The UK’s Competition and Markets Authority (CMA) has announced that it will block Microsoft’s acquisition of Activision Blizzard, citing concerns that the deal would create a monopoly player in the nascent cloud gaming market. The regulator said that if the deal went ahead, Microsoft would have a market share of between 60% and 70%, giving it an incentive to withhold Activision Blizzard games from competitors and weaken competition in this growing market.
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Initially, the investigation centred on both cloud and console gaming markets. But in March 2023, the CMA said that the console market would be less of an issue than originally suspected. Its conclusion was that while Microsoft could block high-profile Activision Blizzard titles like Call of Duty, Overwatch, and World of Warcraft from rival platforms, it didn’t make much business sense to leave all of those sales on the table. Instead, the investigation refocused on the cloud gaming market, where it found greater cause for concern.
The CMA report states that Microsoft’s strengths as a brand and infrastructure provider needed to be taken into consideration. Specifically, it already controls Windows and Xbox, both big brands for gaming and gamers, as well as the infrastructure to support it, with xCloud and Azure on the cloud side. The regulators said that if those were combined with Activision Blizzard’s portfolio of gaming titles, they could be more readily weaponized in the cloud gaming sphere. There was still a risk of the more general ills of a monopoly provider, even if they weren’t used against Sony and Nintendo, as well as other cloud gaming companies. The deal would “standardize 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.”
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
By comparison, regulators believed that without the merger, Activision Blizzard “would start providing games via cloud platforms in the foreseeable future.” If it did, users would have a wider choice of service providers than if all of that content was locked inside Microsoft’s ecosystem, or at the very least made available to users at more preferential terms. This, officials felt, would constitute a “significant lessening of competition,” which was enough to put the hammer down.
In addition, the CMA felt that Microsoft’s proposed remedies didn’t go far enough to reassure regulators of its intentions. While the company had offered console support for 10 years to rival platforms, it “did not sufficiently cover different cloud gaming service business models, including multi-game subscription services.” Another objection centred on the fact that Microsoft didn’t promise much to “providers who might wish to offer versions of games on PC operating systems other than Windows.”
The US Federal Trade Commission (FTC) has also sued to prevent the deal, saying that Microsoft had previously made promises to share its intellectual property with rival platforms, only to change its mind later. The EU initially objected to the deal on similar competition grounds but is now expected to offer its blessing.
Activision Blizzard CEO Bobby Kotick said that while the news isn’t what he wanted, “it is far from the final word on this deal.” He added that Microsoft will contest the decision, saying that blocking the deal will “stifle investment, competition and job creation throughout the UK gaming industry.” Microsoft Vice Chair and President Brad Smith also published a note on Twitter, saying that the decision “appears to reflect a flawed understanding of this market and the way the relevant cloud technology actually works.”
