U.K. blocks Microsoft’s Activision Blizzard deal over cloud concerns

Microsoft’s $68.7 billion USD (about $93.7 billion CAD) acquisition of Activision Blizzard has been rejected by the U.K.’s Competition and Markets Authority (CMA).

In a statement, the regulatory group said Microsoft “failed to effectively address the concerns in the cloud gaming sector” and that Microsoft’s buyout of Activision Blizzard would lead to “reduced innovation and less choice for UK gamers over the years to come.”

Specifically, the CMA estimates that Microsoft already controls 60 to 70 percent of the cloud gaming market thanks to Xbox, Windows and its Azure cloud network. Therefore, there are concerns that ownership of Activision Blizzard’s extensive catalogue would only “reinforce Microsoft’s advantage” in this space.

For the CMA, cloud gaming presents an affordable alternative to consoles and PCs and “gives them much more flexibility and choice” regarding where they can play. “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,” it argues.

Over the past few months, Microsoft has been attempting to address anti-competition concerns by striking 10-year deals with the likes of Nintendo, Nvidia and Ukrainian cloud company Boosteroid to guarantee games like Call of Duty on those respective platforms. Microsoft said it offered similar agreements with Sony, although the PlayStation maker has instead been trying to block the deal altogether.

However, the CMA says there have been three major “shortcomings” in Microsoft’s case to buy Activision Blizzard:

• “It did not sufficiently cover different cloud gaming service business models, including multigame subscription services.
• It was not sufficiently open to providers who might wish to offer versions of games on PC operating systems other than Windows.
• It would standardise the terms and conditions on which games are available, as opposed to them being determined by the dynamism and creativity of competition in the market, as would be expected in the absence of the merger.”

In a statement, Microsoft president Brad Smith said the company remains “fully committed” to the acquisition and will appeal the CMA’s decision. “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.” He went on to say that the decision “appears to reflect a flawed understanding of this market and the way the relevant cloud technology actually works.”

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

Meanwhile, Bobby Kotick, Activision Blizzard’s embattled CEO, reiterated his company’s commitment to seeing the acquisition through, stating this is “far from the final word on this deal.”

When Microsoft first announced its plans to acquire Activision Blizzard last year, the company was looking to close the deal by mid-2023. Now, however, it remains unclear when — or even if — that might even happen, given the appeal process.

Source: Competition and Markets Authority