UK Blocks Microsoft Activision Blizzard Deal

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Microsoft’s $68.7 billion Activision Blizzard deal has been significantly blocked by UK regulators, following a months-long investigation.

The UK Competition and Markets Authority’s decision prevents Microsoft from buying the publisher behind Call of Duty, World of Warcraft and Candy Crush, following earlier concerns that it would have an unfair impact on rival PlayStation.

Instead, today’s decision stems from AMC’s concerns over the deal’s proposed impact on the cloud gaming industry. In today’s final report, the CMA said Microsoft’s ownership of Activision Blizzard risks “stifling competition in this growing market.” In response, Microsoft said it would now appeal.

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“We remain fully committed to this acquisition and will appeal,” Microsoft Chairman Brad Smith said today. “The CMA ruling rejects a pragmatic way 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 an additional 150 million devices, and we remain committed to bolstering these agreements through regulatory action. We are particularly disappointed that after lengthy deliberation , this decision appears to reflect an erroneous understanding of this market and how the affected cloud technology actually works.”

Activision Blizzard released its own response, criticizing the decision as “a disservice to British citizens, who face an increasingly dire economic outlook. Here is that statement in full:

“The CMA report contradicts the UK’s ambitions to become an attractive country to build tech companies,” an Activision Blizzard spokesperson said. “We will work aggressively with Microsoft to reverse this trend on appeal. The report’s findings do a disservice to UK citizens, who face an increasingly dire economic outlook. We will reassess our growth plans for the UK. Global innovators big and small will take note that – for all its rhetoric – the UK is clearly out of business.”

Whether or not the CMA is approved had been widely seen as the biggest test of the deal, particularly after the UK regulator initially issued a stern warning that the deal “could harm UK players” and potentially lead to “higher prices, less choice or less innovation”.

Cloud issues prevent deal

So what was wrong? Today’s report makes it clear that the CMA continues to have deep concerns about Microsoft’s already entrenched position in cloud gaming, and that the company “would find it commercially advantageous to make Activision’s games exclusive to its own.” cloud gaming service”.

The CMA said Microsoft’s current large share of the global cloud gaming market already benefits from its ownership of Xbox, Windows and Azure cloud infrastructure, and the ability to control franchises such as Call of Duty, Overwatch and World of Warcraft would risk any further competition in this space.

“The cloud allows UK gamers to avoid buying expensive games consoles and PCs and gives them much more flexibility and choice in how they play. Allowing Microsoft to take such a strong position in the market cloud gaming just as it begins to grow rapidly would risk undermining the innovation that is crucial to the development of these opportunities,” the CMA wrote.

Microsoft submitted a proposal to address the CMA’s concerns, the regulator notes, though its solutions didn’t go far enough. A major sticking point was that the CMA ruled that Microsoft’s much-vaunted 10-year agreements with other cloud gaming companies were “behavioural” remedies that could contain flaws and would require continued enforcement.

In the end, he decided that simply blocking the deal was the safest option.

“There are significant risks of disagreement and conflict between Microsoft and cloud gaming service providers, particularly over a ten-year period in a rapidly changing market,” the CMA wrote.

“Accepting Microsoft’s appeal would inevitably require some degree of regulatory oversight by the CMA,” the report continues. “In contrast, preventing the merger would effectively allow market forces to continue to operate and shape the development of cloud gaming without this regulatory intervention.”

The CMA assessed the benefit to gamers of having Activision Blizzard content easily accessible through Game Pass as a counter argument, but decided that it did not outweigh its concerns.

“The CMA carefully considered whether the benefit of having Activision content available on Game Pass outweighed the harm the merger would cause to competition in cloud gaming in the UK,” he said. declared. “The CMA found that this new payment option, while beneficial to some customers, would not outweigh the overall harm to competition (and ultimately UK gamers) resulting from this merger, particularly given the the incentive for Microsoft to increase the cost of a game. Switch the subscription post-merger to reflect the addition of Activision’s valuable games.”

Martin Coleman, chairman of the independent panel conducting the inquiry, concluded by saying the CMA’s decision was a victory for the UK protecting competition in the “emerging and exciting” cloud gaming market.

“Microsoft already enjoys a powerful position and head start over other competitors in cloud gaming and this deal would reinforce that advantage by giving it the ability to undermine new, innovative competitors,” Coleman concluded. “Microsoft engaged constructively with us to try to resolve these issues and we appreciate that, but their proposals were not effective in addressing our concerns and would have replaced competition with ineffective regulation in a new market. and dynamic.

“Cloud gaming needs a free and competitive market to drive innovation and choice. The best way to achieve this is to allow the current competitive dynamics of cloud gaming to continue to do their job.”

Global review continues

Today’s decision comes as a huge shock and follows the CMA’s recent suggestion that it was softening its stance. An interim closing document released last month highlighted today’s positive outcome for Microsoft, with an acknowledgment that the deal “would not result in a substantial lessening of competition for console gaming in the UK. -United”.

Sony reacted angrily to the development, calling the CMA’s shift in position “surprising, unprecedented and irrational”.

With the deal stalled – for now – here in the UK, Microsoft must also pass two other key regulators before it can be finalized around the world: the US Federal Trade Commission and the European Commission of the EU.

As noted earlier today, Microsoft is already looking to quickly end FTC concerns, assuming the CMA will eventually offer its approval. The EU, meanwhile, recently delayed its final decision on the deal until May 22, as Microsoft released a series of announcements intended to assuage any lingering anti-competitive concerns over access to Call of Duty.

Just last month, the CMA was still deliberating on whether Microsoft, owner of Activision Blizzard, might make the company too competitive in cloud gaming.

If and when the deal is approved worldwide, Microsoft will have paid a record and eye-watering sum for one of the biggest video game publishers on the planet. It will own Activision’s Call of Duty, as well as Blizzard franchises such as World of Warcraft, Diablo and Starcraft, as well as mobile giant King, maker of Candy Crush.

While the CMA largely focused on Microsoft’s ownership of Call of Duty, Microsoft itself acknowledged that the deal was crucial to its future mobile plans.

Xbox has no major presence in phones except for their use as streaming devices. But new rules are set to come into effect from March 2024, forcing Apple and Google to allow app stores from more companies, such as Microsoft itself. Here Call of Duty Mobile, Diablo Immortal and Candy Crush Saga could sit down – opening up Xbox revenue to a still largely untapped market.

Today’s decision comes amid a bleaker picture for Xbox as a whole, as Series X/S console sales stagnate after a slow financial quarter.

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