Microsoft says it will appeal the decision.
The UK’s Competition and Markets Authority (CMA) has unexpectedly moved to block Microsoft’s $69 billion acquisition of Activision Blizzard over concerns the merger would “alter the future of the fast-growing cloud gaming market”.
In a statement made today, the CMA said “The final decision to prevent the deal comes after Microsoft’s proposed solution failed to effectively address the concerns in the cloud gaming sector”. Those concerns were raised in the regulator’s findings last February, when the CMA provisionally said it would oppose the deal over its concerns regarding cloud gaming.
So, clearly, everyone saw this coming, right? Not quite. Despite the dour prognosis that February’s provisional findings seemed to serve up, the CMA underwent something of a U-turn last month, announcing that “a significant amount of new evidence” had convinced it that an MS buyout of Activision would “not result in a substantial lessening of competition in relation to console gaming in the UK” insofar as Call of Duty was concerned.
To many onlookers, that announcement appeared to set the stage for an approval this month, which would in turn clear the way for an EU approval in May. But the CMA’s concerns about cloud gaming look to have derailed that potential course of events.
The CMA said that Microsoft, which already “accounts for an estimated 60-70% of global cloud gaming services,” would “find it commercially beneficial to make Activision’s games exclusive to its own cloud gaming service” in the event the acquisition went through.
“The deal would reinforce Microsoft’s advantage in the market by giving it control over important gaming content such as Call of Duty, Overwatch, and World of Warcraft,” said the CMA. “The evidence available to the CMA indicates that, absent the merger, Activision would start providing games via cloud platforms in the foreseeable future”.
The CMA said that the remedies Microsoft had offered to ameliorate its concerns were insufficient. In particular, the regulator was dissatisfied that Microsoft’s suggested “behavioural” solutions would require the continued oversight of regulators like itself, “replacing market forces in a growing and dynamic market with mandated regulatory obligations ultimately overseen, and enforced by, the CMA”. The regulator summed up its issues with Microsoft’s remedies in three key points:
“It did not sufficiently cover different cloud gaming service business models, including multigame subscription services”.”It was not sufficiently open to providers who might wish to offer versions of games on PC operating systems other than Windows”.”It would standardise 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, as would be expected in the absence of the merger”.
The CMA also decided that the addition of Activision Blizzard games to Game Pass “would not outweigh the overall harm to competition (and, ultimately, UK gamers)”.
Activision shares have fallen 11% off the back of the announcement, the FT reports.
I’ve contacted Microsoft and Activision for comment on the decision, and I’ll update this piece if I hear back. But the FT reports that Microsoft vice president Brad Smith has said that the corporation “remains fully committed to this acquisition and will appeal” the CMA ruling, and warned that the decision “discourages technology innovation and investment in the United Kingdom”. He criticised the UK regulator for “a flawed understanding of this market and the way the relevant cloud technology actually works”.
It’s interesting that the CMA has centred its concerns on cloud gaming in particular, given that so much of the criticism levelled against the deal by Sony—probably the acquisition’s chief opponent—has instead revolved around the access to Call of Duty.
It’s doubly interesting given that one of Microsoft’s own competitors in the cloud gaming space, Nvidia, has appeared to be supportive of the acquisition, and even signed a ten-year deal with Microsoft to keep bringing Activision’s games to Nvidia platforms.
I’ve reached out to Nvidia about the CMA decision, too, and will update if I hear back.
It’s too early to tell if this is a stake through the heart of the Activision acquisition, particularly in light of Microsoft’s commitment to appeal, but it’s certainly going to be unwelcome news in both companies’ offices. I imagine that, right now, the corporations will be scrambling to prevent a domino effect: The possibility that the UK’s refusal might prompt the EU (and US, especially given the FTC’s past hostility to the deal) to do the same.
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