The UK’s antitrust regulator has blocked Microsoft’s proposed $68.7 billion acquisition of Activision Blizzard, citing concerns that the deal could prevent competition in cloud gaming.
In January 2022, Microsoft disclosed plans to buy the video games giant — behind hit gaming franchises like Warcraft, Diablo, Overwatch, Call of Duty and Candy Crush — in an all-cash transaction.
Valued at $68.7 billion, the deal would have been the biggest gaming industry deal in history. It would have also made Microsoft the world’s third-largest gaming company by revenue, behind Tencent and Sony.
Microsoft already built a name in the gaming industry with its Xbox video gaming brand. The tech giant’s investments in the gaming world included buying Minecraft developer Mojang Studios and Zenimax in multibillion-dollar deals.
“Gaming is the most dynamic and exciting category in entertainment across all platforms today and will play a key role in the development of metaverse platforms,” said Microsoft CEO and Chairman Satya Nadella when the deal was announced last year.
However, the UK’s Competition and Markets Authority now says the merger could “alter the future of the fast-growing cloud gaming market”.
This could lead to reduced innovation and less choice for UK gamers in the years to come, the CMA said in a notice on Wednesday (April 26).
Following the UK’s decision, shares of Microsoft closed up 7.2% in Nasdaq trading on Wednesday, while shares of Activision Blizzard plummeted 11.5% to a near two-month low.
The ruling, which the CMA said was its “final decision to prevent the deal,” follows its comments in February that the deal could harm UK gamers. At the time, members of the CMA said the merger could result in higher prices, fewer choices or less innovation for UK gamers due to Microsoft’s dominance.
The authority estimates the cloud gaming market to be worth up to GBP £11 billion globally by 2026, with the UK cloud gaming market forecast to be worth £1 billion by then.
By the end of 2022, monthly active users in the UK gaming market more than tripled from the start of 2021.
The CMA also fears that Microsoft’s dominant position in the cloud gaming market could result in the company making Activision’s games exclusive to its own cloud gaming service.
The tech giant already accounts for an estimated 60% to 70% of global cloud gaming services, the CMA said. Apart from operating its own cloud gaming platform, Xbox, the company also owns a global cloud computing infrastructure consisting of Azure and Xbox Cloud Gaming. It also runs Windows, the leading PC operating system globally.
Microsoft, in a bid to address some of the issues raised by the CMA, submitted a proposal to the regulator, detailing what games would be offered by the company to which platforms and on what conditions over a 10-year period.
“Microsoft already enjoys a powerful position and head start over other competitors in cloud gaming and this deal would strengthen that advantage giving it the ability to undermine new and innovative competitors.”
Martin Coleman, UK’s Competition and Markets Authority
However, the CMA said Microsoft’s proposal “contained a number of significant shortcomings.”
“Microsoft already enjoys a powerful position and head start over other competitors in cloud gaming and this deal would strengthen that advantage giving it the ability to undermine new and innovative competitors,” said Martin Coleman, chair of the independent panel of experts conducting the investigation.
Coleman added: “Microsoft engaged constructively with us to try to address these issues and we are grateful for that, but their proposals were not effective to remedy our concerns and would have replaced competition with ineffective regulation in a new and dynamic market.”
Coleman stressed that cloud gaming needs “a free, competitive market” to drive innovation and choice.
In its most recent financial results published Tuesday (April 25), Microsoft said its cloud services boosted its quarterly results.
“Focused execution by our sales teams and partners in this dynamic environment resulted in Microsoft Cloud revenue of $28.5 billion, up 22% (up 25% in constant currency) year-over-year,” said Amy Hood, executive vice president and chief financial officer of Microsoft.
In response to the UK’s decision, Microsoft President Brad Smith said the company remains fully committed to the acquisition and would appeal the decision, while Activision CEO Bobby Kotick told staff that it was not “the news we wanted – but it is far from the final word on this deal,” Reuters reported.
“We will reassess our growth plans for the UK… Global innovators large and small will take note that – despite all its rhetoric – the UK is clearly closed for business,” Activision was quoted by Reuters as saying.
Back in October, Microsoft reportedly filed a patent for a technology that creates AI-generated personalized music for players within a video game.
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