UK regulator softens stance on Microsoft-Activision competition concerns

Shares of Activision Blizzard rose on Friday, after the UK’s Competition and Markets Authority narrowed its investigation into Microsoft’s acquisition of the game publisher.

The development represents a partial win for Microsoft, as it seeks to expand its video game business. The Redmond, Washington tech giant has deepened its focus on gaming with massive acquisitions, such as its purchase of ZeniMax Media, the parent company of Bethesda Softworks.

In February, the Capital Markets Authority published interim results from its investigation into the takeover, noting at the time that the deal could lead to higher prices, fewer choices, and less innovation. Among its concerns, the regulator noted that the deal would significantly reduce competition in the console gaming market.

Since then, the regulator has received a “significant amount” of feedback from various industry participants regarding the deal. With this new evidence, the CMA now says it no longer believes the deal will hinder competition in console games.

“After considering the additional evidence presented, we have now tentatively concluded that a merger would not significantly reduce competition in console game services because the cost to Microsoft of blocking Call of Duty from PlayStation would outweigh any gains from taking such action,” Martin Coleman said. The head of the independent panel of experts conducting the CMA’s investigations, in a statement on Friday.

“Our provisional view that this transaction raises concerns in the cloud gaming market is not affected by today’s announcement. Our investigation remains on course to conclude by the end of April.”

Shares of Activision Blizzard are up more than 6% in US premarket trading. Microsoft shares fell slightly amid a broad market slump.

The CMA’s announcement comes after the US tech giant also won the support of some companies that were either opposing the deal or sitting on the fence.

One of the main concerns from Microsoft’s competitors was that the deal would block distribution access to Activision’s crown jewel franchise – “Call of Duty”. Last month, Microsoft said it signed a “binding 10-year legal agreement” to bring Call of Duty to Nintendo gamers on the same day as Microsoft’s Xbox, “with full parity in features and content.”

Additionally, Microsoft signed a deal with Nvidia to bring Xbox games to Nvidia’s GeForce Now cloud gaming service. Microsoft said it will also bring Activision’s game library to Nvidia’s service, if the acquisition closes. Nvidia was reportedly against Microsoft’s acquisition of Activision.

But Microsoft has yet to bring its biggest competitor, Sony, which owns the PlayStation console, into the game. Microsoft President Brad Smith told CNBC last month that the company is offering Sony the same agreement it did with Nintendo — to make Call of Duty available on PlayStation at the same time as on Xbox, with the same features. Sony remains opposed to the deal.

“We appreciate the CMA’s careful and comprehensive assessment of the evidence and welcome its updated interim findings,” a Microsoft spokesperson told CNBC via email.

“This deal will provide players more choice in how they play Call of Duty and their favorite games. We look forward to working with CMA to resolve any outstanding concerns.”

An Activision spokesperson told CNBC that the CMA’s updated interim results “demonstrate a better understanding of the console gaming market and demonstrate a commitment to player support and competition.”

“Sony’s campaign to protect its dominance by banning our merger cannot overcome the facts, and Microsoft has already delivered effective and actionable remedies to address all remaining CMA concerns. We know this deal will benefit UK competition, innovation and consumers.”

Microsoft isn’t completely off the hook.

The CMA says it still has reservations about the deal as it relates to cloud gaming, where gaming content is delivered from remote servers rather than the device’s internal memory. Notably, cloud gaming is still in its infancy and is not a mass market technology.

In its interim conclusions, the CMA suggested that Microsoft may need to withdraw part or all of Activision — or its CoD franchise — to resolve its concerns. The CMA has not provided an update on whether it believes this is still a potential solution.

The International Atomic Energy Agency will make its final decision on April 26.

Microsoft also continues to face uncertainty from regulators in the United States and the European Union. Smith traveled to Brussels last month to meet with EU regulators. In the United States, the Federal Trade Commission filed an antitrust suit against Microsoft in an effort to block the Activision deal.

Some major companies maintain reservations about the acquisition, including Google subsidiary Alphabet. According to Bloomberg.

– CNBC’s Steve Kovac contributed to this report