UK regulator CMA blocks Microsoft’s $69 billion deal for Activision Blizzard acquisition

CMA blocked the deal emphasizing that it may hamper the cloud gaming sector.

UK regulator CMA blocks Microsoft’s $69 billion deal for Activision Blizzard acquisition

CMA blocks Microsoft's acquisition of Activision Blizzard

The UK’s Competition and Markets Authority (CMA) blocked Microsoft’s acquisition of Activision Blizzard. It was supposed to be one of the most significant proposed takeovers in video game history. Although Microsoft appealed the decision, the CMA remained steadfast in its position. They asserted that the proposed $69 billion deal posed a substantial threat to competition in the cloud gaming sector. The CMA had identified concerns in February, and Microsoft’s failure to address them effectively led to the final decision.

If approved, the proposed acquisition would have granted Microsoft ownership of some of the largest intellectual properties (IPs) in the gaming industry. These include some notable names like Call of Duty, Candy Crush, and Tony Hawk Pro Skater. In addition to their already impressive collection of hit games such as Minecraft, Halo, and Age of Empires, this would have been a significant addition.

Furthermore, CMA stated that takeover could have severe impact on cloud gaming market.

Related: Top 5 handheld Gaming Consoles

Why did CMA cancel Microsoft’s proposed Activision Blizzard takeover?

CMA Microsoft

Image source XBOX/Microsoft

The UK’s Competition and Markets Authority (CMA) has blocked Microsoft’s proposed acquisition of Activision Blizzard. They argued that Microsoft’s strong position in cloud gaming services would make it commercially beneficial to exclusively offer Activision’s games through its own platform. Furthermore, the CMA noted that Microsoft already accounts for 60-70% of global cloud gaming services. Additionally, it pointed out Microsoft’s ownership of Xbox, Windows, Azure, and the Game Pass subscription service. Cloud gaming presents gamers with more flexibility and choice in how they play and avoids the need to buy expensive consoles.

Microsoft’s proposed “behavioral” remedies, which included 10-year deals to make its games available to other cloud platforms. Unsurprisingly, this was deemed insufficient by the CMA. The authority argued that the remedies would require regulatory oversight.

Moreover, they added that it did not cover different business models such as subscriptions. They emphasized that the acquisition risked disagreements between Microsoft and other cloud gaming providers. The CMA viewed the deal as reinforcing Microsoft’s advantage in the market. Apparently, this would give the company control over important gaming content like Call of Duty, Overwatch, and World of Warcraft.

The CMA’s panel chair, Martin Coleman, emphasized the need for a free, competitive market to drive innovation and choice in cloud gaming. He stated that Microsoft already enjoyed a powerful position and head start over other competitors. He goes on to add, that the proposed deal would strengthen Microsoft’s advantage, potentially undermining new and innovative competitors. The CMA’s decision was based on its review of evidence showing that Activision would likely provide games through cloud platforms in the future, absent the merger.

Chairman Martin Coleman argued,Gaming is the UK’s largest entertainment sector. Cloud gaming is growing fast with the potential to change gaming by altering the way games are played.” Furthermore, he added,” 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, this means that it is vital that we protect competition in this emerging and exciting market.

The remedies that Microsoft provided were inadequate

The CMA conducted a thorough examination of Microsoft’s proposal to address the concerns regarding the acquisition. Microsoft proposed behavioral remedies that would regulate the behavior of the businesses involved. This would require them to behave in a way that may contradict their commercial incentives. Furthermore, CMA will oversee the implementation on a global scale. In short, this will make the market more dynamic.

The CMA found several significant shortcomings in Microsoft’s proposal. Apparently, they were related to the fast-moving and evolving nature of cloud gaming services. Despite proposing a number of remedies, Microsoft’s proposal fell short in several areas according to the CMA.

  • Microsoft’s’ proposal did not have any concrete coverage of Cloud gaming service models, like subscription to multigame services.
  • The proposal did not have adequate space for providers who want to make games available for other PC operating systems besides Windows.
  • Instead of allowing market competition to generate dynamism and originality, the merger would enforce conventional terms and conditions for game availability.

Martin Coleman addressing these concerns said, “Microsoft engaged constructively with us to try to address these issues and we are grateful for that.” Moreover, he emphasized, “Their proposals were not effective to remedy our concerns and, would have replaced competition with ineffective regulation in a new and dynamic market.

Microsoft and Activision are going to appeal against the CMA’s decision while closely monitoring other global regulators. The European Union is expected to release its decision by May 22. Although it finds Microsoft’s proposed remedies satisfactory, the CMA’s tougher stance may sway its decision. The Federal Trade Commission in the United States is challenging the deal in its internal court. Unfortunately, its lack of federal jurisdiction could make blocking the merger difficult.

As the deadline for closing the deal approaches on July 18, Microsoft’s main focus is on appealing the CMA’s decision. This has become the primary obstacle to completing the acquisition. If the deadline passes without a resolution, Microsoft could become liable for paying Activision a termination fee worth billions of dollars.

In case you missed it: