Microsoft acquisition of Activision Blizzard blocked by UK’s CMA

Despite recent signs that it is softening its stance on Microsoft’s proposed $68.7 billion Acquisition of Activision Blizzardthe United Kingdom’s antitrust authority, the Competition and Markets Authority, has announced that it had decided to formally block the agreement.

The CMA said its decision was prompted by concerns about the deal’s effect on the future of the nascent cloud gaming market, where Microsoft is a key player. He feared the deal would lead to “reduced innovation and less choice for UK gamers in years to come”.

He said a solution proposed by Microsoft “has significant flaws and would require regulatory oversight by CMA.”

“Microsoft has a strong position in cloud gaming services and the evidence available to the CMA has shown that Microsoft would find it commercially advantageous to make Activision’s games exclusive to its own cloud gaming service,” the body said. government, announcing the findings of its month-long review. .

He estimates that Microsoft “already accounts for around 60-70% of global cloud gaming services”, thanks to the benefits of owning Xbox, Windows and the Azure platform, as well as the Game Pass game subscription service to which Xbox Cloud Gaming is related. The CMA sees cloud gaming as an important and rapidly growing sector of the gaming market that allows gamers to “avoid buying expensive consoles” and provides them with more “flexibility and choice in how they play” .

The CMA found insufficient “behavioural” remedies offered by Microsoft, in the form of 10-year agreements requiring it to make its games available on other cloud platforms. He said they would require regulatory oversight, did not sufficiently cover different business models such as subscriptions, and risked a rift between Microsoft and other cloud gaming providers given the magnitude of the changes that could occur in the sector over a period of 10 years.

Microsoft and Activision Blizzard immediately said they would appeal the CMA’s decision.

Responding in a statement, Microsoft Chairman Brad Smith said, “We remain fully committed to this acquisition and will appeal. The CMA ruling rejects a pragmatic way to address competition concerns and discourages technological innovation and investment in the UK. We’ve already signed deals to make popular Activision Blizzard games available on an additional 150 million devices, and we remain committed to bolstering those deals with regulatory action. We are particularly disappointed that after much deliberation, this decision appears to reflect a misunderstanding of this market and how the cloud technology involved actually works.

An Activision Blizzard spokesperson posted an even more hard-hitting, almost threatening response. “The CMA report contradicts the UK’s ambitions to become an attractive country to build tech companies,” he said. “We will work aggressively with Microsoft to reverse this on appeal. The report’s findings do a disservice to British citizens, who face an increasingly dire economic outlook. We will reassess our growth plans for the UK Global innovators large and small will take note that – for all its rhetoric – the UK is clearly out of business.

Microsoft and Activision Blizzard had been cautiously optimistic that the CMA would approve the deal, despite its initial skepticism. In March, the CMA put aside one’s concerns on the effect of the deal on the console market – particularly the availability of Call of Duty on PlayStation, which, thanks to fiery lobbying by Sony, had until then been at the forefront of regulatory concerns.

In this case, the CMA said at the time that “the merger will not result in a substantial lessening of competition in console gaming services, as the cost to Microsoft of retaining Call of Duty from PlayStation would outweigh any gain resulting from such action”. In other words, Sony’s dominance in the console market motivates Microsoft to continue releasing Call of Duty there. Clearly, the AMC doesn’t think the same applies to the nascent cloud gaming market. Microsoft’s biggest potential rival in cloud gaming, Google, shut down its Stadia cloud gaming service earlier this year.

As Microsoft and Activision begin the appeal process against the CMA’s decision, they will also be closely monitoring its effect on the position of other major global regulators. The European Union is expected to announce its findings by May 22: it is thought to be happy with Microsoft’s proposed solutions, but could still be swayed by the CMA’s tougher stance. In the United States, the Federal Trade Commission is challenging the deal in its own domestic court, but without federal jurisdiction, may find it difficult to block it.

This means that the appeal against the CMA’s decision now becomes the front line in Microsoft’s efforts to complete the deal before the July 18 deadline, which would require it to pay Activision a termination fee of several billion dollars.

Update: Activision Blizzard CEO Bobby Kotick says the CMA decision “isn’t the news we wanted – but it’s far from the final word on this deal” in an email to staff. which was released. He also hinted that Microsoft would withhold investment in artificial intelligence technologies in the UK if the deal was not approved. You can read his full statement below:

Today, the Competition and Markets Authority (CMA), a regulatory agency in the United Kingdom, decided not to approve our merger with Microsoft. It’s not the news we wanted – but it’s far from the final word on this deal.

Alongside Microsoft, we can and will challenge this decision, and we have already started work to appeal to the UK Competition Appeals Tribunal. We are confident in our case because the facts are on our side: this agreement is good for competition.

The UK hopes to increase its leadership position in technology, and a Microsoft-Activision combination would accomplish just that. At a time when the areas of machine learning and artificial intelligence are booming, we know the UK market would benefit from Microsoft’s benchmark strength in both areas, as well as our ability to use these technologies. immediately. On the other hand, if the CMA’s decision were upheld, it would stifle investment, competition and job creation across the UK gambling industry.

This merger is a complex process, and I know I’m not the only one frustrated by the obstacles and delays. We’re used to a corporate culture that moves quickly to achieve big goals, so it’s tough when we can’t close things at our usual energetic pace. We will continue to champion our cause, as we know this merger will benefit our employees, the entire UK tech workforce and stakeholders around the world.

I will do my best to defend ourselves and help regulators understand the competitive dynamics of our industry. What gives me confidence is that, whether on our own or in association with another company, we are one of the strongest companies in our industry, poised for continued growth and building on our incredible intellectual property.

I appreciate your hard work and focus, and continuing to connect and engage our players around the world. It’s the best time to be in our business, and you all represent the best in our industry. We’ll be sure to update you on the next steps as they happen.

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