UK regulator sides with Microsoft over Call of Duty on PlayStation concerns

The UK’s Competition and Markets Authority (CMA) has now sided with Microsoft over concerns the software giant could remove Call of Duty from PlayStation if its proposed Activision Blizzard deal is approved. The regulator still has concerns about the deal’s impact on the cloud gaming market and will complete its investigation by the end of April.

“Having considered the additional evidence provided, we have now provisionally concluded that the merger will not result in a substantial lessening of competition in console gaming services because the cost to Microsoft of withholding Call of Duty from PlayStation would outweigh any gains from taking such action,” says Martin Coleman, chair of the independent panel of experts conducting the CMA’s investigation.

The CMA had originally provisionally concluded that a Microsoft strategy to withhold Call of Duty from PlayStation would be profitable. Microsoft wasn’t happy with that conclusion and publicly criticized the regulator’s math earlier this month, arguing that the CMA’s financial modeling was flawed.

The CMA used a financial model that compares gains on a five-year basis to losses on just a one-year basis, and Microsoft argued it had “clear errors” that ultimately skewed the results. The CMA has now updated its model and admits Microsoft would actually see financial losses if it withheld Call of Duty from PlayStation.

“We have considered the Parties’ and third parties’ submissions on our LTV model and modified the inputs where appropriate,” says the CMA in a filing published today (pdf). “Based on our updated results, our quantitative modelling indicates a total foreclosure strategy would lead to a significant net financial loss for the Parties under all scenarios that we considered plausible.”

Microsoft says it welcomes the CMA’s decision to fix its financial model. “We appreciate the CMA’s rigorous and thorough evaluation of the evidence and welcome its updated provisional findings,” says Rima Alaily, corporate vice president and deputy general counsel for Microsoft, in a statement to The Verge. “This deal will provide more players with more choice in how they play Call of Duty and their favourite games. We look forward to working with the CMA to resolve any outstanding concerns.”

Sony, one of the only opponents to Microsoft’s deal, said in filings with the CMA last month that it was concerned about the proposed Activision Blizzard acquisition and the future of Call of Duty. Sony said it’s worried that Microsoft could raise the price of Call of Duty, make it only available on its own Xbox Game Pass subscription service, and even strategically or incidentally degrade the quality and performance of Call of Duty on PlayStation.

The CMA hasn’t responded to these specific concerns yet, but the regulator clearly isn’t concerned about Microsoft seeking to entirely withhold Call of Duty from PlayStation anymore. Microsoft Gaming CEO Phil Spencer attempted to settle the Call of Duty on PlayStation debate once and for all in November, stating definitively in an interview with The Verge that the game will remain on PlayStation:

The CMA’s stance could now result in Microsoft and Sony signing a deal over Call of Duty on PlayStation. Microsoft has offered Sony a 10-year deal on Call of Duty, but the PlayStation maker has not yet signed the license. “Microsoft has not shown any real commitment to reaching a negotiated outcome,” said Sony in its CMA filing last month. “They have dragged their feet, engaged only when they sensed the regulatory outlook was darkening, and favored negotiating in the media over engaging with SIE.”

Sony may have been holding out for the deal to be blocked, though. Jim Ryan, Sony’s PlayStation chief, reportedly made it clear the company wasn’t interested in a deal with Microsoft. “I don’t want a new Call of Duty deal. I just want to block your merger,” said Ryan on February 21st (the day of EU meetings), according to Activision executive Lulu Cheng Meservey.

Activision Blizzard has now responded to today’s CMA announcement. “The CMA’s updated provisional findings show an improved understanding of the console gaming market and demonstrate a commitment to supporting players and competition,” says Meservey. “Sony’s campaign to protect its dominance by blocking our merger can’t overcome the facts, and Microsoft has already presented effective and enforceable remedies to address each of the CMA’s remaining concerns. We know this deal will benefit competition, innovation, and consumers in the UK.”

While Microsoft has now addressed one key concern over Call of Duty, the CMA is still investigating the impact of its deal on the cloud gaming market. “Our provisional view that this deal raises concerns in the cloud gaming market is not affected by today’s announcement,” says Coleman. “Our investigation remains on course for completion by the end of April.”

Microsoft has been signing cloud gaming deals for its Xbox PC games recently in a fresh bid to win over regulators. The Xbox maker has signed 10-year deals with Boosteroid, Ubitus, and Nvidia to allow Xbox PC games to run on these rival cloud gaming services. This will also include access to Call of Duty and other Activision Blizzard games, if the deal is approved by regulators.

Microsoft is also facing regulatory scrutiny from the European Commission and the Federal Trade Commission (FTC). The FTC sued to block Microsoft’s Activision Blizzard purchase last year, and that investigation is ongoing. Reuters reported earlier this month that Microsoft’s Activision deal is likely to be approved by EU regulators. The two big deals Microsoft struck with Nintendo and Nvidia recently are reportedly likely to satisfy lawmakers in Europe and help the company clear its $68.7 billion deal.

Update, 10:30AM ET: Article updated with statement from Activision Blizzard.