The UK’s Competition and Markets Authority (CMA) has put a halt to Microsoft’s $68.7 billion deal to acquire video game publisher Activision Blizzard. The CMA’s decision comes after months of scrutiny, during which it examined over 3 million Microsoft and Activision documents and more than 2,100 public emails. The regulator concluded that the acquisition could potentially harm the rapidly growing cloud gaming market by reducing innovation and limiting choices for UK gamers in the coming years.
Activision Blizzard CEO Bobby Kotick has already announced plans to appeal the CMA’s decision. In an email to employees on Wednesday, Kotick stated that both Activision Blizzard and Microsoft are confident in their case, as they believe the acquisition would benefit competition. The appeal will be filed with the UK Competition Appeals Tribunal.
The CMA’s final decision follows the failure of Microsoft’s proposed solution to address the regulator’s concerns in the cloud gaming sector, as outlined in its provisional findings published in February. Microsoft’s $68.7 billion acquisition of Activision Blizzard, one of the world’s leading video game publishers, was initially announced in January 2022. The CMA launched an in-depth review of the deal in September 2022 and provisionally found in February 2023 that the merger could strengthen Microsoft’s position in cloud gaming, potentially stifling competition in this expanding market.
The UK’s cloud gaming market has experienced significant growth, with monthly active users more than tripling from the beginning of 2021 to the end of 2022. By 2026, the global cloud gaming market is forecast to be worth up to £11 billion, with the UK market accounting for £1 billion. The CMA’s evidence indicated that Microsoft could find it commercially advantageous to make Activision’s games exclusive to its own cloud gaming service. Microsoft already dominates an estimated 60-70% of global cloud gaming services, and its strong position in the market is further bolstered by its ownership of Xbox, the leading PC operating system (Windows), and a global cloud computing infrastructure (Azure and Xbox Cloud Gaming).
According to the CMA, the deal would reinforce Microsoft’s advantage in the market by giving it control over popular gaming content like Call of Duty, Overwatch, and World of Warcraft. The regulator’s evidence suggests that, without the merger, Activision would begin providing games via cloud platforms in the foreseeable future. This would enable UK gamers to avoid purchasing expensive consoles and PCs, offering them more flexibility and choice in how they play games. Allowing Microsoft to maintain a dominant position in the cloud gaming market at this critical stage of growth could undermine the innovation essential for the market’s continued development.
Microsoft submitted a proposal to address some of these concerns, outlining requirements for what games must be offered by Microsoft, to which platforms, and under what conditions over a ten-year period. The CMA found Microsoft’s proposal to be insufficient due to several significant shortcomings connected with the growing and fast-moving nature of cloud gaming services.
The CMA also considered whether the benefit of having Activision’s content available on Game Pass outweighed the harm the merger would cause to competition in the UK’s cloud gaming market. The regulator determined that the new payment option, while beneficial to some customers, would not outweigh the overall harm to competition (and ultimately UK gamers) resulting from the merger, particularly considering Microsoft’s incentive to increase Game Pass subscription costs post-merger to account for the addition of Activision’s valuable games.
Martin Coleman, chair of the independent panel of experts conducting this investigation, emphasized the importance of protecting competition in the emerging cloud gaming market. He noted that Microsoft already holds a powerful position in cloud gaming, and the deal would strengthen that advantage, potentially undermining new and innovative competitors.
Although Microsoft engaged constructively with the CMA to address these concerns, their proposals were ultimately found to be ineffective in remedying the regulator’s apprehensions. Coleman highlighted that the cloud gaming market requires a free, competitive environment to drive innovation and choice, which is best achieved by allowing the current competitive dynamics in cloud gaming to continue to operate without regulatory intervention.
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