UK blocks Microsoft's acquisition of Activision Blizzard
The decision is a major setback for Microsoft's cloud gaming plans
The UK's Competition and Markets Authority (CMA) has blocked Microsoft's $68.7 billion acquisition of Activision Blizzard.
After scrutinising millions of documents from both companies for several months, the CMA concluded that the deal could negatively impact the future of the rapidly expanding cloud gaming industry in the UK.
It believes the acquisition could stifle innovation and result in fewer options for UK gamers in the years ahead.
In January 2022, Microsoft announced a $68.7 billion agreement to acquire Activision, a global leader in video game publishing.
However, the CMA launched a thorough investigation into the deal in September 2022.
In February 2023, it found provisionally that the merger could potentially strengthen Microsoft's position in the cloud gaming space, thereby limiting competition in this expanding market.
The regulator's review of the proposed merger determined that Microsoft holds a significant presence in the cloud gaming services market and the evidence presented suggested that the software giant may have a commercial incentive to make Activision's games exclusive to its own cloud gaming service, potentially harming market competition.
Microsoft currently dominates 60% to 70% of the global cloud gaming services market, according to the CMA, and if the acquisition of Activision were to go through, the company would control key gaming content such as Call of Duty, World of Warcraft and Overwatch, potentially reinforcing its existing advantage.
Based on the available evidence, the CMA determined that Activision would likely begin offering its games through cloud platforms even if the merger did not take place.
Microsoft had attempted to alleviate concerns surrounding cloud gaming during the lead-up to the CMA's decision.
The company signed cloud gaming agreements with Ubitus, Boosteroid and Nvidia, enabling Xbox PC games to be playable on these competing cloud gaming services.
In addition, Microsoft signed a similar deal with Nintendo last year to expand the availability of its games on different platforms. As part of the 10-year agreements, Microsoft will grant access to Call of Duty and other popular Activision Blizzard games if the proposed acquisition clears regulatory hurdles.
The CMA said it has reviewed these deals but found several significant issues in cloud gaming services.
Microsoft has announced its intention to appeal the CMA's decision.
"We remain fully committed to this acquisition and will appeal," Microsoft president Brad Smith said.
"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."
Activision Blizzard's CEO, Bobby Kotick, expressed disappointment with the CMA's decision in a note to the company's employees, adding that it was not the "final word" on the matter.
"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," Kotick noted.
Activision's response to the CMA's decision was characterised by a harsh tone toward the UK, reflecting the company's disappointment with the outcome.
"The CMA's report contradicts the ambitions of the UK to become an attractive country to build technology businesses," said spokesperson Joe Christinat.
"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."