The Competition and Markets Authority (CMA) in the UK has blocked Microsoft's proposed $68.7bn cash acquisition of Activision Blizzard. In a shock decision, the regulator says that it has concerns how the deal will impact competition in the growing cloud gaming market. In response, both Microsoft and Activision have promised to reduce their presence in the United Kingdom.
Reacting to the decision, Activision Blizzard said the UK is now “closed for business”. Microsoft says it plans to appeal the decision, which came just before the company was expected to close the biggest gaming merger ever.
It also seems the two companies will effectively punish the UK market and also appeal the decision. Microsoft says it will “discourage technology innovation and investment in the UK”, while Activision says it will “reassess our growth plans for the UK”.
“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. 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”. -Brad Smith, Vice Chair and President of Microsoft.
The UK is Taking a Stance Against Tech Mergers
The CMA is positioning itself as the strictest regulator in terms of tech mergers. Last year, the company stopped Meta's acquisition of Giphy, forcing the company to sell the GIF platform.
What is interesting about the latest decision is the CMA has previously suggested it was happy with Microsoft's concessions. One of the main concerns about the acquisition was Microsoft taking control of the Call of Duty franchise. While Activision Blizzard has other major brands, such as Diablo, Warcraft, and Candy Crush, Call of Duty is the all-conquering game-changer in this deal.
— Brad Smith (@BradSmi) April 26, 2023
Sony – a critic of the deal – claimed Microsoft would make Call of Duty exclusive to Xbox and the Game Pass service. Regulators such as the CMA, European Commission (EC), and Federal Trade Commission (FTC) shared those concerns.
However, Microsoft has responded by striking 10-year agreements with Nintendo, GeForce Now, Boosteroid, EE in the UK, and others that will keep Call of Duty available across platforms. The company has said that Sony has a similar deal on the table. Sony's response was to suggest Microsoft would sabotage Call of Duty – which the company deems irreplaceable – on PlayStation.
Microsoft Had False Hope
Even so, Microsoft's agreements were said to have gone over well with the EC and CMA. That now is obviously not the case with the CMA deciding to vote against the acquisition. Martin Coleman, the chair of the independent panel of experts conducting the investigation, said:
“Gaming is the UK's largest entertainment sector. Cloud gaming is growing fast with the potential to change gaming by altering the way games are played, freeing people from the need to rely on expensive consoles and gaming PCs and giving them more choice over how and where they play games. This means that it is vital that we protect competition in this emerging and exciting market.
“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.”
The decision now leaves Microsoft in a delicate situation in Europe and the US. It is widely believed that the EC, FTC, and CMA are trying to work together more and reach unified regulatory decisions. It might be that the EC and FTC now follow the UK's lead and thwart the Microsoft Activision Blizzard merger.
It is worth remembering the FTC has already been clear it is against the deal and is currently suing Microsoft to try and prevent it going through.
An Activision Blizzard spokesperson said: “The CMA's report contradicts the ambitions of the UK to become an attractive country to build technology businesses. 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.”
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