Microsoft & Activision deal blocked over reduced innovation

Microsoft’s planned takeover of Activision looks dead in the water after the UK's competition watchdog blocked the US$69bn deal.

Activision Blizzard is behind many of the world's most successful and popular games, including Call of Duty, World of Warcraft and Candy Crush Saga. Any acquisition would have been the largest in gaming history. 

However, on Wednesday it was announced the Competition and Markets Authority (CMA), which is responsible for strengthening business competition in the UK, had “prevented” the deal from being pushed through.

Equivalent regulators in the US and EU are yet to pass judgement on the merger, but it is now unlikely to happen unless the UK ban can be overturned on appeal. 

Activision Blizzard is itself the product of a 2008 merger of Activision and Vivendi Games. 

Activision deal blocked over ‘reduced innovation’ concerns

Microsoft’s proposed acquisition of Activision Blizzard was first announced in January of last year, and would have seen the latter become a division of Microsoft Gaming. There had been widespread expectation across the industry that regulators would approve the deal. 

But in revealing its decision, the CMA cited fears that the deal would “alter the future of the fast-growing cloud gaming market”, resulting in “reduced innovation and less choice for UK gamers” over the coming years. 

The authority elaborated by saying Microsoft’s solutions had failed to effectively address concerns which were outlined in its provisional findings in February. These largely revolved around cloud gaming, which is growing rapidly in the UK and is forecast to be worth almost US$14bn globally by 2026. 

However, the CMA said: “The cloud allows UK gamers to avoid buying expensive gaming consoles and PCs and gives them much more flexibility and choice as to how they play. Allowing Microsoft to take such a strong position in the cloud gaming market just as it begins to grow rapidly would risk undermining the innovation that is crucial to the development of these opportunities.”

Also playing into the dispute was Call of Duty and worries from Microsoft’s big rival, Sony, that the mega-franchise may no longer be made available to PlayStation users.  

As a result, Microsoft set out a host of “behavioural” remedies setting out which games it must offer and the platforms on which they must be offered over the next 10 years. 

Despite these efforts, the CMA said the tech heavyweight’s proposal still contained “a number of significant shortcomings” relating to cloud gaming, which all largely boiled down to Microsoft potentially having too much perceived power in the market.

Martin Coleman, chairman of the independent panel of experts who conducted the CMA’s investigation, said: “Cloud gaming needs a free, competitive market to drive innovation and choice. That is best achieved by allowing the current competitive dynamics in cloud gaming to continue to do their job.”

Microsoft and Activision Blizzard have both said they will appeal against the CMA's decision.

How has Microsoft reacted? 

Unsurprisingly, Microsoft is far from pleased about the CMA’s findings. 

Speaking to the BBC on Thursday morning, Microsoft Vice-Chairman and President Brad Smith said the outcome was “bad for Britain” and would “discourage innovation and investment”. 

Calling it the “darkest day” in Microsoft’s four decades of operating in the UK, Smith claimed confidence in the CMA would also be harmed. 

“[The CMA’s decision will] shake confidence among the UK business community in the CMA as a regulatory authority,” he added.

“When we study the decision, in part it’s based on what we feel is such a flawed understanding of the market. It’s all about a potential concern of what the cloud streaming of games can become, but this business is so small today. And so, for regulators to step in and seek to torpedo a $US68bn global transaction out of concern about a part of the business that is so small, and to reject so many proposals to address their concerns, leaves people worried.”

Smith went on to say that businesses would now have more faith in similar regulatory processes within the EU. 

Also speaking to the BBC, the CEO of the CMA, Sarah Cardell, responded: “I think this decision shows actually how important it is to support competition in the UK. 

“We want to create an environment where a whole host of different companies can compete effectively, grow and innovate.”