The UK Competition and Markets Authority has blocked Microsoft’s $68,7 billion deal for Activision Blizzard. The CMA concluded after months of analysis of 3 million Microsoft documents, more than 2,100 public emails, and over 3 million Activision documents.
Microsoft has said it will appeal this decision. However, it is a blow for Microsoft’s hopes to acquire Activision Blizzard. If the appeal fails, it may prevent Microsoft from closing the giant deal.
The CMA says that “Microsoft is a leader in cloud gaming and the evidence before it showed Microsoft’s interest to have Activision games exclusively available on its cloud gaming service.”
CMA estimates Microsoft controls 60-70 percent of the global cloud gaming services. Microsoft would gain a significant edge in this market if it could control Call of Dutyy Overwatch and World of Warcraft
Microsoft tried to address cloud gaming concerns in the run-up to this decision. Microsoft signed cloud-gaming deals to allow Xbox PC gaming to be played on rival cloud services. This follows a similar deal struck with Nintendo last December. The 10-year contracts also allow access to Call of Duty as well as other Activision Blizzard titles, if approved by regulators.
The CMA has said that it has reviewed these deals and found “a number” of “significant shortcomings” with cloud gaming services. The CMA claims that the deals were “too narrow in scope,” with models where gamers could only play games by purchasing them in certain stores, or subscribing certain services.
The CMA noted that these deals would “standardize terms and conditions under which games are made available” instead of allowing for competition on the cloud gaming market. We concluded that Activision’s games would be available in the UK on cloud gaming services within the next few months without the merger.
CMA initially sided Microsoft in Call of Duty concerns last week, noting that Microsoft would incur costs if it refused to allow PlayStation to continue selling the popular franchise. The CMA still had some concerns about cloud gaming, but it decided to weigh the benefits of Activision content being available on Game Pass against the risks.
Martin Coleman, the chair of the independent expert panel conducting the investigation, said: “Microsoft has engaged in constructive dialogue with us in order to address these concerns. We are grateful for this, but we do not believe that their proposals have been effective in remedying our concerns. They would have replaced the competition with ineffective regulations in a dynamic and new market.”
Microsoft’s Brad Smith told that “we remain committed to this purchase and will appeal.” The CMA’s decision is a rejection of a pragmatic approach to addressing competition concerns, and discourages innovation and investment in technology. We’ve already signed contracts with Activision Blizzard to make their popular games available to 150 million additional devices. And we remain committed in enforcing the agreements through regulatory remedies. We are particularly disappointed that, after long deliberations and a thorough review of the market and cloud technology in question, the decision seems to reflect a flawed view.
In an email sent to employees on Tuesday, Activision Blizzard’s CEO Bobby Kotick said that the company had already begun work on an appeal. Kotick says, “We will appeal this decision with Microsoft and have already started the process of appealing to the UK Competition Appeals Tribunal.” We’re confident because we have the facts on our side. This deal is good for competitors.
Microsoft’s appeal will delay the company’s plan to close this deal by the end July. Microsoft originally planned to complete the deal by the 18th of July, but now it is forced to negotiate a merger agreement extension. Microsoft will be liable for $3 billion in breakup fees if its CMA appeal is rejected or if it does not get approval from any other regulators.
Saudi Arabia, Brazil Chile, Serbia Japan and South Africa all have approved the deal. Reuters reported last month that EU regulators are likely to approve the deal after the Nvidia licensing agreement and Nintendo licensing agreement.
Microsoft is also under scrutiny by the Federal Trade Commission in the US. The FTC is still investigating the lawsuit that was filed to stop Microsoft from purchasing Activision Blizzard last year. A evidentiary hearing is set for August 2, and it is possible that the case will reveal rare details about game industry exclusivity agreements if documents are made public.