Microsoft’s $68.7bn Activision Blizzard deal has been dramatically blocked by UK regulators, after a months-long investigation.
The UK’s Competition and Markets Authority’s decision to block Microsoft from buying Call of Duty, the publisher behind World of Warcraft and Candy Crush, follows earlier concerns that it would have an undue influence on the archetypal PlayStation.
Instead, today’s decision stems from the CMA’s concerns over the deal’s proposed impact on the cloud gaming sector. In today’s final report, the CMA said that Microsoft’s ownership of Activision Blizzard risks “stiff competition in this growing market.” In response, Microsoft has said that it will now appeal.
“We remain fully committed to this acquisition and will appeal it,” Microsoft President Brad Smith said today. “The CMA’s decision rejects a viable route 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 150m more devices, and we are committed to strengthening these agreements through regulatory measures. We are particularly disappointed that After long deliberation, this decision reflects a flawed understanding of this market and the way the relevant cloud technology actually works.”
Activism Blizzard issued its own response, criticizing the decision as “irrelevant to UK citizens who face increasingly dire economic prospects”. Here is that statement in full:
“The CMA’s report contradicts the UK’s ambitions to be an attractive country to build technology businesses in,” said an Activision Blizzard spokesperson. “We will work aggressively with Microsoft to reverse this on appeal. The report’s findings do a disservice to UK citizens, who face increasingly dire economic prospects. We will re-evaluate our growth plans for the UK.” Global innovators big and small will take note that – despite all their rhetoric – the UK is clearly closed for business.”
Approval – or not – by the CMA was widely seen as the biggest test of the deal, especially after the UK regulator initially issued stern warnings that the deal could “harm UK gamers” and potentially formally “higher prices, fewer choices, or less innovation”.
Cloud concerns block deal
so what’s wrong? Today’s report clarifies that the CMA still expresses deep concern over Microsoft’s already muddled position in cloud gaming, and that the company “will find it commercially beneficial to make Activision’s games exclusive to its cloud gaming service.” Will get”.
The CMA said Microsoft’s current large share of the global cloud gaming market was already benefiting from its ownership of Xbox, Windows and cloud infrastructure Azure, and from being able to control franchises such as Call of Duty, Overwatch and World of Warcraft. There will be a risk from any further competition in this space.
“The cloud allows UK gamers to avoid buying expensive gaming consoles and PCs and gives them more flexibility and choice about how they play. Allowing Microsoft to take such a strong position in the cloud gaming market just as it is booming begins to grow, there will be a risk the innovation critical to the development of these opportunities is being underestimated,” the CMA wrote.
Microsoft submitted a proposal to address the CMA’s concerns, the regulator notes, though its measures don’t go far enough. A major sticking point was what the CMA framed as a “workable” treatment of Microsoft’s 10-year deals with other cloud gaming companies, which could have loopholes and would require continued enforcement.
Ultimately, it was decided that the only safe option was to call off the deal.
“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,” the CMA wrote.
The report continued, “Acceptance of Microsoft’s measure would inevitably require some degree of regulatory oversight by the CMA.” “In contrast, blocking the merger would effectively allow market forces to operate and shape the development of cloud gaming without this regulatory interference.”
The CMA cited the advantage to gamers of Activision Blizzard content being easily accessible through Game Pass as a countermeasure, but decided that this did not address its concerns.
“The CMA carefully considered whether the benefit of having Activision’s content available on Game Pass outweighs the harm that the merger would cause to competition in cloud gaming in the UK,” it said. “The CMA found that this new payment option, while beneficial to some customers, would not outweigh the overall harm to competition (and ultimately, UK gamers) arising from this merger, in particular due to the increased cost of games to Microsoft.” subscription pass after the merger to include more of Activision’s most valuable games.”
Martin Coleman, chair of the independent panel of experts conducting the inquiry, concluded by describing the CMA’s decision as a victory for the UK defending competition in the “emerging and exciting” cloud gaming market.
Coleman concluded, “Microsoft already enjoys a powerful position and outpaces other competitors in cloud gaming and this deal will consolidate that advantage giving it the ability to undermine new and innovative competitors.” “Microsoft engaged constructively with us to try to resolve these issues and we are grateful for that, but their proposals were not effective enough to address our concerns and made competition ineffective in a new and dynamic marketplace.” change with regulation.
“Cloud gaming requires a free, competitive market to drive innovation and choice. This is best achieved by allowing the current competitive dynamics in cloud gaming to continue to operate.”
Global investigation continues
Today’s decision comes as a major blow, and follows a recent suggestion by the CMA that it was softening its stance. A provisional findings document released last month pointed to a positive outcome for Microsoft today, with an acknowledgment the deal “will not lead to a substantial reduction of competition in relation to console gaming in the UK”.
Sony reacted angrily to that development, calling CMA’s change of stance “surprising, unprecedented and irrational”.
With the deal blocked – for now – here in the UK, Microsoft still has to pass two other key regulators before it can be finalized worldwide: the US Federal Trade Commission and the EU’s European commission.
As reported earlier today, Microsoft is already seeking to swiftly quash the FTC’s concerns, operating under the assumption that the CMA will eventually grant its approval. Meanwhile, the European Union recently delayed its final decision on the deal until May 22, as Microsoft rolled out a flurry of announcements designed to address any anti-competition concerns around access to Call of Duty. .
As recently as last month, the CMA was still deliberating whether Microsoft’s acquisition of Activision Blizzard could make the company too competitive in cloud gaming.
If and when the deal is approved worldwide, Microsoft would have paid a record-breaking, eye-watering amount for one of the biggest video game publishers on the planet. It will come from Activision that owns Call of Duty, plus Blizzard franchises such as World of Warcraft, Diablo and StarCraft, as well as mobile giant King, maker of Candy Crush.
While much of the focus of the CMA has been on Microsoft’s ownership of Call of Duty, Microsoft itself has acknowledged that the deal is important to its future plans on mobile.
Xbox doesn’t have a major presence on phones, save for their use as streaming devices. But new rules are expected to come into effect from March 2024, requiring Apple and Google to allow app stores from companies like Microsoft. Here, Call of Duty Mobile, Diablo Immortal and Candy Crush Saga could sit – opening up Xbox revenue in a still largely untapped market.
Today’s decision comes amid a dismal picture for Xbox overall, as Series X/S sales have stalled after a slow fiscal quarter.