Wednesday, February 8, 2023

Observations on the CMA's full 277-page provisional findings report concerning Microsoft's acquisition of Activision Blizzard

After regular UK office hours, the Competition & Markets Authority (CMA) published additional documents, including the full 277-page version of its provisional findings (PDF). Having studied that one, I'd now like to share just a few general observations as a follow-up to my previous post (UK antitrust authority is fine with Microsoft acquiring Candy Crush, and even for Call of Duty does not rule out 'access remedies': major progress since previous statements).

  • The CMA's approach to market definition can be described as saying "OK, we realize we can't define markets as narrowly as we might want to, but we have a wonderful backdoor: we can achieve the same effect through what we call a competitive assessment." I have my doubts about whether that trick, especially to the extent the CMA relies on it, is appeal-proof.

  • Not only does the CMA decline to adopt some of Microsoft's positions but it doesn't buy some of Sony's claims either. Example: "However, we consider that [Sony Interactive Entertainment]'s estimate overstates [Call of Duty]'s importance."

  • The legal standard at this stage is a balance of probabilities, but in a number of places that are key to the CMA's theories I still found words like "may", "might", and "could", even including the final culminating sentence of the entire report:

    "We have also provisionally concluded that the creation of that situation may be expected to result in an SLC in the supply of console gaming in the UK and in the supply of cloud gaming services in the UK, in each case due to vertical effects resulting from input foreclosure." (emphasis added)

  • While that wouldn't be a ground of appeal, I still consider the following a very relevant question:

    If the CMA is all that concerned about content- and feature-based foreclosure strategies that a challenger might engage in (and the provisional findings don't claim that the market would "tip"--in fact, they say that a tipping point isn't required), why isn't the CMA then investigating the undisputed market leader's various agreements with game makers--including the one Sony has in place with Activision Blizzard for Call of Duty--from an exclusive-dealing angle?

    The "as efficient competitor" test wouldn't be a problem here.

  • With a view to what the CMA thinks of Microsoft's 10-year licensing offer to Sony, one has to look at all of the references to that potential remedy. It's fair to say that the CMA is not saying anything that would generally encourage vertical acquirers to offer behavioral remedies, but it's also a fact that the CMA primarily just declined to consider a contract that Sony hasn't signed and that is still subject to change. What's certainly good is that the CMA recognizes Microsoft has always honored comparable agreements after other acquisitions, particularly also vis-à-vis Sony.

    It's not going to be easy for Microsoft to overcome the CMA's reservations concerning contract-based remedies, but looking at the full-length report and the notice of remedies together, I stand by my view that there can be a solution. Sony is always going to reject everything, but what if Sony is at some point unable to present a single convincing (and good-faith) reason to say no? The decisive phase is only beginning now.

  • In those provisional findings, the CMA is being the devil's advocate and assuming the worst that could happen. But the closer it gets to the point of a final decision, the more it will come down to whether there is numerical evidence as opposed to someone believing (or claiming to believe) something.