UK blocks Activision Blizzard takeover due to cloud gaming competition concerns
The UK Competition and Markets Authority has blocked Microsoft’s takeover of Activision Blizzard. The regulator does this because of concerns that the acquisition could disrupt competition in the cloud gaming market. The companies will appeal.
The CMA published its decision to block the takeover on Wednesday. The regulator concluded after a months-long investigation that the takeover would ‘change the future of the fast-growing cloud gaming market, resulting in less innovation and less choice for UK gamers in the coming years’. The decision comes as a surprise; CMA was expected to approve the acquisition on Wednesday after recently pushing back on concerns about competition in the console market.
The market watchdog says that Microsoft has not sufficiently addressed the regulator’s concerns about competition in the cloud gaming sector. “Microsoft has a strong position in cloud gaming services and the evidence before the CMA showed that Microsoft would find it commercially advantageous to make Activision’s games exclusively for its own cloud gaming service.” Without the merger, Activision would offer its games via cloud platforms ‘in the foreseeable future’.
Concessions from Microsoft and concerns from CMA
Microsoft has made several commitments to regulators in recent months. The company also struck deals with the likes of Nvidia, Nintendo and cloud gaming platform Ubitus to make Activision games available on their platforms for ten years after the acquisition, but the CMA found that not enough. Microsoft has an estimated 60 to 70 percent market share, according to the CMA, and Microsoft’s advantage in the market would be strengthened if it gains control of game franchises such as Call of Duty, Overwatch and World of Warcraft.
The measures proposed by Microsoft were “conduct measures” according to the CMA because they want to regulate the behavior of the companies involved in the takeover by requiring them to behave in “ways that are contrary to commercial incentives”. “This therefore takes the form of a kind of permanent regulation of the sector, replacing market forces in a growing and dynamic market with imposed legal obligations that are ultimately monitored and enforced by the CMA.”
The CMA also states that Microsoft’s commitments had several other shortcomings. For example, the proposal did not sufficiently address the different business models used by cloud gaming services. The proposal would also be insufficiently open to providers who may want to offer versions of games on PC operating systems other than Windows.
“The acceptance of Microsoft’s remedy would inevitably require some degree of regulatory oversight by the CMA. Preventing the merger, on the other hand, would effectively allow market forces to continue to operate and shape the development of cloud gaming without this regulatory intervention.”
Response from Microsoft and Activision Blizzard
Microsoft and Activision Blizzard say they are still trying to complete the acquisition. Microsoft CEO Brad Smith said Wednesday that the company is “still fully committed” to consummating the acquisition and that the company will appeal. Also Activision CEO Bobby Kotick writes in an email that the company ‘can and will challenge’ the decision together with Microsoft. The companies have already started work to appeal to the UK Competition Appeals Tribunal. “We are confident in our case because the facts are on our side: this deal is good for competition,” the CEO claims.
Microsoft announced its intended acquisition of Activision Blizzard last year. The American tech giant wants to acquire the publisher of Call of Duty and World of Warcraft, among others, for $68.7 billion. This would make it the largest acquisition ever in the gaming market. In recent months, the acquisition has already been scrutinized by regulators in various countries and regions. The American FTC previously sued Microsoft to block the takeover. An EU decision is expected in May.