The CMA's hardball approach to the Microsoft deal paid off - but EU gamers will be left out

A deal with the UK competition watchdog could mean British gamers have more choice than their European counterparts.

Several months ago, the UK’s Competition and Markets Authority seemed to be in a tight spot. It had banned Microsoft from completing its $69bn takeover of gaming giant Activision – leading to loud complaints that the CMA was anti-business. And it soon looked like a global outlier.

US courts threw out the Federal Trade Commission’s attempt to stop the deal and the European Commission was proudly trumpeting the concessions it extracted to clear the deal. Speculation was rife that the CMA was trying to find a minimally embarrassing way to retreat from its decision. Yet the CMA has done far more than save face. Its tough approach has paid off – while the European Commission has left EU gamers short-changed.

Competition authorities’ concerns focused on cloud gaming: a nascent technology which allows consumers to “stream” games over the internet onto devices like PCs, avoiding the need for a specialised console like a PlayStation or Xbox.

Seeing how consumers have jumped on streaming television, this technology could rapidly take off and allow millions more consumers to enjoy gaming. The competition watchdogs, however, are worried that Microsoft would monopolise this technology – it already owns the Windows operating system which many devices use, has one of the few large cloud computing networks necessary for cloud gaming, and would own blockbuster Activision games like Call of Duty.

The European Commission accepted one solution to this problem. Microsoft agreed to allow people who bought an Activision game to use it on another cloud gaming service (a “bring-your-own-game” model). But this remedy was imperfect.

For one thing, gamers want the convenience of using cloud services which already have a portfolio of games ready to play – buying an Activision game first and then moving it to a streaming service is a lot of unnecessary rigmarole. But the Commission could at least boast that its remedy would give consumers more choices than the status quo – Activision games are not available for streaming at all today. The Commission therefore implicitly criticised the CMA for blocking the deal.

The Commission therefore initially looked more business-friendly and more pragmatic than the CMA. But the CMA has now been vindicated. Microsoft has proposed a new deal, which offers much more for consumers. Under new deal, Activision will sell cloud gaming rights to a third company, Ubisoft. Microsoft would acquire the rest of Activision.

If Microsoft wants cloud gaming licences for Activision games, it will have to negotiate (along with all other cloud gaming providers) with Ubisoft. The CMA still needs to scrutinise the new proposal – and will want to be certain that Ubisoft will have the incentives and ability to make Activision cloud gaming licences more widely available. If it waves the deal through, then the cloud gaming market should develop competitively. Gaming services will have more freedom to experiment with different business models. And consumers will get more choices.

So: all’s well that ends well… except in the EU. Because Microsoft had already reached a settlement with the European Commission, the old deal would still apply in the Union – meaning Microsoft will still control licensing of Activision games in the EU. EU consumers would be stuck with a worse deal than consumers everywhere else in the world. Brussels’ trust-busters must regret not pushing for stronger concessions. And EU consumers should be fuming.

Brussels has promised for years to make digital markets more competitive. But apart from levying some large antitrust fines, its approach has not yet delivered many visible consumer benefits. The CMA, on the other hand, is developing a reputation for being tough, principled and incisive. The CMA is right to insist on markets which are genuinely competitive, rather than governed by inflexible concessions put in place solely so large tech companies can make megadeals.

Rather than close the UK off for business, the CMA wants to give Microsoft’s competitors more opportunities to succeed, and UK consumers more choices. EU gamers will be looking on jealously.

Zach Meyers is a senior research fellow at the Centre for European Reform.