UK regulators block Microsoft’s acquisition of Activision Blizzard

Almost a year after it opened its investigation into the proposed $68.7 billion acquisition, the UK’s Competition Markets Authority (CMA) has ruled that gamers would suffer from reduced choice should the deal go ahead.

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Martyn Williams/IDG

The UK’s Competition Markets Authority (CMA) has blocked Microsoft from purchasing the gaming studio Activision Blizzard over concerns the deal could “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.”

Microsoft first announced its intention to buy Activision in January 2022 for $68.7 billion, leading to the CMA, the European Commission, and the Federal Trade Commission (FTC) in the US to all launch antitrust probes citing concerns about limiting competition in this gaming market.

The CMA started inviting views on the deal in July 2022 before launching an in-depth investigation in September. Two months ago, the regulatory body provisionally found that the merger could  stifle competition.

In a statement outlining its reasons for preventing the deal, the CMA said although Microsoft submitted a proposal to address some of its concerns, that proposal ultimately contained a number of significant shortcomings. These included a failure to sufficiently open up to providers who might wish to offer versions of games on PC operating systems other than Windows, and not taking into consideration different cloud gaming service business models.

Pushing back against the ruling, Microsoft said it remains fully committed to the acquisition with Activision Blizzard. “[Microsoft] will appeal today's determination by the CMA,” said Brad Smith, vice chair and president of Microsoft, in a Twitter post alongside a longer statement which said the decision “reflects a flawed understanding of the market.”

Microsoft will now be forced to try to negotiate an extension to its merger agreement, having originally hoped to close the deal by July. If its appeal against the CMA fails or the deal is blocked by the other regulators currently scrutinizing the deal, Microsoft will be faced with a termination bill of up to $3 billion, due a clause in the agreement that requires the payment be made if the termination is caused by an "injunction arising from Antitrust Laws.”

“The prevailing sentiment going into today was that Microsoft had overcome the CMA’s concerns about CoD [Call of Duty] and other Activision Blizzard games becoming Xbox exclusives,” said Lewis Ward, research director of gaming, eSports and VR/AR at IDC, who added he read that as evidence that the CMA wouldn’t block the acquisition and wouldn’t require Call of Duty to be divested.

However, Ward takes issue with the CMA’s finding that Microsoft has over 60% market share of the cloud-streamed gaming market, noting that he suspects the CMA is treating all Game Pass Ultimate subscribers as if they’re heavy cloud-streamed gaming service users, which IDC’s surveys show isn’t the case.

“In a way, it’s good news for Microsoft. The ruling suggests that appropriate remedies won’t be all that painful to identify or implement,” Ward said. “If the CMA’s block had been based on the market share of Call of Dity in console gaming, that would be a much larger barrier.”

Regarding how this ruling might impact the outcome of the other antitrust probes, Ward said he suspects that a “united front” from a regulatory perspective would benefit all parties, including Microsoft and Activision, and other parties in the future who might be able to appeal similar rulings in a way that would appease the concerns of all relevant regulatory bodies.

“If these other competition authorities don’t block the deal that would be good news for Microsoft, but if they block it on different grounds, that would massively complicate how this deal might still be consummated or fully derail it,” Ward said.

Copyright © 2023 IDG Communications, Inc.

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