The UK Government’s monopolies watchdog has blocked Microsoft's $69 billion (£56.6 billion) takeover of Call of Duty and World of Warcraft publisher Activision Blizzard over concerns it would give the tech behemoth too much dominance over the emerging cloud gaming space.
Microsoft intended to buy Activision in the hopes of adding Activision’s games, like Call of Duty and Crash Bandicoot, to its Xbox Game Pass platform with the aim of boosting subscriber numbers.
But a Competition and Markets Authority’s (CMA) review found that the merger could stifle competition in the cloud gaming market.
The CMA opened an investigation into the mega-deal last year, but hopes of the takeover being permitted appeared stronger after the government body dropped its concerns about the console gaming sector, which had been the largest part of the inquiry.
However, it still had concerns regarding cloud gaming, where games are streamed online from remote servers. The watchdog said Microsoft’s solution to these concerns “had significant shortcomings and would require regulatory oversight by CMA”.
The CMA is of the view that the merger could result in higher prices, fewer choices and less innovation for UK gamers who play in the cloud.
By owning Activision, Microsoft would effectively own too much of the industry which would unfairly limit its competitors, the regulator concluded. It noted that microsoft already controls 60-70 per cent of the cloud gaming market.
There were also concerns that future Activision games would need to be exclusive to Xbox and PC, meaning PlayStation users would miss out.
Microsoft addressed the CMA’s concerns and proposed solutions regarding which games would be offered to which platforms. The tech giant signed cloud gaming deals with Boosteroid, Ubitus, and Nvidia to bring Xbox PC games to these services. It also signed a similar deal with Nintendo in December.
The decade-long deals would have brought major Activision franchises like Call of Duty and Overwatch to the platforms, pending the deal’s approval by regulator.
However, the CMA says the proposal “contained a number of significant shortcomings.”
It said that preventing the sale would “effectively allow market forces to continue to operate and shape the development of cloud gaming” without regulatory intervention.
Martin Coleman, chair of the independent panel of experts conducting this investigation, said in a statement: “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.”
He 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 says it intends to appeal the government’s decision.
Brad Smith, Vice Chair and President said in a statement: “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.”
He added: “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.”
An Activision Blizzard spokesperson said the publisher will work with Microsoft on the appeal, and called the CMA decision a “disservice to UK citizens”.
“The CMA’s report contradicts the ambitions of the UK to become an attractive country to build technology businesses,” the spokesperson said. “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.”
Regulators in Saudi Arabia, Brazil, Chile, Serbia, Japan, and South Africa have all approved the deal. Critically, the CMA’s decision arrives before pending rulings from EU and US regulators, and could influence their positions on the deal.
