The Competition and Markets Authority (CMA) in the UK has prevented Microsoft’s deal to acquire Activision Blizzard for $68.7 billion. The regulatory authority argues that the acquisition would create Microsoft’s monopoly in the cloud gaming industry reducing innovation and limiting choice for consumers.
Activision Blizzard is a popular video games holding company that produced renowned titles like Call of Duty, World of Warcraft, Overwatch, Diablo, Candy Crush Saga, and others.
In January 2022, Microsoft entered a deal to acquire Activision Blizzard to make it a division of Microsoft Gaming with control over Activision’s content. As the tech giant already accounts for 70% of global cloud gaming services, CMA blocked the deal over concerns of “reduced innovation and less choice for U.K. gamers over the years to come.”
After months of investigation, CMA found Microsoft and Activision deal to be anti-competitive
As per the CMA’s press release, it launched an in-depth review of the deal in September 2022 and in February 2023 found that it would create an imbalance in the cloud gaming market in the UK placing Microsoft in a strong position to stifle competition and dictate the market.
The UK cloud gaming market is growing fast. Monthly active users in the UK more than tripled from the start of 2021 to the end of 2022. It is forecast to be worth up to £11 billion globally and £1 billion in the UK by 2026. By way of comparison, sales of recorded music in the UK in 2021 amounted to £1.1billion.
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.
Referring to the tech giant’s proposal to address concerns, CMA said that they were inadequate as the suggested remedies were “behavioral”, failed to connect the growing and fast-moving nature of cloud gaming services, and required some degree of regulatory oversight.
Given the remedy applies only to a defined set of Activision games, which can be streamed only in a defined set of cloud gaming services, provided they are purchased in a defined set of online stores, there are significant risks of disagreement and conflict between Microsoft and cloud gaming service providers, particularly over a ten-year period in a rapidly changing market.
Accepting Microsoft’s remedy would inevitably require some degree of regulatory oversight by the CMA. By contrast, preventing the merger would effectively allow market forces to continue to operate and shape the development of cloud gaming without this regulatory intervention.
Although the tech company’s Activision Blizzard acquisition deal has been approved in South Africa, Brazil, Japan, Chile, Serbia, and Saudi Arabia, it needs EU and CMA approvals to finalize it. EU is expected to announce its decision in May.