Microsoft’s proposed US $69 million acquisition of Activision Blizzard has been blocked by the UK Competition and Markets Authority, following a months-long investigation into its potential impact. The decision was handed down publicly on 26 April 2023, with a statement confirming the decision. Intriguingly, it appears cloud gaming is the primary target of concerns, rather than market dominance through franchise ownership.
‘We are concerned that the Merger will ultimately harm current and future gamers,’ the CMA said. ‘By stifling competition in the growing and dynamic market for cloud gaming services, the Merger could alter the future of gaming.’
‘We found that the Merger would make an already strong incumbent in this market even stronger, which could result in Microsoft retaining a big share of the market and facing limited competition from current and potential rivals. This reduction in competition could harm consumers, such as by increasing prices and reducing quality, innovation, and choice over time.’
If Microsoft were to own Activision Blizzard’s vast library of games, this would likely contribute to this potential dominance in the cloud gaming sector, but the CMA stated it was not specifically concerned about this eventuality.
Microsoft has made clear throughout the investigation process that exclusivity of games was not a priority for the company, and penned a multitude of 10-year deals for Call of Duty to ensure the CMA and other regulatory bodies understood that it would have few incentives to make popular franchises exclusive to Xbox consoles.
It appears the CMA understood this dilemma, with its final report stating that ‘making CoD exclusive to Xbox would result in significant financial losses for Microsoft over a five-year time period’. However, while Microsoft was fighting a war against accusations of future exclusivity, it appears the company failed to address concerns about the burgeoning cloud gaming market.
‘The evidence we found suggests that cloud gaming could be transformative for the gaming industry in the next few years, helping to reach new customers and improve choice for existing customers,’ the CMA claimed in its report.
Microsoft’s innovation in this space was called out as a major factor in the decision to block the deal, as its ‘strong position’ in the current market and established advantage over rivals, including Sony and
‘Microsoft has a combination of assets that we consider is difficult for other cloud gaming service providers to match,’ the CMA said. ‘We are concerned that making Activision’s titles exclusive to Microsoft’s cloud gaming service would harm competition, particularly since our view is that Microsoft already holds a strong position in this market by virtue of its 19 unparalleled advantages through its ownership of Windows, its cloud infrastructure, and its existing catalogue of first party titles.’
In March 2023, Microsoft signed 10-year deals with cloud gaming platforms Boosteroid and EE, pledging to bring Xbox and Activision Blizzard games to the services. It appears these measures were not enough, however.
Microsoft and Activision Blizzard have promised an appeal
Microsoft has now refuted the CMA’s assessment, promising to appeal the decision.
‘We remain fully committed to this acquisition and will appeal,’ Brad Smith, Vice Chair and President of Microsoft said, in a statement shared on Twitter. ‘The CMA’s decision rejects a pragmatic path to address competition concerns and discourages technology innovation and investment in the United Kingdom … We’re especially disappointed that after such lengthy deliberations, this decision appears to reflect a flawed understanding of this market and the way the relevant cloud technology actually works.’
Activision Blizzard has shared its own disappointment, via CEO Bobby Kotick.
‘This merger is a complex process, and I know I’m not the only one frustrated by the hurdles and delays,’ Kotick reportedly said, in an email to staff shared on Substack. ‘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.’
We expect to hear more about appeal proceedings in the coming months, as Microsoft and Activision-Blizzard prepare to address the concerns of the UK Competition and Markets Authority. For now, the deal has been definitively blocked, with only a slim avenue for appeal remaining.