In a shocking turn of events, the UK's Competition and Markets Authority has blocked Microsoft's merger with Activision Blizzard. Today is the date of the CMA's final decision on the proposed deal and in a surprise it has prevented it from going forward, citing concerns over the future of the cloud gaming market and not the expected issue of Call of Duty.
The ruling comes as a surprise because earlier this week the Financial Times had reported that the CMA would likely wave the deal ahead and it was widely reported that the CMA had softened in its position after Microsoft had made efforts to placate the market regulator. "The final decision to prevent the deal comes after Microsoft's proposed solution failed to effectively address the concerns in the cloud gaming sector," CMA's ruling says on the UK's government website.
Microsoft announced its $68.7 billion deal to purchase Activision Blizzard back in January and the UK watchdog took a great interest in the proposed acquisition since such a massive merger could potentially hamper the competitiveness of the games industry. Ever since it has been conducting an in-depth investigation of how such a deal could affect the industry and has been closely listening to others in the space such as Sony and Nintendo, among others.
But it was not the issue of Call of Duty in the end that decided the CMA's hand. The highly popular shooter series was highlighted by the CMA with concerns that Microsoft might make it exclusive to its platforms. Microsoft said it would not make it exclusive and made overtures to that effect, proposing contracts to Sony and signing them with the likes of Nintendo. It was instead cloud gaming that worried the CMA.
"Microsoft has a strong position in cloud gaming services and the evidence available to the CMA showed that Microsoft would find it commercially beneficial to make Activision's games exclusive to its own cloud gaming service", the CMA said. The regulator pointed to how Microsoft accounts for some 60 to 70 percent of global cloud gaming services while it has a dominant presence in the PC space with Windows and cloud computing infrastructure with Azure and Xbox Cloud Gaming.
"The deal would reinforce Microsoft's advantage in the market by giving it control over important gaming content such as Call of Duty, Overwatch, and World of Warcraft", the CMA continued. "The evidence available to the CMA indicates that, absent the merger, Activision would start providing games via cloud platforms in the foreseeable future". In addition, the watchdog claims that allowing Microsoft to take "such a strong position" in cloud gaming as it's still emerging would risk underming innovation in this market.
For its part, Microsoft had proposed remedies but according to the CMA had not sufficiently addressed the cloud gaming aspect, including "multigame subscription services", and highlighted its concerns with Activision content being available on Game Pass. One silver lining however is that the CMA did conclude that the proposed merger would not be expected to result in significantly lessening competition in console gaming services in the UK.
Microsoft has issued a statement in response to the ruling and has said that it remains "fully committed" to the acquisition and will appeal. "The CMA’s decision rejects a pragmatic path to address competition concerns and discourages technology innovation and investment in the United Kingdom", Microsoft's vice chair and president Brad Smith said, in a statement seen by TheGamer.
"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. 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,” it continued. It's clear that this is a significant blow to Microsoft's hopes of acquiring Activision Blizzard but as the statement also makes clear, this story hasn't yet ended as it will appeal. Microsoft also has a trial with America's FTC scheduled for August.