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Microsoft's $68.7BN play for Activision heads for in-depth EU antitrust probe too

The $68.7 billion gaming mega-merger between Microsoft and Activision Blizzard is facing in-depth competition scrutiny in the European Union.

EU regulators had been taking a preliminary look at the proposed deal, after the transaction was notified to the bloc's regulators at the end of September. But today the Commission confirmed it will open a deeper probe -- following in the footsteps of the U.K.'s antitrust authority which announced its own in-depth investigation back in September.

In a statement today, the Commission said it's concerned the proposed acquisition could reduce competition in the markets for the distribution of console and PC video games and also for PC operating systems -- with the risk of driving up prices and reducing quality and innovation for consumers. "The Commission's preliminary investigation shows that the transaction may significantly reduce competition on the markets for the distribution of console and PC video games, including multi-game subscription services and/or cloud game streaming services, and for PC operating systems," it wrote.

"The preliminary investigation suggests that Microsoft may have the ability, as well as a potential economic incentive, to engage in foreclosure strategies vis-à-vis Microsoft's rival distributors of console video games, such as preventing these companies from distributing Activision Blizzard's console video games on consoles or degrading the terms and conditions for their use of or access to these video games."

"When it comes to multi-game subscription services and/or cloud game streaming services in particular, the Commission is concerned that, by acquiring Activision Blizzard, Microsoft may foreclose access, to the detriment of its rival distributors of console and PC video games that offer such services, to its own PC and console video games, which are key for the provision of the nascent services of multi-game subscription and cloud game streaming," it added, noting that it is particularly concerned of the risk of foreclosure affecting "high-profile and highly successful games" (so-called ‘AAA' titles) -- such as Activision Blizzard's Call of Duty franchise.

As regards PC operating systems -- an area where Microsoft's Windows platform dominates -- the Commission has concerns that the deal could reduce competition on the PC OS market by reducing the ability of rival providers to compete with Windows if Activision Blizzard's games get combined with Microsoft's distribution of games via cloud game streaming to Windows.

"This would discourage users to buy non-Windows PCs," it suggested, adding: "The preliminary investigation suggests that Microsoft may have the ability, as well as a potential economic incentive, to engage in such conduct vis-à-vis rival providers of PC operating systems."

Commenting in a statement, Margrethe Vestager, Commission EVP in charge of competition policy, added:

Video games attract billions of users all over the world and are among the fastest growing forms of digital entertainment. For years, Microsoft has been a major player across the gaming supply chain. It is acquiring Activision Blizzard, a highly successful producer of gaming content. We must ensure that opportunities remain for future and existing distributors of PC and console video games, as well as for rival suppliers of PC operating systems. The point is to ensure that the gaming ecosystem remains vibrant to the benefit of users in a sector that is evolving at a fast pace. Our in-depth investigation will assess how the deal affects the gaming supply chain.

The Commission now has 90 working days -- until March 23, 2023 -- to take a decision on whether to clear or block the acquisition.

Alternatively, the EU could agree to a conditional approval by accepting commitments from the parties which have the opportunity to propose and negotiate remedies to address competition concerns during the merger review process.

Such a conditional approval might include an agreement to sell part of the combined business or licence technologies to other market players, for example.

Microsoft has previously said it is committed to working with international competition regulators to allay concerns -- but it remains to be seen what the pair might propose to get the deal waived through.

Given the scale of the mega-merger some form of conditional clearance seems the most likely outcome for Microsoft-Activision in the region -- although the Commission's PR contains its standard disclaimer that "the opening of an in-depth inquiry does not prejudge the outcome of the investigation".