Shubham Sawarkar
The UK’s Competition and Markets Authority (CMA) has dealt a blow to Microsoft’s plans to acquire Activision Blizzard in a $68.7 billion deal that has hit a roadblock. The CMA cited concerns that the deal would hurt competition in the growing cloud gaming market, where Microsoft dominates thanks to Game Pass. The acquisition would give Microsoft even more anti-competitive control over the market, the CMA argued, and the company would then have an incentive to raise prices on cloud gaming subscription services like Game Pass, while potentially withholding certain releases from some rival platforms like Sony’s PlayStation Plus.
“We have concluded that the merger would result in the most powerful operator in the fast-developing market for cloud gaming, with a current market share of 60-70%, acquiring a portfolio of world-leading games with the incentive to withhold those games from competitors and substantially weaken competition in this important growing market,” the CMA wrote in its final report.
The merger would have seen Activision Blizzard’s hit games like Overwatch 2, Diablo IV, and Call of Duty: Modern Warfare II all added to Game Pass, giving Microsoft even more control over the market. Microsoft tried to assuage these concerns by signing deals with smaller cloud computing providers in the UK, promising to make Activision Blizzard’s games available through them alongside its own xCloud service. However, the CMA deemed these remedies too limited in scope, implying they would leave out competing services like Sony’s and that enforcing the agreements would require too much ongoing regulatory oversight.
“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,” Brad Smith, Vice Chair and President at Microsoft, said in a statement on Twitter. “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.”
Activision Blizzard has vowed to appeal the decision, claiming that the CMA’s report contradicts the ambitions of the UK to become an attractive country to build technology businesses. Activision CEO Bobby Kotick previously claimed that the UK would become a “death valley” if it torpedoed the deal, which promises huge financial windfalls for him and other executives at the company. The merger is still being investigated by authorities in the European Union, who are expected to announce a decision in May, and the Federal Trade Commission is currently threatening the acquisition with an antitrust lawsuit. The CMA’s initial surprise ruling could affect approval in the U.S. and EU as a result, since failure in any one of the regions could likely doom it.
