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In context: Microsoft has been on the defensive since announcing its $69.7 billion Activision Blizzard King (Activision) acquisition. Regulators worldwide have had the buyout under the microscope, tying up Microsoft's timeline and forcing it to offer concessions that it says it was planning to provide all along. Now the CMA indicates that it might not grant its approval because it thinks it is bad for UK consumers.
Last week, the UK's Competition and Markets Authority (CMA) came to a provisional conclusion that Microsoft's Activision acquisition could harm gamers in the UK. Specifically, the government watchdog cited the potential for higher prices, fewer choices, and less innovation.
In its heavily redacted findings report, the CMA said internal Microsoft documents admitted that games on Game Pass tended to cannibalize buy-to-play (B2P) sales. According to Redmond bean counters, games placed on its multi-game subscription (MGS) showed a significant decline in B2P sales during the twelve months following their addition to the service. This correlation is logical but flies in the face of what Microsoft has been telling developers and customers for the last 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 even though GP members got to play the game for free, the extra exposure prompted non-subscriber to buy the game.
"When you put a game like Forza Horizon 4 on Game Pass, you instantly have more players of the game, which is actually leading 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, gamers find things to play based on what everybody else is playing."
His theory now seems to be hogwash, but it's unclear if the company knew this then since the information the CMA discussed was from a more recent earnings analysis. However, Microsoft admits that Activision was hesitant to put its IPs on Game Pass or any other MGS platform for fear that it would "severely cannibalize B2P sales, particularly in the case of newer releases."
As far as the CMA's preliminary report is concerned, the Microsoft/Activision deal is on shaky footing at best. While it has not given its final decision, it sounds like it will advise the parties to cancel the acquisition. Does this mean Microsoft will never have Activision under its umbrella? No, but it would thoroughly wreck any planned timelines affecting Activision's immediate valuation, possibly causing a complete renegotiation of a new deal that regulators will likely scrutinize just as much.