Competition authorities heed the Call of Duty?

Microsoft's US $69 billion acquisition of video games developer Activision-Blizzard (‘Activision’) which completed on 13 October 2023 was the world’s largest tech deal so far and the merger inquiries by the UK Competition and Markets Authority ('CMA'), US Federal Trade Commission (‘FTC’) and the European Commission (‘EC’) have provided competition practitioners with all the thrills and spills of Activision’s shoot ‘em-up video game Call of Duty. At the time of writing, it may not even be game over: the FTC has appealed the dismissal of its action for a preliminary injunction to block the acquisition­­­­­­ for US markets which, if successful, could have global implications for the merger.

Following the UK’s exit from the European Union, the UK is no longer within the jurisdiction of the EC for the purpose of the EU Merger Regulation[1] and parties may now face parallel investigations by both the CMA and the EC. In fact, the acquisition has resulted in the most significant divergence of outcomes of merger investigations by the CMA and the EC since Brexit, and in relation to a type of market – cloud streaming – which governments, economists and competition authorities regard as crucially important. This article summarizes the history of the separate merger investigations with particular focus on cloud game streaming markets (‘cloud gaming’), and then looks at the reasons for the divergence between the CMA and EC.

The video game industry

This merger represented the latest in a long-line of vertical acquisitions of key-players in the video games industry by Microsoft.[2] One estimate put the global revenue of the video game industry at US$ 214.2 billion in 2021[3] with around three billion gamers worldwide. Video games have achieved enormous cultural and commercial importance. Titles such as Grand Theft Auto and Mario have the brand power and revenues of movie franchises, and markets recognise that premium, or ‘AAA,’ game content is fundamental to attracting consumers to hardware and platforms. The industry has developed over decades and historically comprised three broad market sectors: game developers who create the code and intellectual property; publishers who distribute and market the games; and companies manufacturing hardware such as consoles, gaming PCs and peripherals.

Cloud game streaming (‘cloud gaming’) is a younger market. It provides customers with the ability to stream games to mobile devices without the need for downloads or expensive hardware. Market players like Nvidia operate server farms and data centres to enable streaming. While in 2021 cloud gaming represented only 2.2 % of the global video games industry by consumer spend, most analysts predict significant growth, with the share of consumer spend more than doubling by 2025.[4] Indeed, when Xbox boss Phil Spencer was asked in 2020 to identify the ‘real’ competitors of his franchise, he named Amazon and Google for their cloud infrastructures, rather than traditional rival Sony, the creator of the PlayStation.[5] For their part, competition authorities regard cloud gaming as a young, complex and dynamic market[6], where a range of new and creative business models are being tested, including ‘Bring your own game’ where gamers can upload games to the streaming service which they purchased elsewhere.

The players and the deal

Microsoft is a games industry behemoth. It sells the Xbox console, has acquired a long series of game developers and publishers and, at an infrastructure level, provides Windows, the leading PC operating system, and the Azure cloud service platform. As well as offering a game subscription library for console and PC users (‘Xbox Game Pass’), Microsoft is already considered the dominant player in cloud gaming, with its Xbox Cloud Gaming service estimated to hold 60-70% of the cloud gaming market worldwide in 2021-2022.[7]

Activision publishes some of the world’s most recognised video games, including Call of Duty which it trumpets as ‘one of the most successful entertainment franchises of all time’[8]. While historically Activision had made Call of Duty and other games available for both Xbox and Sony’s PlayStation consoles, prior to this merger, it had never licenced its titles for use on cloud gaming services. The proposed deal announced in January 2022, through which Microsoft would acquire Activision’s titles for use across its Xbox console gaming, Xbox Game Pass library subscription service and Xbox Cloud Gaming platforms, therefore amounted to a vertical merger. Sony challenged the deal vigorously before competition authorities, arguing that Microsoft would foreclose access to the all-important Call of Duty from its PlayStation gaming platforms when Sony’s existing agreement with Activision expired in three years.[9]

The merger inquiries

The CMA, EC and FTC identified the risk of the merged entity engaging in foreclosure or partial foreclosure of Activision content from rivals in several relevant markets, but initially each identified risks to different combinations of markets within their jurisdiction. Those aspects of the investigations are beyond the scope of this article.[10]

All three authorities identified competition risks to cloud gaming markets within their jurisdictions but their approach to the relevant geographic markets differed somewhat. In its Administrative Complaint, the FTC stated shortly that the relevant market was the USA. The CMA concluded that technical features of streaming limited the relevant geographic market for cloud gaming to the UK but noted that there were multi-national aspects of the market that it would take into account in its investigation. The EC made a more expansive assessment and concluded that the market was ‘at least EEA-wide’ but ‘The geographic market definition can be left open between EEA-wide and worldwide, as the outcome of the analysis will be the same regardless of such distinction.’

Microsoft’s strategic response to the merger inquiries was to enter into agreements in Spring 2023 with three cloud gaming providers (Nvdia, Boosteroid and Ubitus) to make Activision titles available on their platforms for ten years (‘the Cloud Agreements’) and to make public commitments to, and then enter into a formal agreement with Sony in July 2023 to keep Call of Duty available for PlayStation (‘the Sony Agreement’). Meanwhile, the merger inquiries played out as follows:

  • In December 2022, the FTC brought an Administrative Action to block the merger as reasonably likely to substantially lessen competition in relevant markets, contending that Microsoft would have both the ability and incentive to foreclose or downgrade access to Activision titles in those markets.
  • In January 2023, the EC completed its Merger Regulation Phase I and II investigations and issued a Statement of Objections based on perceived impediments to competition in the EEA. The EC entered into negotiations with Microsoft over behavioural remedies.
  • It was at this point that Microsoft began entering into the Cloud Agreements.
  • In April, the CMA issued its Final Report indicating an intention to block the merger in the UK market and rejecting Microsoft’s proposed behavioural remedies.
  • In May, an EC Decision approved the merger on the basis of behavioural Commitments given by Microsoft which were substantially the same as the proposals rejected by the CMA a month earlier.
  • In July, the FTC applied for a preliminary injunction to restrain the merger but the action was dismissed by a Federal District Court on the merits. The FTC appealed to the Ninth Circuit Court of Appeals (‘the Ninth Circuit’).
  • Later that month, Microsoft submitted to the CMA that the EC Decision and other factors represented a Material Change of Circumstances justifying reconsideration of the decision to block the merger. The CMA rejected the submission.
  • In August, Microsoft and Activision submitted a new deal to the CMA for approval, which involved the complete divestiture of cloud streaming rights for Activision games outside the EEA to cloud gaming provider Ubisoft (‘the new deal’). The CMA opened a new merger inquiry.
  • In September, the FTC restored its Administrative Action for adjudication pending the outcome of its appeal to the Ninth Circuit.
  • In October, the CMA approved the new deal for the UK market. The merger completed on 13 October 2023.
  • In December, the Ninth Circuit heard Microsoft’s appeal against the dismissal of its preliminary injunction action. The decision is awaited.

The EC

The EC’s Statement of Objections issued in January 2023 concluded that the merger would result in a significant impediment of effective competition in cloud gaming. To meet those concerns, Microsoft offered commitments (‘the draft EC Commitments’) comprising a licence to cloud gaming services to stream Activision titles for 10 years (‘the streaming licences’) backed with a corresponding licence to consumers.[11] Microsoft also relied on the recently concluded Cloud Agreements, which it argued would assist effective competition in the market.

The EC subjected Microsoft’s proposals to market testing amongst cloud gaming providers, game developers and publishers and makers of rival PC operating systems. The draft EC Commitments went through three iterations before being accepted in May 2023, when the EC issued a Decision approving the merger for the EEA. The EC announced that the EC Commitments were ‘comprehensive and effective and capable of being implemented effectively within a short period of time’. The EC found that:

  • the EC Commitments not only eliminated competition concerns entirely, but they would also significantly advance the development of cloud gaming in the EEA;
  • the EC Commitments were ‘as effective as a structural divestiture’ and went beyond what the merged entity would have been capable of divesting;
  • the streaming licences were based on industry practice and well-known to the market and were similar to the Cloud Agreements which indicated that the terms were adequate and capable of implementation; and
  • all potential business models of cloud gaming would be able to benefit from the streaming licences.


It is first worthy of note that this is likely to be one of the last tech merger investigations completed by the CMA before it obtains new powers once the Digital Markets, Competition and Consumers Bill becomes law.[12] The CMA estimates that video gaming is the largest revenue-generating form of entertainment in the UK[13] and creative industries are considered vitally important for the future UK economy post-Brexit.[14] It was not surprising, therefore, that the deal received the degree of scrutiny which it did in the UK.

In its Final Report, the CMA – similarly to the EC – found that Microsoft would be incentivised to foreclose or downgrade its competitors’ access to Activision titles in cloud gaming, resulting in a Substantial Lessening of Competition (‘SLC’) in the market. However, the CMA took a radically different view from the EC on the appropriate outcome, informed by its lack of faith in behavioural remedies. By way of background, in January 2021, the CMA, the German Bundeskartellamt and the Australian Competition and Consumer Commission issued a ‘Joint statement on merger control enforcement’ (‘the Joint Statement’) which firmly rejected behavioural remedies such as licence agreements in such markets:

‘…the last decade has seen the rise of acquisitive tech giants with activities across multiple current or future markets. Anticompetitive mergers in these markets can cause significant harm given the increased importance of these products and services…The increasing complexity of dynamic markets and the need to undertake forward-looking assessments require competition agencies to favour structural over behavioural remedies. It is widely acknowledged that complex behavioural remedies that create continuing economic links and dependencies are unlikely to recreate the pre-merger competitive intensity of the market, can raise significant circumvention risks, and can quickly become outdated as market conditions change. In some circumstances they can also distort the natural development of the market…’

Microsoft had responded to the CMA’s concerns during the investigation by offering the ‘Microsoft Cloud Remedy’ which, again, comprised a 10-year streaming licence for Activision titles for some cloud gaming services with a corresponding consumer licence. The CMA flatly rejected the Microsoft Cloud Remedy – which it acknowledged was substantially the same as the EC Commitments - for the following reasons:

  • There were (in the CMA’s view) material limitations in the proposals, which would be restricted to cloud streaming providers operating certain business models.
  • There were significant risks that Microsoft would be able to circumvent or refuse to honour the licence agreements because of its market power.
  • Fixed, static, remedies such as licence agreements were unsuitable for a complex and rapidly developing market and the difficulties of effective monitoring over a ten-year period would be disproportionate.

The CMA concluded that it could place ‘little material weight’ on the Microsoft Cloud Remedy and also placed very little weight on the Cloud Agreements, noting that they benefited only three players in a developing market who all operated specific business models. Having rejected the Microsoft Cloud Remedy, the CMA made an interim order on 5 May 2023 preventing Microsoft from acquiring any interest in Activision.[15]

Two weeks later, Microsoft tried again, filing a submission with the CMA that there had been a Material Change of Circumstances, alternatively, there was a Special Reason under the Enterprise Act 2002 which weighed against blocking the merger. Microsoft relied on a combination of the finalisation of the EC Commitments, the Cloud Agreements, and the Sony Agreement. The CMA rejected Microsoft’s submission, dismissing the relevance of the EC Commitments, which it had already considered and rejected in the similar form of the Microsoft Cloud Remedy which:

 ‘…was substantially the same as the [EC] Commitments, and also shared many similarities with the Cloud Agreements. Having already reached our own conclusion based on the evidence before us, we consider that the subsequent adoption of substantially the same remedy….by one or more overseas competition authorities is unlikely to have a material impact on the CMA’s decisions…’

Less than a month later, Microsoft and Activision notified the CMA of a completely new deal structure: outside the EEA, Microsoft would not acquire cloud game streaming rights for any existing or new Activision title created within the next 15 years. Those ex-EEA cloud streaming rights would be divested to cloud streaming service Ubisoft prior to the merger (‘the Ubisoft Divestiture Agreement’). The CMA treated the revised deal structure as a new inquiry and provided consent for the deal to close on 13 October 2023.

The FTC’s preliminary injunction action

In June 2023, the FTC applied for a preliminary injunction under s.13 (b) of the Federal Trade Commission Act to halt the merger pending the outcome of its Administrative Action. Much of the FTC’s strategy and evidence focused on the tent-pole importance of Call of Duty and the alleged risk the merged entity would foreclose or downgrade its competitors’ offering of that game. The injunction action was dismissed by the United States District Court for the Northern District of California on the grounds that the FTC’s underlying Administrative Action failed to meet the s.13 (b) merits test, ‘likelihood of ultimate success’. In particular, the court found that Microsoft’s evidence that it had no incentive to foreclose access to Activision content was ‘overwhelming’, with the court placing significant weight on the Cloud Agreements and Microsoft’s public commitment, supported by trial testimony, to continue shipping the game for Sony’s PlayStation.[16] The FTC has appealed the decision to the Ninth Circuit which heard argument in December 2023, with the evidentiary stage of the FTC’s Administrative Action scheduled to commence 21 days after the Ninth Circuit gives judgment, which is now awaited. The FTC has commented that the Ubisoft Divestiture Agreement presents a ‘whole new facet to the merger’ but that it ‘continues to believe [the] deal is a threat to competition.’[17]

The FTC’s pursuit of its preliminary injunction appeal might appear quixotic in light of the Ubisoft Divestiture Agreement and the completion of the merger. However, the FTC’s Complaint goes beyond cloud gaming and also concerns the premium game console and library subscription markets. Moreover, the 2008 Whole Foods case provides precedent for the FTC successfully challenging a completed merger. In that case, the FTC’s action for a preliminary injunction to block a horizontal merger between two premium grocery store chains failed. After completion, and while the merged entity was divesting stores in a consolidation process, the Fifth Circuit Court of Appeals[18], remanded the injunction action to the District Court for re-hearing. The FTC subsequently negotiated significant divestiture concessions from Whole Foods as part of the settlement of the injunction action.


It is striking that the CMA and EC could reach such radically different assessments of a merger, even allowing for different geographic markets. The CMA has historically taken the position that, as a matter of principle, behavioural remedies are unsuitable for complex, dynamic and unregulated markets. It has also expressed scepticism about the usefulness of market feedback in merger inquiries.[19] By contrast, the EC Decision placed great emphasis on the efficacy of the streaming licences in the Commitments, which it subjected to two rounds of market-testing. The two authorities even reached different technical assessments of the streaming licences, which the EC considered suitable for any conceivable business model that might enter cloud gaming, while the CMA considered the licences suitable for only certain specific models.

Aside from points of principle, two practical aspects of the EC’s approach stand out. First, its positive assessment of the Commitments relied to a significant extent on the streaming licences’ similarity to the Cloud Agreements. This seems to involve a degree of circularity of reasoning: Microsoft concluded the Cloud Agreements with three much weaker competitors as an obvious strategy to evade merger control but the EC then accepted those very agreements as evidence the streaming licences would protect competition for a period of ten years.[20]

Secondly, the EC’s confidence that the Commitments went beyond anything that the merged entity could be capable of divesting may not bear scrutiny in light of the global (ex-EEA) divestment of Activision streaming rights brought about by the CMA’s stance and the Ubisoft Divestiture Agreement.


The CMA and FTC merger investigations have demonstrated a welcome steeliness in the face of sustained criticism and second-guessing by the media, industry players and politicians. Two big questions remain: first, what will be the outcome of the FTC’s appeal to the Ninth Circuit and its implications for the merger globally?

Secondly, will this be the last, or the first of a series of divergent outcomes between investigations by the CMA and EC of mergers in digital markets? The fact that the CMA and EC have such different philosophies towards behavioural remedies suggests there may be deals in the future where the parties can satisfy the EC with appropriate remedies but not the CMA, leading to more divergent outcomes. But at a macro-level, competition authorities including the CMA and EC re-affirmed their belief in the importance of regulatory cooperation in digital markets at the G7 summit in Hiroshima in November 2023[21]. Some commentators believe the CMA’s position on Microsoft-Activision was part of a CMA strategy to demonstrate its independence post-Brexit, and build confidence and regulatory muscle by taking on heavyweights such as Microsoft. Even if that analysis is correct, those imperatives may not apply to the same extent for the CMA in future investigations.

Whatever the future holds for parallel CMA and EC investigations, in relation to Microsoft-Activision, practitioners will be keenly aware that competition in the multi-billion Euro cloud gaming market is now protected by a series of streaming licences on which the CMA placed ‘little material weight’. It may be even more necessary than usual for private enforcement to play its part in protecting competition in those EEA markets, in order to ensure meaningful enforcement of competition law and policy where ex ante public enforcement may not result in effective competition.

*Jeremy Collins is Senior Associate in London 


[1] Council Regulation (EC) No. 139/2004 of 20 January 2004 on the control of concentrations between undertakings.
[2] Its most recent acquisition prior to the merger was the video game holding company ZeniMax Media in 2020 for US$ 8.1 billion.
[3] PwC's Global Entertainment & Media Outlook 2022-2026, cited by the World Economic Forum.
[4] Paragraph 8.54 (b) of the CMA’s Final Report dated 26 April 2023.
[5] Quoted in ‘Why big tech is betting big on gaming in 2020’, Protocol magazine, 5 February 2020.
[6] See for example paragraph 76 of the CMA’s Final Report dated 26 April 2023 and paragraph 456 of the Commission Decision of 15.05.23
[7] CMA Final Report dated 26 April 2023, Table 8.2.
[8] Activision’s own words, cited by the FTC at paragraph 59 of its Administrative Complaint.
[9] Financial Times, 7 September 2022.
[10] The EC investigated competition risks to the market for PC operating systems which neither the FTC nor CMA identified. The CMA and EC satisfied themselves that there were no risks to the markets for game consoles but the FTC continues to pursue a complaint in relation to the premium game console market in the USA. The FTC is also pursuing a complaint in relation to the game library subscription market, whereas the CMA and EC did not.
[11] Microsoft’s proposals included the typical provisions that the Commitments would be policed by a monitoring trustee and the licences would be subject to a dispute resolution process.
[12] For more detail, see: ‘One size fits one? The challenge of “tailored” regulation in digital markets in the UK’, Lesley Hannah and Alex Cooper, Hausfeld Competition Bulletin, 15 November 2023.
[13] CMA Final Report, paragraph 12.
[14] See for example the UK Department for Culture, Media & Sport’s policy paper, ‘Creative industries sector vision: a joint plan to drive growth, build talent and develop skills’, updated 20 June 2023.
[15] Microsoft applied to the UK Competition Appeal Tribunal (‘CAT’) to challenge the CMA’s Decision but the proceedings were ultimately stayed without a decision by the CAT.
[16] The court handed down judgment six days before Microsoft went one step further and entered into the Sony Agreement.
[17] FTC spokeswoman Victoria Graham, 13 October 2023 (Reuters)
[18] 548 F.3d 1028 (D.C. Cir. 2008)
[19] ‘…it is not uncommon for some firms (whether suppliers, competitors or customers) to be reluctant to jeopardise their commercial relationship with the merged firm, particularly if the merged firm is a key customer or supplier…’ The Joint Statement.
[20] In its recent injunction appeal to the Ninth Circuit, counsel for the FTC criticized the lower court on similar grounds: ‘What the district court relied on, mostly, are contracts that were entered into, after the [FTC] complaint was filed’ - FTC counsel Iman Dean Abyad during oral argument, quoted by CNN.
[21] 2023 Compendium of approaches to improving competition in digital markets, 7 November 2023.

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