Microsoft’s $68.7 billion deal to acquire Activision Blizzard has been blocked by the UK’s Competition and Markets Authority (CMA). After months of reviewing 3 million Microsoft and Activision documents and more than 2,100 emails from the public, the CMA finished that the deal could “change the future of the fast-growing cloud gaming market, leading to reduced innovation and less choice for UK gamers in the coming years.”
Microsoft said it will appeal the decision, but it is a blow to Microsoft’s hopes of acquiring Activision Blizzard and will likely prevent the company from closing its giant deal if an appeal is unsuccessful.
“Microsoft has a strong position in cloud gaming services and the evidence available to the CMA showed that Microsoft would find it commercially beneficial to make Activision’s games exclusive to its own cloud gaming service, ” said the CMA.
The CMA estimates that Microsoft controls approximately 60 to 70 percent of global cloud gaming services and that increasing control over Dut calledy Overwatchand World of Warcraft will give Microsoft a huge advantage in the cloud gaming market.
Microsoft tried to address cloud gaming concerns in the lead up to this decision. The software giant has signed cloud gaming deals with Boosteroid, Ubitus, and Nvidia to allow Xbox PC games to run on these rival cloud gaming services — after striking a similar deal with Nintendo in December. This 10-year deal also includes access to Call of Duty and other Activision Blizzard games, if the deal is approved by regulators.
The CMA said it had reviewed these deals, but they contained “a number of significant shortcomings” in cloud gaming services. The CMA said the deals were “too limited in scope” with models that meant players had to earn the right to play “by buying them in certain stores or subscribing to certain services .” The deals do not include agreements for Microsoft to provide access to these games to rival multi-game subscription services or the ability for rivals to “offer versions of the games to PC operating systems other than Windows.”
The CMA also noted that the deals will “standardize the terms and conditions under which games are available,” rather than open competition in the cloud gaming market. “We have decided that, without integration, Activision games will be available on cloud gaming services in the UK in the near future.”
The CMA initially sided with Microsoft Call of Duty on PlayStation concerns last month, noting that it would be costly for Microsoft to keep the popular franchise from PlayStation. That left some cloud gaming concerns on the table, but the regulator said it was considering whether the benefit of having Activision content on Game Pass outweighed cloud gaming concerns in the UK.
“Microsoft contacted us to try to address these issues and we are grateful for that, but their proposals were ineffective to address our concerns and would have replaced competition with ineffective regulation in a new and dynamic market, ” said Martin Coleman, chairman. by an independent panel of experts conducting the investigation.
“We remain fully committed to this acquisition and appeal,” Microsoft president Brad Smith said in a statement on The Verge. “The CMA’s decision rejects a practical pathway to address competition concerns and discourages technological innovation and investment in the United Kingdom. We’ve signed contracts to make Activision Blizzard’s popular games available on 150 million more devices, and we remain committed to enforcing these agreements through regulatory remedies. We are especially disappointed that after long discussions, this decision shows a misunderstanding of this market and how related cloud technology works.”
Activision Blizzard CEO Bobby Kotick said the company has begun work on an appeal in an email to employees on Wednesday. “Along with Microsoft, we can and will fight this decision, and we have begun the process of appealing to the UK Competition Appeals Tribunal,” said Kotick. “We are confident in our case because the facts are on our side: this deal is good for competition.”
An appeal by Microsoft will push the company’s plans to try and get this deal in line by the end of July. Microsoft originally planned to close the deal on July 18th and will now be forced to negotiate an extension to the merger agreement. If Microsoft’s CMA appeal fails or it fails to get approval from other regulators, it will owe Activision a $3 billion break up fee.
Regulators in Saudi Arabia, Brazil, Chile, Serbia, Japan, and South Africa have already approved the deal. The EU is set to make a decision on May 22nd, including Reuters reports last month that the deal is likely to be approved by EU regulators following Nvidia and Nintendo’s licensing agreements.
Microsoft also faces regulatory scrutiny from the Federal Trade Commission (FTC) in the US. The FTC sued to block Microsoft’s purchase of Activision Blizzard last year, and that investigation is still ongoing. An evidence hearing scheduled for August 2, and there are signs that the case could unearth rare details on exclusivity deals in the game industry if the documentation is made public.
Update, April 26th 8:13AM ET: Updated article with more details from CMA on cloud concerns.
