The UK Competition & Markets Authority (CMA) gives antitrust enforcement a bad name. Reasonable competition enforcers in other jurisdictions will have to be increasingly skeptical of whatever comes out of that agency, which from time to time does things that no reasonable competition authority would ever do. And why should any other antitrust authority take an agency seriously that has to correct a preliminary ruling because it compared five years of foreclosure benefits to one year of costs?
It's a major coincidence that on Tuesday--April 25, 2023--the day before the CMA irrationally and nonsensically blocked the Microsoft-ActivisionBlizzard merger--the founder of Deliveroo exposed another example of the CMA's occasionally irresponsible actions that harm companies and workers, resulting in job losses over meritless concerns that the CMA ultimately had to drop after 18 long months. In a podcast he was so angry he called the CMA's actions "total bullshit" and even used the F-word.
The CMA's regulatory hubris and institutionalized excess is a serious problem for the UK economy, and due to Brexit, it increasingly affects foreign companies. It wouldn't have to be that way if the CMA had a modicum of regulatory humility. The CMA, which was formed in 2013 through the combination of two other government agencies, was at best a B-movie studio (or a second-division team like Stockport County FC) until Brexit suddenly gave it influence over the world's fifth-largest economy. Prior to Brexit, they only got the scraps: all the global-player cases used to pass them by because they'd be handled in Brussels: by the much larger, much more experienced, and much more measured Directorate-General for Competition (DG COMP) of the European Commission, whose decisions are--if all else fails--fully reviewable by the EU General Court.
Before any Stockport County FC fans feel offended: I'm sure they play the game at a higher level than comparing five years of benefits to one year of costs. Otherwise they'd have been relegated a long time ago.
The CMA would have had to understand that it simply lacked the experience to handle high-stakes cases of global--and major political--ramifications. It needed time. It doesn't even have industry experts, unlike DG COMP (I'll discuss that in more detail some other time). The CMA would have had to tread carefully, avoiding mistakes that may be seen as stupid by some and experienced as harmful by others. But it was apparently too tempting for some people to exercise their increased power in unreasonable and irresponsible ways.
The problem has reached such proportions that politicians are now becoming aware of the need to act.
They do read the Financial Times in London, including the ones who have the power to restructure the CMA or replace its leadership if they want. Presumably also the one who wants the UK to become the next Silicon Valley: His Majesty's prime minister.
Yesterday, the FT wrote: UK tech scene raises alarm over block to Microsoft-Activision deal
The subhead: "Investors and entrepreneurs assess potential damage to British tech industry following blow to $75bn gaming takeover"
The article quotes venture investor Ophelia Brown as saying that this is the opposite of "encouraging innovation" and "more bad PR for UK tech and very disappointing."
Through that article I became aware of the April 25, 2023 episode of the Business Studies podcast: "Will Shu and Deliveroo"
Deliveroo, a food delivery service for the few who don't know it, is listed in London and worth approximately two billion UK pounds. In the last part, starting at minute 27, Mr. Shu gets asked about the minority investment Amazon made into Deliveroo. He tells the story of how they got introduced to Amazon, and then doesn't mince words when talking about the CMA:
Amazon was just buying 13% of the company's stock with no special rights. I repeat: with no special rights.
But the CMA has its own approach to numbers: in its provisional findings in the Microsoft-ABK case, they compared five years of benefits to one year of costs. In the final decision they said Microsoft had a 60-70% share of the cloud gaming market by simply counting every subscriber to Microsoft's multi-game subscription service Game Pass Ultimate as a cloud gamer when in reality most of those users play locally on PCs or consoles (and in many countries, xCloud is not even available as I explained in my previous post).
The process lasted 18 months though in the end the CMA had to clear the transaction. 18 months.
The problem is that at the time (a few years back), Deliveroo needed cash urgently. They were investing in growth and needed outside funding. Due to the CMA's baseless obstruction, the money couldn't be made available to Deliveroo.
They had to lay off 30% of their staff. Only because the CMA held up the investment for 18 months and no reason.
In light of that, it's understandable that Mr. Shu minces no words: he calls this "total bullshit" and describes it as "killing companies." He even uses the F-word in the podcast.
He also complained that they treated him like a criminal when he had to testify in front of panels, with reminders of his criminal liability and everything. While antitrust authorities do have to ask tough questions and elicit truthful answers as they investigate, the circumstances of this case--a minority investment with no special rights--and the fact that jobs were being killed by the CMA are questionable. Apparently Mr. Shu felt he was being treated like in a medieval inquisition proceeding or by a police state--for simply wanting to sell 13% of the company's shares with no special rights...
The CMA is also getting bad press over its cloud-gaming theory of harm.
I'm very active on Twitter and apart from some Sony fans (who don't understand that what Sony is doing is not even in the interest of PlayStation users), gamers are speechless how insanely wrong the CMA is on cloud gaming.
I've seen numerous tweets and various posts on a couple of gamer discussion boards where people looked at the CMA decision and immediately identified that the CMA got the cloud-gaming market share figure wrong. 60-70% is crazy. In fact, even the Sony-supported class-action lawyers (who filed their opposition (PDF) to Microsoft's motion to dismiss their amended complaint a few hours ago) arrived at 40%. Even that number is too high. The difference may be due to a simple fact: at some point a number is not just wrong by U.S. standards, but gives rise to a Rule 11 violation with potential sanctions on counsel. The CMA's Inquiry Group, however, does not have to respect a similar rule. It can say whatever it wants, though the Competition Appeal Tribunal won't find it hard in this case to identify "irrational" findings (that's officially the standard of review).
A senior reporter for a major games-specialized website, Kotaku's Ethan Gach, published an excellent article yesterday: The Reason Regulators Blocked Microsoft's Activision Deal Makes No Sense
Instead of trying to rationalize why the CMA chose cloud gaming as the hill to die on I'm just gona point out what everyone knows in their heart: makes no god damn sense https://t.co/UIj2nxwN3Y
— AmericanTruckSongs9 (@ethangach) April 28, 2023
Yes, it cannot be rationalized what the CMA's Inquiry Group did, just like comparing five years of benefits to one year or profits couldn't be rationalized--but that wasn't a final decision. At least there was an easy fix. But they essentially imported all of their crazy earlier theories--the conglomerate theory about Windows and Azure as well as the PlayStation theory--into the remaining theory, in illogical ways.
It's not just that Kotaku, which is neutral about this case (it's not an Xbox-focused publication), disagrees. There's a website named GamesIndustry.biz that has bought some of Sony's talking points that had nothing to do with merger law stnadards and is pretty overtly against the transaction. Hell appears to be freezing over because even a GamesIndustry.biz columnist, Mr. Fahey, wrote the following after the CMA ruling:
"To be blunt, I remain a cloud streaming skeptic – at least in the short to medium term – and from that perspective, I think this deal should probably have been approved. Microsoft being more robust competition to Sony's market dominance would be a good thing for consumers, and relatively light-touch remedies would have made the Activision Blizzard perfectly palatable for the console market."
Apart from that passage, his article makes some points that are nonsensical. For instance, he says Microsoft is "offering to pay the GDP of a small European nation" to dominate cloud gaming, when in reality the primary objective is about mobile--a word that does not appear even in once in Mr. Fahey's article. The "sheer financial scale of this deal" has no basis in the law anyway. Like the CMA, he conflates multi-game subscription services and cloud gaming. And he has no evidence that Microsoft really believes cloud gaming is going to displace game downloads: he may never have cared to read Microsoft's own submissions to the CMA.
That said, even someone who agrees with the CMA in some ways does not believe that cloud streaming of games is going to be a big thing anytime soon, and says "this deal should probably have been approved."
Who's siding with the CMA now? Essentially just Sony, (silently) Google, Lina Khan, and a fringe organization she was affiliated with (Open Markets Institute). But UK tech investors are shocked, a successful entrepreneur like Deliveroo founder Will Shu told the story of his problems with the CMA, and games-specialized reporters disagree that the CMA had a credible foreclosure theory here.
I expect May to be a great month for the merger, with additional approvals, another ruling by a U.S. federal judge against a Sony-supported private lawsuit, and the slam-dunk appeal (and possibly more and more criticsm, through public statements and private communications with UK politicians) of the CMA's miscarriage of justice.
