MLex reports that the European Commission has sent Microsoft a Statement of Objections (SO) over the acquisition of Activision Blizzard King (NASDAQ:ATVI). The MLex report also contains a quote from Microsoft, which is neither a confirmation nor a denial of the SO. I don't doubt what MLex says, so the SO has come down and the EC will probably confirm it soon.
The week before the SO, the European Commission's Executive Vice President Margrethe Vestager met with Sony's PlayStation chief Jim Ryan. Microsoft subsequently accused Sony of having lied to "people in Brussels" (which may or may not include the EC) about the parity aspect of the ten-year Call of Duty license it is offering.
The global set of Microsoft-ActivisionBlizzard merger review processes may be approaching an inflection point now in the positive sense of going around the final curve and entering into the home stretch. MLex found out earlier that the EC's Directorate General for Competition (DG COMP) and Microsoft are talking about what a clearance decision conditioned upon specific commitments could look like, but that an SO would come prior to a potential agreement that would be the EU equivalent of a U.S. consent decree. Similarly, the UK Competition & Markets Authority (CMA) will publish its provisional findings these days. Those were scheduled for late January or early February, and January is already over in the UK as I write this post. The EU SO and the UK provisional findings may just be necessary milestones.
Not long after MLex reported on the SO, Microsoft said in a U.S. court filing that the deal will not consummate before May 1 at the earliest, but no reference is made to the SO.
As long as the Commission and Microsoft haven't agreed, anything can happen, from unconditional clearance to conditional clearance all the way to a blocking decision that Microsoft would have to appeal to the EU General Court. But the situation in Europe may indeed be different from the state of affairs in the U.S., where at a recent hearing the Federal Trade Commission said there were no substantive settlement talks going on. And Bloomberg quoted a former U.S. antitrust official who claims that the FTC rushed to court in order to discourage the EC from striking an agreement with Microsoft. I can't verify that claim, nor is it wholly implausible. There was a time, though, when it would have been counterintuitive for the U.S. government to torpedo a U.S.-U.S. merger that strengthens the U.S. economy vis-à-vis large Asian rivals. Should that story be true, it would serve to show that the FTC will come under serious settlement pressure once the EU has approved the transaction.
The DG COMP-FTC difference in constructiveness is most likely attributable to different levels of risk aversion:
Some observers believe the FTC may not give a damn about losing in court, and may even consider it a sacrifice they just have to make in order to "reset" merger laws, though I have my doubts that such a strategy of running into surefire defeats will impress Congress all that much.
Not only the FTC but also the current DOJ never appears to get tired of losing. The FTC and DOJ's guiding principle these days--including this month's new United States et al. v. Google antitrust lawsuit, which is to some extent an "undo merger" case--reminds me of two quotes:
"The possible has been tried and failed. Now it's time to try the impossible."
"You have to try the impossible to achieve the possible."
By contrast, Mrs. Vestager, who is in charge of antitrust enforcement as well as digital industry policy, does not appear to have an appetite for losing. The sole exception may be the Apple-Ireland tax case, where she identified a real issue but tried to shoehorn it into state aid law, which the EUGC flatly rejected in a ruling that the European Court of Justice (ECJ) will probably affirm. The Apple tax case raised an issue that must be solved at the political level, and the "state aid" case served to draw attention to a structural problem that hasn't really been solved but at least Mrs. Vestager tried.
When it comes to merger, cartel, and unilateral conduct cases, however, Mrs. Vestager does not run into surefire defeats. For instance, after the EUGC reversed DG COMP's Qualcomm decision last year, the Commission refrained from appealing the case to the ECJ. When I saw the EUGC's Qualcomm decision, I also found it hard to see how the Commission could have raised a material question of law with the top EU court.
The Microsoft-ActivisionBlizzard SO, in and of itself, does not pose any risk to DG COMP's track record. What the Commission achieves this way are two things:
DG COMP shows that the times of waving Big Tech's acquisitions through are over. This will discourage other such deals. Potential acquirers feel the strong headwinds. The shareholders of potential acquisition targets will prefer strategic alternatives that don't get delayed and potentially derailed by regulators.
The Commission also demonstrates that it is not "softer" than the FTC and DOJ (and, potentially, the UK Competition & Markets Authority, whose comparable procedural milestone--called provisional findings--is also around the corner). Maybe more solution-oriented, but still pretty tough.
As I said in my post on the New Zealand Commerce Commission's postponement of its decision, a certain group of competition enforcers may now be trying to synchronize their proceedings. That doesn't mean to walk in complete lockstep, but to align schedules to some degree and to take similar procedural steps. Some other antitrust agencies, most recently Chile's FNE, have not had qualms over granting unconditional clearance to this transaction, which is the legally sound thing to do (and at least the Brazilian and Chilean decisions were definitely well-reasoned; in fact, they resembled what U.S. and EU competition authorities would have done five or ten years ago if presented with the same set of facts, and it's not the law that has changed, but politics).
There are no serious issues, so the SO is more of a statement than there can be serious objections:
There will still be plenty of competition--as opposed to massive concentration--in the highly fragmented games business. And there will always be new major game makers of the kind no one even knows today.
In the console market, Sony is and will remain the market leader. Merger reviews are not meant to cement someone's market leadership, but even if that were the name of the game, it wouldn't matter:
Most Call of Duty gamers would rather switch games than consoles if they had to, but they wouldn't have to because
Microsoft has no incentive for such a foreclosure strategy and, at any rate,
has offered Sony a ten-year license as everyone knows.
Even if--in an alternative universe--foreclosure occurred and everyone who plays CoD on a PlayStation today switched to the Xbox, Sony would still be the market leader (by far).
The cloud gaming market is new. Some have entered, some are preparing to enter, some (such as Google, a company no third party could trust to really be committed to anything other than its search engine business and maybe its cloud platform) have left. In any event, the ten-year license offer includes subscription services.
Windows is an open platform where anybody can offer anything. No app review like on the mobile platforms; no app tax.
In light of the foregoing, no procompetitive justifications are needed, but there really is a procompetitive aspect here that I--as an app developer who formally complained to DG COMP and others over the Apple-Google duopoly's app distribution terms and policies--care about: Microsoft's plans for a universal (cross-platform) app store. In order for the European Union's Digital Markets Act (DMA) to make an actual impact on the market, it takes not only the law but also serious challenges to the Goopple duopoly. That's where apps like Candy Crush come in.
The sole vocal complainer is Sony, and there are clear signs now of its reluctance to put all the facts (concerning its own content-centric strategy) on the table.
The facts being what they are, the question is not whether regulators can on a legally defensible basis object to the consummation of this transaction. It's only a question of whether or not a given regulator is happy to lose in court.
There was a time when U.S. policy makers, competition enforcers, academics, lawyers, and companies accused the EU of stretching the envelope of competition law. The EU now has the opportunity to become the first major jurisdiction to play hard but fair, to make a strong statement as it has with the SO, but to work it out. (Let me nuance "first major jurisdiction", though: as I made clear before, I have a lot of respect for the work done by Brazil's CADE and Chile's FNE on this matter, and believe they are rising stars in antitrust enforcement, but the U.S. is and historically will remain the cradle of antitrust enforcement, the EU often leads the way in digital market regulation, and the UK CMA has become very important as a result of Brexit.)
