Xbox |OT|

[Ryuu96]

I have notes.

I think there may be a massive misread going on here of what the CMA has put out so far. Everyone is operating under the assumption that divesting COD is sufficient. As far as I can tell, this document does not say that.

It says that it is considering structural remedies including A) divesting COD, B) Divesting Activision, C) Divesting Activision and Blizzard, and D) outright prohibition of the merger, and that it has found that a structural remedy could resolve the SLC. As far as I can tell, we don't know that the finding is that option A will satisfy it, but everyone appears to be assuming that we know this. That might be what the CMA is going to say, but I think we need a bit more info to be sure. Sometimes the CMA will consider a particular remedy and explain why it would be insufficient, on a path to selecting a more intense remedy.

The door appears to be *slightly* cracked open on behavioral remedies. The CMA pretty strongly dislikes behavioral remedies, and they don't believe that those alone are appropriate in this case, but I expect the door is open just wide enough for Microsoft to still try to convince them, as follows:

Paragraph 15 of the Notice of Possible Remedies lays out a three part test for whether a behavioral remedy can be sufficient as the primary remedy, only one part of which, strictly speaking, would need to be satisfied. There is an argument that Microsoft can, and probably will make, that part C) of the test applies: "behavioural measures will preserve substantial relevant customer benefits (RCBs) that would be largely removed by structural remedies."

Paragraphs 50-51 further explain what the CMA sees as RCB's:

"50. RCBs are limited by the Act to benefits to customers in the form of: (a) 'lower prices, higher quality or greater choice of goods or services in any market in the United Kingdom (whether or not in the market(s) in which the SLC has occurred or may occur) or (b) greater innovation in relation to such goods or services.

51. The Act provides that a benefit is only an RCB if: (a) it accrues or may be expected to accrue to relevant customers within the UK within a reasonable period from the creation of the relevant merger situation and as a result of the creation of that situation; and (b) it was, or is, unlikely to accrue without the creation of that situation or a similar lessening of competition."

Specifically, there is an argument to be made here that the ability to access Call of Duty on Gamepass, Nintendo, and Steam represent a greater choice which is expected to accrue in the case of the merger and as a result of it but that would be unlikely to accrue without that merger. The CMA is soliciting opinions on the relevant RCB's and costs of specific remedies (See Paragraph 52) and RCB's have not been addressed in detail, although the CMA's initial impression is that they would not be substantial (See paragraph 16).

I fully expect that Microsoft attorneys are already hard at work preparing arguments that there is a substantial RCB that will be lost if Microsoft doesn't end up controlling Call of Duty, and that this loss outweighs the reduction of any SLC, particularly with the contractual behavioral remedies that Microsoft already has in place, and possibly with the addition of additional behavioral remedies relating to cloud gaming. They may couple this with an argument that appropriate purchasers for proposed divestitures are not available.

The CMA's initial findings were bad news for Microsoft. They were bad news for Activision. They were bad news for anyone who wants this deal to go forward, and great news for anyone who doesn't. Trying to sell the CMA on behavioral remedies is a Herculean task. I do think the door has been left open just enough for Microsoft to try, and that Microsoft is all but certain to try. That does not mean that they will succeed. That does not mean that they won't find another offramp, either by divesting assets or abandoning the transaction. What it does mean is that we are still in for a wild ride, at least for a while.

Lawyer on Era