How Microsoft hopes to defeat the CMA's block against its ABK acquisition

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The UK's Competition Appeal Tribunal has published a summary of Microsoft's appeal against the block against its proposed acquisition of Activision Blizzard, lending more insight into how it hopes to overturn the decision.

Microsoft filed its appeal with the CAT last week following the Competition and Markets Authority's announcement in April that it would not approve the $68.7 billion deal.

The Xbox firm's arguments to the CAT centre around proving the CMA was flawed in how it reached its decision, centring around five key points:

1. "Fundamental errors" in the CMA's assessment

Microsoft claimed the CMA made several "fundamental errors" in assessing the platform holder's position in cloud gaming, in part because it failed to factor in the role of native gaming (i.e. users playing games installed on their devices).

The appeal alleged that the CMA failed to consider the potential for users switching to native gaming, resulting in the "flawed conclusion" that cloud gaming services are a separate product market. So far, Microsoft has primarily positioned its own Xbox Cloud Gaming as an add-on service to Game Pass subscribers, allowing them to continue their play session on the move.

Microsoft also claimed the CMA made errors in its calculation and assessment of the market share for cloud gaming services. GamesIndustry.biz spoke to analysts last week about cloud gaming, with one citing an Omdia report that estimates cloud gaming will still only account for 6% of total consumer spending by 2026.

2. Failing to take into account agreements with cloud gaming providers

The Xbox firm said the Competition and Markets Authority failed to take into account three long-term commercial agreements it has established with cloud gaming providers to add Microsoft and (if the acquisition goes through) Activision Blizzard games to their services.

The summary does not name the providers in the three agreements, but it's likely to refer to the ten-year deals signed with Nvidia GeForce Now, Boosteroid and Ubitus. Microsoft has also signed a similar deal with UK mobile provider EE.

That said, the difference may be that these services are not multi-game subscription offerings like Xbox Cloud Gaming or indeed your typical cloud entertainment services such as Netflix or Spotify. Instead, these are services that require you first to purchase a game individually on other platforms, such as Steam, before you can then access a cloud version of it.

3. Activision's cloud intentions

Microsoft disputed the CMA's claim that Activision would have made its games available on other cloud gaming services if it was not acquired.

In addition to this being based on the assumption that Microsoft will make Activision Blizzard's games exclusive to its own service – something discussed more in the next point – Microsoft said this finding was "irrational and arrived at in a procedurally unfair manner."

4. Microsoft foreclosing rival cloud gaming services

According to the CMA's decision, one of the UK regulator's concerns was that Microsoft having exclusive access to Activision Blizzard's titles when it comes to cloud gaming would lead to the shutdown of rival services, disrupting competition in the cloud gaming market.

In its appeal, Microsoft claimed this decision was "unlawful" and affected by multiple errors.

It claimed the CMA "wrongly relied" on evidence that AAA games would be important for the growth of cloud gaming, and that Activision's titles in particular would hold such importance. Opinions on this will vary, although it's perhaps worth noting that in times of economic uncertainty, players often gravitate towards established AAA brands for their gaming needs, and Call of Duty alone is one of the most successful AAA brands in the market.

Microsoft also said the CMA failed to take into account the evidence regarding the Xbox firm's own losses if it were to withhold Activision Blizzard games from other services and platforms, emphasising that it has no incentive to do so. Prior to its decision, the CMA did acknowledge that this was certainly the case in the console space, finding that doing so would be "significantly loss-making [for Xbox] under any plausible scenario."

The platform holder also reiterated its claim that the regulator did not factor in its various ten-year deals to bring Xbox and Activision games to other services.

5. Remedies and the CMA's duty

Finally, Microsoft argued that the CMA "erred in law" by failing to consider a range of remedies the platform holder proposed and instead imposing its decision.

The company said the CMA erred by rejecting what it refers to as the 'Microsoft Cloud Remedy,' likely a similar agreement to the one that won over the European Commission, i.e. a free licence to all users to access their Activison Blizzard titles on any cloud gaming service of their choice, and a similar licence for any cloud gaming service to enable this.

Microsoft also claimed the decision to block its acquisitions of Activision Blizzard is in breach of the CMA's common law duty of fairness and its own remedies guidance.

What happens next

Microsoft is calling for the Tribunal to issue an order that will quash the CMA's decision "in its entirety" and for the CMA to pay the costs of its application to the CAT, as well as any further relief the Tribunal deems necessary.

The CAT will hold a case management conference to discuss the appeal this afternoon, although it is not clear when a decision will be made. On its website, the Tribunal states it aims to complete "straighforward" cases (e.g. those that do not involve a significant number of parties) within nine months.

You can find out more about the regulatory hurdles Microsoft and Activision Blizzard face in our extensive primer.

Update: Activision Blizzard has likewise filed its own appeal, the publisher told GamesIndustry.biz.

"The CMA's decision ignores the facts, the law, and all commercial reality," a representative said. "We're looking forward to working with [Microsoft] to get this deeply flawed decision reversed."

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