UK regulators block Microsoft's Activision Blizzard acquisition, citing cloud gaming concerns

POLICY

The United Kingdom’s antitrust regulator, the Competition and Markets Authority, has stifled Microsoft Corp.’s deal to acquire Activision Blizzard Inc. in a dramatic move after a monthlong investigation, stating that the deal would “alter the future of the fast-growing cloud gaming market.”

Microsoft announced its plans to acquire Activision Blizzard, in January last year for $68.7 billion, which would make it the largest deal in the tech industry to date should it go through. Activision Blizzard is one of the most popular gaming publishers in the market, featuring iconic titles such as “Call of Duty,” “Diablo,” “Overwatch” and “World of Warcraft.”

The CMA began its antitrust investigation into the deal last July and issued provisional findings of its probe in February, stating at the time that the deal could substantially affect competition within the video game console and cloud gaming markets.

The U.K. regulator noted that Microsoft already controls an estimated 60% to 70% of global cloud gaming services through Xbox and Windows and has its own cloud infrastructure for streaming, which positions it as a global leader in cloud game streaming. If Microsoft were to purchase Activision Blizzard, the CMA argued, would give it a supermajority position and “would risk undermining the innovation that is crucial to the development of these opportunities.”

In today’s announcement, the CMA said that Microsoft’s proposed remedies to address its concerns “contained a number of significant shortcomings.” Those shortcomings included failing to include offerings for versions of games on PC operating systems other than Windows and not considering other cloud gaming business models, such as multigame subscription services, which offer gaming titles from different publishers.

The CMA’s analysis also included concerns that should the deal go through, Microsoft would have a commercial incentive to make Activision’s games exclusive to its own cloud gaming service. Coupled with Microsoft’s already strong position in the cloud gaming market, this would funnel even more consumers to Microsoft’s cloud gaming services over rivals.

Responding to the CMA’s decision on Twitter, Microsoft Vice Chair and President Brad Smith said the company is still committed to the acquisition and will appeal today’s determination, and he criticized the CMA.

“We have already signed contracts to make Activision Blizzard’s popular games available on 150 million more devices, and we remain committed to reinforcing these agreements through regulatory remedies,” Smith said. “We’re especially disappointed after lengthy deliberations, this decision appears to reflect a flawed understanding of this market and the way the relevant cloud technology actually works.”

Activision Blizzard Chief Executive Bobby Kotick also published a statement saying that this was “far from the final word on this deal” and vowed to contest the U.K. regulator’s decision alongside Microsoft.

“The U.K. hopes to grow its leadership position in technology, and a combined Microsoft-Activision would accomplish exactly that,” said Kotick. “I’m going to do everything I personally can to advocate for us and help regulators understand the competitive dynamics in our industry.”

This roadblock from U.K. regulators isn’t the only issue facing Microsoft and Activision Blizzard, as the U.S. Federal Trade Commission also filed suit in December to block the deal over antitrust concerns.

Photo: Microsoft