- Microsoft set to appeal decision
- Transaction has been approved elsewhere
- US FTC is also concerned about impact of takeover
Microsoft’s US$68.7 billion acquisition of video game publisher Activision Blizzard has been blocked by the UK competition watchdog.
The Competition and Markets Authority (CMA) says the proposed deal would negatively affect the emerging cloud gaming market, reducing innovation and choice for consumers.
Its investigation concluded that Microsoft already commands up to 70 per cent of the global cloud gaming services market thanks to its consumer-facing Windows operating system, Xbox ecosystem, and its back-end Azure and Xbox cloud gaming infrastructure.
The CMA believes this position would be unduly strengthened by the acquisition of popular titles like Call of Duty, Overwatch, and World of Warcraft. Meanwhile, Activision Blizzard would no longer launch its own cloud gaming services – impacting competition.
“Cloud gaming is growing fast with the potential to change gaming by altering the way games are played, freeing people from the need to rely on expensive consoles and gaming PCs and giving them more choice over how and where they play games,” said Martin Coleman, chair of the independent panel conducting the investigation.
“This means that it is vital that we protect competition in this emerging and exciting market.
“Microsoft already enjoys a powerful position and head start over other competitors in cloud gaming and this deal would strengthen that advantage giving it the ability to undermine new and innovative competitors.
“Microsoft engaged constructively with us to try to address these issues and we are grateful for that, but their proposals were not effective to remedy our concerns and would have replaced competition with ineffective regulation in a new and dynamic market.”
Activision Blizzard chief executive Bobby Kotick told employees in an open email that the CMA’s decision was “far from the final word” and indicated it and Microsoft would appeal the ruling, arguing any decision to block the deal would be a blow to the UK’s ambitions of becoming a technology leader.
‘This isn’t the news we wanted – but it is far from the final word on this deal,’ Kotick wrote.
‘Alongside Microsoft, we can and will contest this decision, and we’ve already begun the work to appeal to the UK Competition Appeals Tribunal. We’re confident in our case because the facts are on our side: this deal is good for competition.
‘The UK hopes to grow its leadership position in technology, and a combined Microsoft-Activision would accomplish exactly that. At a time when the fields of machine learning and artificial intelligence are thriving, we know the UK market would benefit from Microsoft’s bench strength in both domains, as well as our ability to put those technologies to use immediately. By contrast, if the CMA’s decision holds, it would stifle investment, competition, and job creation throughout the UK gaming industry.’
“We remain fully committed to this acquisition and will appeal,” added Brad Smith, Microsoft president. “The CMA’s decision rejects a pragmatic path to address competition concerns and discourages technology innovation and investment in the United Kingdom.
“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. 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.”
Regulators in several other countries have approved the deal, while the European Union (EU) is set to make its decision next month. Reports suggest it is inclined to approved the takeover. However, the US Federal Trade Commission (FTC) has taken legal action to block the purchase while it continues its deliberations.
Gaming is the largest entertainment category by revenue in the world. It’s also an important fan engagement channel for rights holders and esports is a rapidly growing sporting discipline in its own right.
Despite assurances that many key titles would remain multi-platform, Activision’s library would become part of the Game Pass subscription service. This would make it more attractive to consumers, including those who view cloud gaming as a more affordable entry point.
This would inevitably have a knock-on effect on the wider esports market, not just at a participatory level, but also at a regulatory level given many major competitions are at the jurisdiction of individual companies rather than governing bodies.
Given the implications, this was always going to be a difficult transaction to get over the line and even though Microsoft and Activision are confident of reversing the CMA ruling, they would also have to appease the US FTC.