The Competition and Markets Authority (CMA) has halted the $69 billion deal over concerns about reduced innovation and limited choice for UK gamers.
Microsoft's proposed acquisition of Activision Blizzard has been blocked by the UK's Competition and Markets Authority (CMA). The regulator published its final report on the $69 billion deal on Wednesday (4/26/2023), stating that it had prevented the acquisition due to concerns that it would "alter the future of the fast-growing cloud gaming market, leading to reduced innovation and less choice for UK gamers over the years to come."
The decision marks a significant setback for Microsoft's efforts to secure the acquisition. The UK regulator is considered one of the most influential in deciding the deal's fate, alongside its counterparts in the EU and the US. In the US, the Federal Trade Commission is suing Microsoft to block the deal over competition concerns, while the EU is still investigating.
Microsoft has confirmed it will appeal the CMA's decision.
According to the UK regulator, "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."
Microsoft is estimated to account for 60-70% of global cloud gaming services and already owns Xbox, the leading PC operating system (Windows), and a global cloud computing infrastructure (Azure and Xbox Cloud Gaming). The deal would have given Microsoft control over important gaming content such as Call of Duty, Overwatch, and World of Warcraft.
The CMA's decision is based on concerns that allowing Microsoft to dominate the cloud gaming market during its rapid growth would risk undermining the innovation that is vital to the development of these opportunities.
Microsoft's president, Brad Smith, expressed disappointment with the CMA's decision and stated that the company would appeal. Activision also criticized the CMA for what it called "a disservice to UK citizens" and pledged to work with Microsoft on an appeal.
In a (now seemingly failed) attempt to address regulatory concerns earlier this year, Microsoft had struck game distribution deals with several cloud gaming services, including GeForce Now, Boosteroid, and Ubitus. However, the CMA maintained that Microsoft's proposed solution "failed to effectively address the concerns in the cloud gaming sector."
Despite the CMA's decision, Activision Blizzard CEO Bobby Kotick insisted that it was "far from the final word on this deal."
As a result of the UK regulator's decision, the future of the Microsoft-Activision Blizzard deal hangs in the balance. While the CMA has blocked the acquisition, the 'process' is far from over. Microsoft and Activision Blizzard are determined to appeal the decision and continue their efforts to secure the merger.
If the acquisition had been approved, it would have significantly bolstered Microsoft's position in the gaming industry. The addition of Activision Blizzard's gaming content, including popular franchises like Call of Duty, Overwatch, and World of Warcraft, would have given Microsoft greater control over the gaming market and potentially enhanced the appeal of its cloud gaming service.
However, the CMA's decision to block the acquisition highlights the growing regulatory scrutiny that major tech companies are facing, particularly in the areas of competition and market dominance. This decision serves as a reminder that regulators are increasingly concerned about the impact of such acquisitions on innovation, competition, and consumer choice.
In the meantime, Microsoft will need to reassess its growth strategy in the gaming industry and explore alternative paths to strengthen its position in the cloud gaming market. This could potentially include forging new partnerships, investing in the development of exclusive gaming content, or expanding its cloud gaming infrastructure.
Similarly, Activision Blizzard will need to reevaluate its growth strategy, as the company had pinned its hopes on the proposed acquisition. Activision Blizzard may now consider other partnerships or collaborations in the gaming industry to maintain its competitive edge and capitalize on the opportunities presented by the fast-growing cloud gaming market.
The Future of The 'Industry
The outcome of the appeal process will have significant implications for the future of the gaming industry, as well as the broader technology sector. The decision by the UK regulator underscores the challenges faced by major tech companies as they navigate an increasingly complex regulatory landscape, balancing growth and innovation against the need to address competition concerns and protect consumer choice.
The reality is, follow the dollar. It's always about the money.