Microsoft’s $69 billion Activision takeover could harm gamers, British regulator says

The British competition regulator said Wednesday that Microsoft’s $69 billion acquisition of gaming giant Activision Blizzard could harm competition in the U.K. gaming market.

In a Wednesday press release, the Competition and Markets Authority stated that the takeover would likely lead to a substantial lessening of competition, resulting in higher prices, fewer choices and less innovation.

The CMA has sent letters to Microsoft and Activision Blizzard outlining possible remedies to its concerns. The companies have until Feb. 22 to respond. The regulator has not published its proposed remedies publicly.

The CMA is set to issue a final decision on Apr. 26. It could enforce “behavioral remedies” or require Microsoft to sell Activision or end its attempted takeover.

Activision Blizzard shares were down 4.6% in U.S. pre-market trading Wednesday, following the CMA announcement.

“We are committed to offering effective and easily enforceable solutions that address the CMA’s concerns,” said Rima Alaily, Microsoft corporate vice president and deputy general counsel, in an emailed statement to CNBC.

“Our commitment to grant long term 100% equal access to Call of Duty to Sony, Nintendo, Steam and others preserves the deal’s benefits to gamers and developers and increases competition in the market.”

Microsoft defines “100% equal access” as offering 10 years of parity on content, pricing, features, quality and playability.

“These are provisional findings, which means the CMA sets forth its concerns in writing, and both parties have a chance to respond,” an Activision Blizzard spokesperson said in an emailed statement.

“We hope between now and April we will be able to help the CMA better understand our industry to ensure they can achieve their stated mandate to promote an environment where people can be confident they are getting great choices and fair deals, where competitive, fair-dealing business can innovate and thrive, and where the whole UK economy can grow productively and sustainably.”

Activision CEO Bobby Kotick also sent an internal memo to employees, saying that the company was “confident that the law – and the facts – are on our side.”

He added, “In this case, our combined companies will bring more competition to an already crowded field of world-class gaming competitors, including Sony, Tencent, NetEase, Apple, Amazon, and Facebook. We believe this merger gives us additional resources to compete with such giants.”

The CMA announcement said the regulator was concerned that the Activision deal could strengthen Microsoft’s position in the cloud gaming market, adding lucrative titles to its cloud-based Xbox Game Pass platform. This would let gamers play games on devices other than console, over the internet.

Cloud gaming is still in its infancy and not yet a mass market technology.

The CMA further said the deal could benefit Microsoft’s console business. The tech titan “would find it commercially beneficial to make Activision’s games exclusive to its own consoles (or only available on PlayStation under materially worse conditions),” the regulator said.

Microsoft has made commitments to Sony and Nintendo to continue releasing its new Call of Duty games on their respective PlayStation and Switch gaming platforms for 10 years.

The Activision deal also faces scrutiny in the U.S. and European Union. State-side, the Federal Communications Commission seeks to block the purchase on competition grounds, while the European Commission also has a competition investigation into the transaction. The commission has filed a charge sheet, known as a statement of objections setting forth its concerns about the deal, according to Reuters.