After months of deliberation, the UK government’s Competition and Markets Authority has decided to block Xbox’s acquisition of Activision Blizzard, primarily due to cloud gaming concerns. The CMA says that it reached its decision after it looked at the implications for cloud gaming, as Microsoft’s deal “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 watchdog organization wrote on its government website.
The CMA did note that Xbox making Activision Blizzard games like Call of Duty exclusive to its consoles didn’t make any business sense. But Microsoft had failed to address the concerns that the group had related to cloud gaming, especially with Microsoft having a “strong position” in that market.
“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,” it said. “The deal would reinforce Microsoft’s advantage in the market by giving it control over important gaming content such as Call of Duty, Overwatch, and World of Warcraft.”
Responding to the verdict, Microsoft president Brad Smith said that the company had already signed contracts to make Activision Blizzard’s popular games available on 150 million more devices and that it remained committed to reinforcing these agreements through regulatory remedies. “We’re especially disappointed that after lengthy deliberations, this decision appears to reflect a flawed understanding of this market and the way the relevant cloud technology actually works.”
Microsoft’s next step will be to appeal the CMA’s verdict. Activision CEO Bobby Kotick added that Microsoft and Activision Blizzard are confident in its case, as the deal is “good for competition” and will ultimately help the UK grow its leadership position in technology.
In a statement from Activision Blizzard, the company says that “the CMA’s report contradicts the ambitions of the UK to become an attractive country to build technology businesses,” and that the report’s conclusions are a “disservice to UK citizens” who are already under intense strain from “dire” economic prospects.
“We will reassess our growth plans for the UK. Global innovators large and small will take note that–despite all its rhetoric–the UK is clearly closed for business.”
The CMA had originally raised these concerns in February, highlighting several issues that Microsoft would need to address if it wanted the deal to be approved in the UK. This included concerns over Microsoft not sufficiently covering different cloud gaming service business models and the company not being sufficiently open to providers who wanted to provide alternative versions of games on PC operating systems other than Windows, amongst several other possible issues.
This led to the CMA seeing a potential risk of disagreement between Microsoft and other cloud gaming service providers in an evolving marketplace, and if such a scenario occured, it would require intervention and regulation from the CMA instead of allowing regular market forces to smoothly operate.
Prior to the CMA’s decision, it looked like smooth acquisition sailing for Microsoft as the deal had gained approvals in Saudi Arabia, Brazil, Serbia, Chile, South Africa, and Japan. The deal has yet to be approved in the US, and has led to the Federal Trade Commission suing Microsoft to block the acquisition, a battle that Microsoft is lawyering up for as it heads to court.
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