The Competition and Markets Authority (CMA) has blocked and voted against approving the Microsoft acquisition of Activision Blizzard which was announced in January 2022 and would cost $68.7 billion.
On the government’s website, it was revealed that the decision comes down to cloud gaming. “The CMA has prevented 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 says. “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 CMA revealed that Microsoft provided a proposal but that it contained “significant shortcomings” connected with the nature of cloud gaming. Microsoft did not “sufficiently cover different cloud gaming service business models,” and it lacked coverage outside of platforms outside of Windows. Also, the CMA suggests the merger would “standardize 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.”
Brad Smith, Vice Chair and President at Microsoft said: “We remain fully committed to this acquisition and will appeal. The CMA’s decision rejects a pragmatic path to address competition concerns and discourages technology innovation and investment in the United Kingdom.
“We have already signed contracts to make Activision Blizzard’s popular games available on 150 million more devices, and we remain committed to reinforcing these agreements through regulatory remedies. We’re 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.”
The Activision acquisition has been approved by several countries including Japan, Brazil, and South Africa. However, in Europe, UK, and North America it remains to be seen how these governing bodies will lean.
Martin Coleman, chair of the independent panel of experts conducting this investigation, said:
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.
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.
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.
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.
Tom Warren chimed in saying that “CoD [Call of Duty] concerns were just noise and that the larger regulator concerns would be Microsoft’s leverage of Windows and Azure for game distribution in the future.”
I said back in September that CoD concerns were just noise and that the larger regulator concerns would be Microsoft's leverage of Windows and Azure for game distribution in the future. And here's the CMA today on Microsoft's recent cloud gaming deals: https://t.co/jv9eMAnX1y pic.twitter.com/GNMdDs6E29
— Tom Warren (@tomwarren) April 26, 2023
Microsoft plans to appeal the decision but Warren says that a CMA win on an appeal is “pretty rare to win.” Microsoft will need to prepare for a long road as it looks to close the deal.
Goblin Bobby Kotick published an open letter today saying that the decision “isn’t the news we wanted – but it is far from the final word on this deal.”
We’re confident in our case because the facts are on our side: this deal is good for competition”.
Kotick continues: “This merger is a complex process, and I know I’m not the only one frustrated by the hurdles and delays. We’re accustomed to a company culture that moves quickly to accomplish big goals, so it’s tough when we can’t close things out at our usual energetic pace.
“We’ll keep pressing our case because we know that this merger will benefit our employees, the broader UK tech workforce, and players around the world.
I’m going to do everything I personally can to advocate for us and help regulators understand the competitive dynamics in our industry. What gives me confidence is that, whether on our own or united with another company, we are one of the strongest companies in our industry, poised for continued growth, and building on our incredible IP.”