Final decision by UK regulator to block Microsoft’s Activision Blizzard acquisition, but Microsoft says it will appeal
The British antitrust regulator, the Competition and Markets Authority (CMA), has blocked a multi billion acquisition deal in a move that could have repercussions around the world.
The CMA announced on Wednesday that it is blocking the proposed deal, over concerns it would alter the future of the cloud gaming market, leading to reduced innovation and less choice for UK gamers over the years to come.
Microsoft has responded and said it remains fully committed to the deal and will appeal the decision. It added the CMA’s decision “discourages technology innovation and investment in the United Kingdom.”
Microsoft had announced in January 2022 that it intend to acquire the world’s largest gaming publisher Activision Blizzard for $68.7 billion.
But immediately the deal raised competition concerns, with the CMA being one of the first competition agencies to signal its concerns about the deal in July 2022. It was followed months later in November by European competition regulators.
In December 2022 the US Federal Trade Commission (FTC), which enforces antitrust law in America, announced it was also seeking to block the deal.
In February 2023 the CMA provisionally ruled that the acquisition raised competition concerns, and could harm UK gamers.
At the time the CMA provisionally concluded that Microsoft’s proposed acquisition of Activision could result in higher prices, fewer choices, or less innovation for UK gamers.
In an effort to assuage competition concern, Microsoft offered Sony and Nintendo a 10-year contract for the same ‘Call Of Duty’ release dates on their respective platforms, as on its Xbox platform.
The CMA then initially sided with Microsoft over Call of Duty on PlayStation concerns last month, much to the anger of Sony, which said the CMA’s reversal of its position on its consoles theory of harm was “surprising, unprecedented, and irrational.”
But now the CMA said it will prevent Microsoft’s proposed purchase of Activision over concerns the deal would alter the future of the fast-growing cloud gaming market, leading to reduced innovation and less choice for UK gamers over the years to come.
The CMA said the final decision to prevent the deal comes after Microsoft’s proposed solution failed to effectively address the concerns in the cloud gaming sector.
The regulator said the UK cloud gaming market is growing fast. Monthly active users in the UK more than tripled from the start of 2021 to the end of 2022. It is forecast to be worth up to £11 billion globally and £1 billion in the UK by 2026. By way of comparison, sales of recorded music in the UK in 2021 amounted to £1.1billion.
The CMA said that Microsoft has a strong position in cloud gaming services and the evidence available to it showed that Microsoft would find it commercially beneficial to make Activision’s games exclusive to its own cloud gaming service.
The CMA noted that Microsoft already accounts for an estimated 60-70 percent of global cloud gaming services and has other important strengths in cloud gaming from owning Xbox, the leading PC operating system (Windows) and a global cloud computing infrastructure (Azure and Xbox Cloud Gaming).
The CMA said that Microsoft had submitted a proposal to address some of these concerns which the CMA examined in considerable depth.
“The proposed remedy set out requirements governing what games must be offered by Microsoft to what platforms and on what conditions over a ten-year period,” it said. “Microsoft’s proposal contained a number of significant shortcomings connected with the growing and fast-moving nature of cloud gaming services.
- It did not sufficiently cover different cloud gaming service business models, including multigame subscription services;
- It was not sufficiently open to providers who might wish to offer versions of games on PC operating systems other than Windows;
- It would standardise the terms and conditions on which games are available, as opposed to them being determined by the dynamism and creativity of competition in the market, as would be expected in the absence of the merger.
“Accepting Microsoft’s remedy would inevitably require some degree of regulatory oversight by the CMA,” the regulator noted. “By contrast, preventing the merger would effectively allow market forces to continue to operate and shape the development of cloud gaming without this regulatory intervention.”
“Gaming is the UK’s largest entertainment sector,” said Martin Coleman, chair of the independent panel of experts conducting this investigation. “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.”
“Microsoft already enjoys a powerful position and head start over other competitors in cloud gaming and this deal would strengthen that advantage giving it the ability to undermine new and innovative competitors,” said Coleman.
“Microsoft engaged constructively with us to try to address these issues and we are grateful for that, but their proposals were not effective to remedy our concerns and would have replaced competition with ineffective regulation in a new and dynamic market,” Coleman added.
“Cloud gaming needs a free, competitive market to drive innovation and choice. That is best achieved by allowing the current competitive dynamics in cloud gaming to continue to do their job.”
But Microsoft president Brad Smith tweeted Microsoft’s response and said the software giant will appeal the decision.
Smith added Microsoft was “especially disappointed that after lengthy deliberations, this decision appears to reflect a flawed understanding of this market and the way the relevant cloud technology actually works.”
— Brad Smith (@BradSmi) April 26, 2023
The UK’s CMA has had some success in rolling back acquisitions by big name tech firms.
The CMA successfully blocked Facebook-owner Meta’s acquisition of Giphy – despite both firms being headquartered in the United States.
Meta accepted the ruling and promised to divest itself of Giphy.