The U.K.’s Competition and Markets Authority (CMA) has confirmed that it intends to block Microsoft’s megabucks Activision acquisition, concluding that such a merger would create “…the most powerful
operator” in the cloud gaming market.
The CMA noted that with a current share of 60-70%, acquiring Activision’s portfolio of games would “substantially weaken competition” in the market. It added that Microsoft would also have the incentive to withhold such games from competing gaming platforms.
The story so far
By way of a brief recap, Microsoft first revealed plans to buy Activision in a whopping $68.7 billion deal last January, a move that would essentially make Microsoft the third-largest gaming company in the world by revenue behind Tencent and Sony, while giving it direct control over mega-franchises such as Call of Duty and World of Warcraft.
Last July, the CMA confirmed it was launching an antitrust investigation into the deal, then two months ago the regulator gave the strongest indication yet that it was gearing up to block the merger when it provisionally concluded it “could harm U.K. gamers” by creating higher prices, fewer choices, and less innovation. Then last month, the CMA narrowed its position to focus entirely on cloud gaming, rather than console gaming.
It wrote at the time:
The CMA has received a significant amount of new evidence in response to its original provisional findings. Having considered this new evidence carefully, together with the wide range of information gathered before those provisional findings were issued, the CMA inquiry group has updated its provisional findings and reached the provisional conclusion that, overall, the transaction will not result in a substantial lessening of competition in relation to console gaming in the UK.
Microsoft vice chair and president Brad Smith issued a statement immediately after the CMA published its final position today, saying that Microsoft intends to appeal the decision while pointing to recent moves it has made to alleviate competition concerns, including signing deals that would make Activision Blizzard games available on rival devices. Smith wrote:
We remain fully committed to this 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.
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.
-Brad Smith, Vice Chair and President
Indeed, Microsoft has made various commitments toward keeping Activision games on rival platforms including Sony, Nintendo, and Steam for a 10-year period. However, the CMA has taken the position that Microsoft’s proposals can’t replace the existing “competitive dynamism,” and would merely compensate for the loss of competition through “obligations that would regulate its behaviour” for 10 years only.
The CMA wrote:
We had to consider how best to remedy these concerns. Preventing the merger would preserve the competitive dynamism and level of innovation that exists in the growing cloud gaming market. In contrast, Microsoft proposed a remedy that sought to compensate for the loss of competition with a set of obligations that would regulate its behaviour and how it did business for a period of ten years.
Having carefully considered Microsoft’s proposal, we found that it would not restore the competitive dynamism that would be lost as a result of the Merger. We decided, therefore, that a remedy that preserves competition, rather than one that imposes global regulatory oversight, is the only effective and proportionate way forward.
Activision Blizzard, for its part, does not mince its words in response to today’s news. A spokesperson said that the CMA’s report “contradicts the ambitions of the U.K. to become an attractive country to build technology businesses,” adding that it will “work aggressively with Microsoft” to appeal the decision.
“The report’s conclusions are a disservice to U.K. citizens, who face increasingly dire economic prospects,” the spokesperson said. “We will reassess our growth plans for the U.K. Global innovators large and small will take note that — despite all its rhetoric — the U.K. is clearly closed for business.”
It’s worth noting that the acquisition faces scrutiny in other regions around the world, including the European Union (EU) which has been mulling an in-depth probe for some time already. The European Commission (EC) had previously set a provisional deadline of 25th April to announce a decision, but this was recently moved to May 22 following further remedies offered by Microsoft.