The UK Competition and Markets Authority (CMA) has blocked Microsoft’s takeover of games company Activision Blizzard, finding the acquisition would harm competition in the cloud gaming market.
The CMA launched its review into the $68.7 billion acquisition in September 2022, amid concerns over its impact on cloud gaming and the console market. In March 2023, the CMA provisionally found that consoles would not be substantially affected. The probe was narrowed to focus on cloud gaming, where the merger looked likely to have a stifling effect.
Microsoft submitted remedies to assuage the regulator’s concerns, laying out the games that the company would have to offer on certain platforms over a ten-year period. The CMA has found the proposals insufficient, concluding that the deal would indeed lead to reduced innovation and less consumer choice in cloud gaming.
The ruling stressed the need for competition in the UK cloud gaming market, which is forecast to be worth £1 billion by 2026. “By way of comparison, sales of recorded music in the UK in 2021 amounted to £1.1 billion,” noted the CMA.
Microsoft accounts for an estimated 60-70 percent of global cloud gaming services, and the authority found the deal would reinforce its advantage. It concluded that market conditions would incentivise Microsoft to make Activision’s games (including Call of Duty, Overwatch and World of Warcraft) exclusive to its own cloud gaming service.
“Allowing Microsoft to take such a strong position in the cloud gaming market just as it begins to grow rapidly would risk undermining the innovation that is crucial to the development of these opportunities,” said the CMA.
The watchdog assessed Microsoft’s proposed remedies and deemed them inadequate in covering different cloud gaming service business models, including multigame subscription services, and in offering versions of games on PC operating systems other than Windows.
“Given the remedy applies only to a defined set of Activision games, which can be streamed only in a defined set of cloud gaming services, provided they are purchased in a defined set of online stores, 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,” said the regulator.
The CMA said that accepting the remedy would require continued regulatory oversight, opting instead to prevent the merger outright. It argued the decision “would effectively allow market forces to continue to operate and shape the development of cloud gaming without this regulatory intervention.”
“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,” said Martin Coleman, chair of the investigation panel. “Cloud gaming needs a free, competitive market to drive innovation and choice. That is best achieved by allowing the current competitive dynamics in cloud gaming to continue to do their job.”
“Closed for business”
The deal has faced similar headwinds in the EU and US, the subject of an antitrust warning by the European Commission, and a lawsuit from the Federal Trade Commission (FTC). But recently the clouds appeared to be parting, with reports suggesting UK and EU approval would clear a path for the deal to close in the US.
The companies are planning to appeal the decision, Microsoft responded, accusing the CMA of misunderstanding how “cloud technology actually works.”
“We will reassess our growth plans for the UK,” Activision added. “Global innovators large and small will take note that – despite all its rhetoric – the UK is clearly closed for business.”