The UK’s Competition and Markets Authority (CMA) has blocked Microsoft’s $69 billion proposed acquisition of Activision Blizzard. The CMA’s decision is based on its concerns that the acquisition would reduce competition in the cloud gaming market, resulting in less innovation and choice for UK gamers.
Microsoft has confirmed that it will appeal the CMA’s decision. The US Federal Trade Commission is also suing Microsoft in an attempt to stop the deal due to competition concerns, while the European Union (EU) continues to investigate to it.
Microsoft’s proposed acquisition of Activision Blizzard is one of the world’s largest among gaming companies. It could have given it control over popular gaming titles like Call of Duty, Overwatch, and World of Warcraft. The acquisition would have reinforced Microsoft’s advantage in the gaming market by giving it control over important gaming content.
Microsoft already accounts for an estimated 60-70% of global cloud gaming services, and it has other significant strengths in cloud gaming, including owning Xbox, the leading PC operating system (Windows), and a global cloud computing infrastructure (Azure and Xbox Cloud Gaming).
In a statement, Microsoft’s president Brad Smith said that the CMA’s decision would discourage technology innovation and investment in the United Kingdom. He added that Microsoft had already signed contracts to make Activision Blizzard’s popular games available on 150 million more devices.
We remain fully committed to our acquisition with @ATVI_AB and will appeal today's determination by the CMA. Here's our statement. pic.twitter.com/ylvDP5RUqQ
— Brad Smith (@BradSmi) April 26, 2023
Activision Blizzard CEO Bobby Kotick insisted that Wednesday’s decision was “far from the final word on this deal.”
In an email sent to Activision Blizzard employees on Wednesday, CEO Bobby Kotick stated that the company has already commenced work on appealing the decision made against them. Kotick affirmed that the company will work with Microsoft to dispute the verdict and has already taken the first steps in appealing to the UK Competition Appeals Tribunal. He expressed confidence in their case, stating that the facts are in their favor and that the proposed merger is beneficial for competition.
Microsoft's appeal will cause a delay in their plans to finalize the deal by the end of July. Initially, Microsoft had intended to conclude the merger agreement by July 18th, but it will now be necessary to negotiate an extension. If Microsoft's appeal with the CMA fails or it is unable to obtain approval from other regulatory authorities, it will be liable to pay Activision a break-up fee of $3 billion.
The CMA’s concerns about the acquisition relate to the cloud gaming market. The regulator believes that Microsoft would find it commercially beneficial to make Activision’s games exclusive to its own cloud gaming service, which would reduce innovation and choice for UK gamers.
The cloud allows gamers to avoid buying expensive gaming consoles and PCs and gives them much more flexibility and choice in how they play. The CMA believes that 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.
Microsoft has criticized the CMA’s decision, saying that it reflects a flawed understanding of the market and the way the relevant cloud technology works. The company believes that the CMA’s decision rejects a pragmatic path to address competition concerns and discourages technology innovation and investment in the United Kingdom.
Microsoft has confirmed that it will appeal the CMA’s decision and is committed to reinforcing its agreements with Activision Blizzard through regulatory remedies.
CMA’s decision to block Microsoft’s proposed acquisition of Activision Blizzard highlights the regulator’s concerns about the impact that the acquisition would have on the cloud gaming market. While Microsoft is set to appeal the decision, the UK regulator’s decision could have wider implications for the technology industry in the UK.