Posted by 
LONDON — In the high-stakes game of Big Tech deal-making, Microsoft — and not the British antitrust enforcer — blinked first.
After enduring a fierce, four-month-long lobbying campaign led by senior Microsoft executives, the U.K.’s Competition and Markets Authority (CMA) said on Tuesday it had rejected the U.S. tech giant’s plea to revisit its original decision to block a major gaming merger.
Instead, Microsoft has submitted a new, restructured takeover of Activision for the British watchdog to review, under which it will sell the rights to stream existing and new Activision PC and console games to rival French game maker Ubisoft. The rights Ubisoft will acquire outside of the European Economic Area will be exclusive.
As the CMA’s biggest merger investigation post-Brexit, the case has been seen as a litmus test for the regulator now that Britain is out of the bloc.
Before Brexit, the European Commission had jurisdiction over competition merger investigations, meaning if the U.K. was still an EU member, the deal would have been approved for U.K. consumers when the Commission gave it the green-light back in May.
“This outcome seems likely to cement the CMA’s reputation as a competition authority which doesn’t just talk tough, but also has teeth,” said Zach Meyers, a competition expert at the Centre for European Reform think tank.
‘Closed for business’
The restructuring shows the CMA managed to extract significant concessions from Microsoft in the face of the company’s lobbying.
Microsoft president Brad Smith had declared Britain “clearly closed for business” after the CMA said it intended to block the deal in April, and met with U.K. Chancellor Jeremy Hunt to discuss ways to get the deal over the line.
Hunt said that regulators must “understand wider responsibilities” to promote growth in an intervention seen as sending a signal to the CMA that it had been heavy-handed in its approach to the Activision takeover. However an official familiar with the chancellor’s thinking said Hunt “wasn’t being pointed” with the comment and that the CMA’s independence from government is a competitive strength.
The deal exposed the tension between the government’s post-Brexit de-regulation drive and its desire to show it is taking a strong stance against Big Tech.
Meanwhile Smith’s warnings ruffled feathers, both within Westminster and at the CMA. Some officials perceived it as a political misstep by the Microsoft rep, forcing the regulator to take a harder position to avoid being seen as caving to public pressure, said two U.K. officials who are close to the deal and were granted anonymity to speak candidly.
Microsoft piled more pressure on the CMA to look at the deal again after the European Commission approved the merger and the U.S. Federal Trade Commission lost its own bid to block it. The Seattle-based tech giant sought to portray the U.K. antitrust watchdog as embarking on a foolhardy mission to police the digital world on its own.
But in forcing California-headquartered Activision to sell its stable of cloud gaming titles to French gaming company Ubisoft before going ahead with the Microsoft deal, the CMA stood firm on its concerns that the deal posed a real threat to competition in the nascent cloud gaming sector which Microsoft dominates. The European Commission’s investigation had focused on Microsoft’s share of the traditional console gaming market.
Ubisoft shares surged seven percent on Tuesday morning, adding around €250m to the company’s market value, signaling the significance of a deal whose value has remained undisclosed.
Microsoft will now be hoping the deal is completed before October 18 when its deadline with Activision Blizzard to secure the acquisition runs out. That date is also the CMA’s deadline to decide whether to approve it or refer it to a more detailed investigation. European Commission spokesperson Arianna Podesta said it is “carefully assessing” whether the new deal designed to appease the U.K. watchdogs needs to be notified in the EU again.
Finish line in sight
Observers say both the CMA and Microsoft will see the outcome as a win, since the tech giant will be confident it can get the deal over the line now despite the CMA managing to extract concessions no other regulator did.
Equities analyst Gareth Sutcliffe at Enders Analysis said the restructuring won’t significantly affect Microsoft’s bottom line — for now.
“Microsoft will have diminished margins as they’ve effectively appointed Ubisoft as a reseller. But this is a really small and emerging market at present — Microsoft is still going to be a dominant force in cloud gaming. They’re just relinquishing some pricing control,” Sutcliffe said.
On the domestic scene, the CMA will be seen by policymakers and industry execs to have stood its ground at a delicate time for the regulator. It is about to have its powers to police the digital world boosted by a bill snaking through the British parliament that Big Tech players in particular have voiced alarm at.
“Given some of the recent speculation about alleged politicization of the CMA, this is reassuring news,” said a former CMA official commenting on Tuesday’s decision. They were granted anonymity so they could speak candidly. “I don’t see any evidence this is a result of ministerial pressure and despite some of the more excitable commentary I’d be surprised if it set much of a precedent.”
But some fear the time the CMA has taken to get to this stage will be seized on by Big Tech firms who are lobbying the government to weaken new powers given to the regulator under the Digital Markets, Competition and Consumers Bill. The legislation will make it harder for large firms to buy small, local players.
“Big Tech firms will run with the argument that the CMA is not expert enough in this so we need a proper way to review their decisions,” Meyers, the Centre for European Reform competition expert, added. “But I don’t know whether that will fly because most politicians on both sides of the aisle seem reasonably comfortable with the bill.”
Annabelle Dickson and Giovanna Faggionato contributed reporting.
