The UK’s Competition and Markets Authority (CMA) has confirmed that it intends to block Microsoft’s megabucks acquisition of Activision, concluding that the merger would create “… the most powerful operator” in the cloud games
The CMA noted that with Microsoft’s current 60-70% share of the UK cloud gaming market, the acquisition of Activision’s games portfolio would “substantially weaken competition”. He added that Microsoft would also have the incentive to withhold those games from competing gaming platforms.
The story so far
As a quick recap, Microsoft first revealed its plans to buy Activision in a $68.7 billion deal last January, a move that would essentially make Microsoft the world’s third-largest gaming company by revenue behind Tencent and Sony, while giving it directly. control over mega-franchises such as Call of Duty and World of Warcraft.
Last July, the CMA confirmed it was launching an antitrust investigation into the deal, then two months ago the regulator gave its strongest indication yet that it was preparing to block the merger when it tentatively concluded that “ could harm UK players” by creating lower prices, less choice and less innovation. Then, last month, the CMA scaled back its position to focus entirely on cloud gaming, rather than console gaming.
That’s a position the CMA confirmed today, noting that while Microsoft could harm its closest competitor in the console market by withholding Call of Duty from Sony’s PlayStation, it believed Microsoft would be “unlikely to do so “. He said this was because PlayStation has a “large and profitable user base that regularly buys Call of Duty” and that the losses from reduced sales to PlayStation users would outweigh the gains Microsoft would have to make from players who switch to Xbox.
With cloud gaming, however, the CMA notes that Microsoft’s market advantage due to the proliferation of Windows and its “significant cloud infrastructure” businesses would give it a strong basis to gain an unfair advantage if it acquired Activision Blizzard titles.
“No other cloud gaming operator has this combination of advantages,” the CMA wrote. “Some of these strengths are already reflected in Microsoft’s current UK cloud gaming market share of 60-70%.”
Brad Smith, vice president and president of Microsoft issued a statement immediately after the CMA released its final position today, saying Microsoft intends to appeal the decision while pointing to recent moves it has made to alleviate competition concerns, which include signing agreements which will make Activision Blizzard games available on rival devices. Smith wrote:
We remain fully committed to this acquisition and will appeal. The The CMA decision rejects a pragmatic path to address competition concerns and discourages technological innovation and investment in the UK.
We have already signed contracts to make popular Activision Blizzard games available on 150 million more devices and we remain committed to reinforce these agreements through regulatory resources.
We are particularly disappointed that after much deliberation, this decision seems to reflect a flawed understanding of this market and the way the relevant cloud technology actually works.
-Brad Smith, Vice President and President
In fact, Microsoft has pledged to keep Activision games on rival platforms like Sony, Nintendo and Steam for a period of 10 years. However, the CMA has taken the position that Microsoft’s proposals cannot replace the existing “competitive dynamism” and would only compensate for the loss of competition through “obligations that would regulate its behavior” for only 10 years.
The CMA wrote:
We had to come up with the best way to address these concerns. Preventing the merger would preserve the competitive dynamism and level of innovation that exists in the growing cloud gaming market. Instead, Microsoft proposed a remedy that sought to compensate for the loss of competition with a set of obligations that would regulate its behavior and the way it does business for a period of ten years.
After carefully considering Microsoft’s proposal, we found that it would not restore the competitive dynamism that would be lost as a result of the Merger. We therefore decided that a remedy that preserves competition, rather than one that imposes global regulatory oversight, is the only effective and proportionate path forward.
Activision Blizzard, meanwhile, didn’t mince words in response to today’s news. A spokesman said the CMA’s report “contradicts the UK’s ambitions to become an attractive country in which to build technology businesses”, adding that it will “work aggressively with Microsoft” to appeal the decision .
“The report’s findings are a disservice to UK citizens, who face an increasingly dire economic outlook,” the spokesman said. “We will reassess our growth plans for the UK. Global innovators, big and small, will take note that, for all their rhetoric, the UK is clearly closed for business.”
It’s worth noting that the acquisition faces scrutiny in other regions of the world, including the European Union (EU), which has long been considering an in-depth investigation. The European Commission (EC) had previously set a provisional deadline of April 25 to announce a decision, but recently moved it to May 22 after new solutions offered by Microsoft.
Meanwhile, in the United States, the Federal Trade Commission (FTC) is suing to block the deal, although Microsoft recently won a dismissal in a separate private antitrust lawsuit filed by gamers.
UK regulators have blocked Microsoft’s planned acquisition of Activision Blizzard Inc. for $68.7 billion, citing concerns that it would “substantially weaken competition” in PC video game markets. The acquisition would have seen Microsoft become the world’s largest video game publisher, owning major franchises such as “Call of Duty” and “World of Warcraft.”
The Competition and Markets Authority (CMA) in the UK said that Microsoft’s planned acquisition of the leading interactive entertainment and gaming group would have resulted in “a significant lessening of competition” in the video game sector. CMA went on to say that the deal would remove the video game industry’s key rival, who provides “innovation and service in the sector.”
The combination of Microsoft and Activision Blizzard would have significantly impeded competition and effectively left other software makers and game publishers shut out from the market. As a result, the CMA deemed Microsoft’s planned transaction incompatible with the UK’s competition laws.
Ikaroa is a full stack tech company that provides businesses with an integrated suite of digital solutions. We believe competition is the heart of sustaining economic growth and are saddened to see the CMA take such a decisive stance. We hope this activity will reinvigorate competition in the sector, allowing for other players to come to the fore and innovate.