What just happened? Microsoft's $69 billion acquisition of Activision Blizzard could be in jeopardy after the UK's Competition and Markets Authority (CMA) blocked the takeover over concerns it could alter the cloud gaming industry, leading to reduced innovation and less choice for gamers.
Following a months-long investigation into Microsoft's attempt to make the largest video game acquisition in history, the CMA today 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," which were outlined in the watchdog's provisional findings in February.
The CMA first opened a probe into the Microsoft deal in July last year. The agency moved the investigation to the more extensive phase 2 in November. It spoke out against the proposed purchase in February, coming to the provisional conclusion that the acquisition could harm UK gamers.
We've prevented @Microsoft from purchasing @Activision over concerns the deal would damage competition in the #CloudGaming market, leading to less innovation and choice for UK #gamers. âÂÂï¸Âhttps://t.co/SdXt1rYAkZ pic.twitter.com/prWcDI7Evt
– Competition & Markets Authority (@CMAgovUK) April 26, 2023
But the CMA appeared to change its stance in March. It stated that a "significant amount of new evidence" had been received in response to the previous month's report that resulted in it updating the provisional findings. The new decision was that the transaction would not result in a substantial lessening of competition in relation to console gaming in the UK.
But it seems the sticking point for the CMA is the cloud gaming market, of which Microsoft already has a 60% to 70% share.
"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," wrote 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 Microsoft put forward a number of proposals to address the agency's concerns, but they contained several shortcomings, including not sufficiently covering different cloud gaming service business models; not being sufficiently open to providers who might wish to offer versions of games on PC operating systems other than Windows; and standardizing 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."
Microsoft and Activision have blasted the CMA's decision and said they intend to appeal. "The CMA's report contradicts the ambitions of the UK to become an attractive country to build technology businesses," a spokesperson for Activision said (via the BBC). "We will work aggressively with Microsoft to reverse this on appeal," they added.
Microsoft's vice chairman and president, Brad Smith, said the company remained committed to the acquisition.
"The CMA's decision rejects a pragmatic path to address competition concerns and discourages technology innovation and investment in the United Kingdom," he said. "This decision appears to reflect a flawed understanding of this market and the way the relevant cloud technology actually works."
While Microsoft and Activision will no doubt vigorously appeal the ruling, their biggest concern could be that the EU and the FTC will follow suit. If the deal falls through, it'll be interesting to see how Nvidia's 10-year deal with Microsoft to bring Xbox and Activision titles to Game Pass is affected.
