In a new interview, Activision CEO Bobby Kotick had some pretty stinging words for the UK regulatory commission, who are widely rumored to be gearing up to block the big Microsoft Activision merger.
Last year, Microsoft announced its intent to purchase Call of Duty maker Activision Blizzard for a megalithic $69 billion dollars. That would give Microsoft control over franchises like Call of Duty, World of Warcraft, and Candy Crush saga, making it more competitive in a space dominated by Apple, Google, Nintendo, and PlayStation. I've written extensively about why the Microsoft-Activision deal is a good thing for all of gaming, no less for the competition it will bring to other major platform holders while also benefitting fans of Activision's games and franchises.
Activision answers directly to its shareholders, chasing trends and leaving classic franchises like Starcraft languishing in the archives. As a platform holder, Microsoft has already shown a willingness to greenlight niche, smaller games, celebrating fandoms of all shapes and sizes, buoyed by Xbox Game Pass. The recently released Hi-Fi Rush is a prime example of what a platform holder can greenlight — a smaller, cozy single-player experience with a definitive end is not something Activision regularly funds these days, outside of a few rare exceptions. Microsoft has also shown a willingness to play nice with competing platforms, with Minecraft still supported on PlayStation despite how much exclusivity could help boost Xbox's console fortunes.
In any case, Activision's CEO recently took to CNBC to accentuate some of these points while also offering some indication that the UK regulatory CMA body may seek to block the deal.
Kotick covered a range of topics in the short segment, appearing frustrated by how little regulators and politicians of all stripes understood the rapidly changing video game industry. "I don't think they appreciate that the industry is a free-to-play business — that the Japanese and Chinese companies dominate the industry. Look at Sony and Nintendo." Kotick continued, "I think [regulators] are confused on where competition is today."
Kotick explained that the deal is less about Microsoft attacking competing platforms but rather the evolution of technology. Indeed, Microsoft has repeatedly tried to explain that the deal is more about bringing clout to its mobile efforts, a platform with users in the billions rather than tens of millions. Apple and Google reign over mobility and dictate the direction of gaming on those platforms, which aggressively skew towards gambling-baked shallow experiences that seek to manipulate users rather than provide positive experiences. Apple and Google restrict Xbox Game Pass' cloud gaming platform to varying degrees on iOS and Android to prevent Microsoft from offering more traditional gaming experiences. Apple and Google know that if high-quality gaming experiences come to mobile devices, it could hit their bottom lines. In any case, Apple and Google have been relatively quiet on this deal, knowing that further scrutiny of their position in gaming could potentially help Microsoft's case. The most vocal opponent, thus far, has been Sony PlayStation.
Microsoft has subpoenaed Sony in the United States to get more information on why it's so aggressively opposing the deal. Indeed, the UK CMA practically quoted Sony's "concerns" verbatim when it offered its initial analysis of the merger. The UK CMA is expected to give a deeper analysis soon, maybe even as soon as this week. There are widespread rumors that Microsoft expects the UK CMA to fully block the deal, with the NYT citing anonymous sources as such. Microsoft denied the report.
As a Brit with a front-row seat to UK institutional incompetence, I'd be pretty nervous about it too, if I was Microsoft. The UK blocked Meta (Facebook) from purchasing the gif curation platform Giphy a short while ago on pretty spurious grounds. The upshot here is that, unlike in the United States, companies have little recourse to contest a UK CMA ruling. It's with that in mind that Kotick's words to the UK could be indicative of nervousness in the Microsoft camp.
In a response to CNBC's interviewer, Kotick noted the economic situation in the UK. Indeed, the UK is currently experiencing the biggest economic contraction of the so-called G7 group of developed economies, owing in no small part to the self-inflicted gunshot wound that is Brexit.
"Well, if you look at the UK, and you think of the post-Brexit UK, it's probably the first country where you're seeing a recession. The real severe consequences of recession. If you're the UK, with an incredibly educated workforce, places like Cambridge where the best AI and machine learning is, I would think you'd want to embrace a transaction like this where you're going to see job creation and opportunity. It isn't at all about whether it's Sony or Microsoft's platform, it's about the future of technology. [Prime Minister] Rishi Sunak has said that he wants the UK to be seen as the Silicon Valley of Europe. If deals like this can't get through, they'll not be the Silicon Valley, they'll be the Death Valley."
Activision CEO Bobby Kotick on CNBC
The UK government convinced the public to leave ties with its closest economic trading partner while screeching vaguely about how it was going to de-regulate businesses to create investment. Sunak's government has a laughable "Minister of State for Brexit Opportunities" — a position presently vacant, which is illustrative of the lack of opportunities post-Brexit.
The part Kotick seems to misunderstand, however, is the fact that the UK CMA is a body largely independent of the government. I say largely because the elected UK government still has the power to intervene in merger deals on "exceptional" grounds but rarely does so. Furthermore, it's not a stretch to imagine that the UK CMA takes influence from the government on these kinds of matters. In a post-Brexit world, the idea of blocking this deal on "competition" grounds strikes me as odd. It would create long-term viability for Activision, which has been in decline in recent years, while also supporting and creating jobs in the UK, while also promoting competition for a dominant PlayStation. It's likely to strike other companies as odd, particularly those who seek to invest in the so-called deregulated "Silicon Valley of Europe."
The whole episode is just another example of a confused UK establishment that doesn't understand technology. A UK establishment that rejects job creation opportunities on ideological grounds across the board. And a UK establishment that would likely approve the deal in five seconds if ministers thought they or their mates could individually profit from it.
If I was a tech firm, or indeed any firm, why would I want to invest in a country run by such a shambolic fraternity of self-celebratory morons? Death Valley indeed.
Update (Feb 9, 2023): Just to accentuate my point, the CMA did indeed put out its "in-depth" findings of the acquisition yesterday. Therein, they say Microsoft and Activision may be able to "raise prices" on "expensive consoles," while implying those same expensive consoles are somehow a requirement for cloud gaming. You know, cloud gaming you can do on any web browser, including a Samsung Smart Fridge.
I wrote a whole article to explain why the CMA are idiots but they do a better job of putting that point across themselves far more succinctly.
