’s happening. Similarly, the mergers and acquisitions game has changed, with dealmakers expecting “deep antitrust scrutiny because that's just how things now work” on transactions that used to go through without a hitch. Maybe that’s one reason mergers in the U.S. are down 76% year to date. It’s not the only reason; financing arrangements have changed.

But the environment for monopolies, both domestically and abroad, is getting more and more inhospitable.