The UK’s Competition and Markets Authority (CMA) has blocked Microsoft’s proposed acquisition of Activision Blizzard, the developer behind popular games like Call of Duty and World of Warcraft, “over concerns the deal would alter the future of the fast-growing cloud gaming market,” the regulator said in a press release issued on April 26.
“Gaming is the UK’s largest entertainment sector. Cloud gaming is growing fast with the potential to change gaming by altering the way games are played, freeing people from the need to rely on expensive consoles and gaming PCs and giving them more choice over how and where they play games. This means that it is vital that we protect competition in this emerging and exciting market.” — Martin Coleman, chair of the independent panel of experts overseeing this investigation
In January 2022, Microsoft announced that it wants to acquire Activision Blizzard for a record $68.7 billion, by far the biggest deal in the gaming industry. But Microsoft was met with resistance since the beginning from regulators around the world including the EU, the UK, and the US. The company had proposed various solutions to assuage the concerns raised by regulators such as promising to share major game titles with cloud gaming competitors, but CMA noted that these solutions “failed to effectively address the concerns”.
Microsoft and Activision have both said that they will appeal the decision:
We remain fully committed to our acquisition with @ATVI_AB and will appeal today's determination by the CMA. Here's our statement. pic.twitter.com/ylvDP5RUqQ
— Brad Smith (@BradSmi) April 26, 2023
“We will work aggressively with Microsoft to reverse this on appeal. The report’s conclusions are a disservice to UK citizens, who face increasingly dire economic prospects. We will reassess our growth plans for the UK. Global innovators large and small will take note that – despite all its rhetoric – the UK is clearly closed for business.” — Activision told BBC (emphasis ours)
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Why does this matter: This is a huge setback for Microsoft and Activision, but more notably, it is interesting to see how CMA is looking at possible anticompetitive effects down the line in the nascent cloud gaming segment. This is a departure from how merger/acquisition deals have been approved in the past, which were largely evaluated based on the current market conditions. The new approach could make acquisitions tougher for big tech companies going forward.
It's absurd. There is no cloud gaming market for the 15th year in a row, and it has nothing to do with monopolistic control – it's because it makes zero business sense. There are other reasons to block this deal, but this is a reach.
— Sean Ryan (@SeanDaveyRyan) April 26, 2023
The acquisition could make Microsoft dominant in cloud gaming: CMA
“Microsoft has a strong position in cloud gaming services and the evidence available to the CMA showed that Microsoft would find it commercially beneficial to make Activision’s games exclusive to its own cloud gaming service,” the regulator noted.
Cloud gaming refers to online gaming where the games are run on remote servers and streamed to the user rather than running on the local hardware of the user. Gamers generally pay a subscription fee and have access to a catalogue of games rather than buying individual games. It is gaining popularity as gamers don’t have to purchase expensive gaming consoles or PCs and also have more choices in the types of games they can play.
CMA explained that Microsoft already controls 60-70 percent of the cloud gaming market and has specific strengths like owning Xbox, Windows, Azure, and Xbox Cloud Gaming (Game Pass). “The deal would reinforce Microsoft’s advantage in the market by giving it control over important gaming content such as Call of Duty, Overwatch, and World of Warcraft,” CMA stated. In other words, the regulator is concerned that Microsoft might not share popular game titles with competing cloud gaming services. On the other hand, if the deal is not allowed, Activision would start providing these games via cloud platforms in the foreseeable future, which is to the benefit of consumers, the regulator added.
The UK regulator refused to accept the remedy solutions provided by Microsoft and Activision stating:
“Given the remedy applies only to a defined set of Activision games, which can be streamed only in a defined set of cloud gaming services, provided they are purchased in a defined set of online stores, there are significant risks of disagreement and conflict between Microsoft and cloud gaming service providers, particularly over a ten-year period in a rapidly changing market.”
EU decision soon, US FTC hearing in August: EU regulators are expected to announce their decision on whether the deal can proceed or not in May and the US Federal Trade Commission has scheduled a hearing on August 2. Meanwhile, regulators in Saudi Arabia, Brazil, Chile, Serbia, Japan, and South Africa have given the go-ahead, The Verge reported.
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