A UK regulator has blocked Microsoft’s bid to buy Activision Blizzard, dealing a huge blow to the proposed acquisition.
A month ago, the UK’s Competition and Markets Authority (CMA) determined that the acquisition probably wouldn't harm the console market. But on Wednesday, the regulator came to the opposite conclusion in the emerging cloud gaming space.
“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 UK regulator said in the final decision. Hence, Microsoft could corner the cloud-gaming market, incentivizing it to raise prices for Xbox Game Pass, which currently costs $9.99 or $14.99 in the US.
The CMA also claims Microsoft “already accounts for an estimated 60-70% of global cloud gaming services.” This includes Xbox Game Pass, which works for both the Xbox console and Windows PCs, along with Microsoft’s Azure cloud business.
“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 added. “The evidence available to the CMA indicates that, absent the merger, Activision would start providing games via (multiple) cloud platforms in the foreseeable future.
The finding goes against Microsoft’s remedy to the antitrust concerns. In February, the company signed a 10-year deal to bring all Microsoft games to Nvidia’s rival cloud-based GeForce Now service. However, the CMA found Microsoft’s remedy contained restrictions, noting “it was not sufficiently open to providers who might wish to offer versions of games on PC operating systems other than Windows.”
“Accepting Microsoft’s remedy would inevitably require some degree of regulatory oversight by the CMA. By contrast, preventing the merger would effectively allow market forces to continue to operate and shape the development of cloud gaming without this regulatory intervention,” the CMA added.
Microsoft plans on fighting the CMA’s decision through an appeal, said President Brad Smith.
“The CMA's decision rejects a pragmatic path to address competition concerns and discourages technology innovation and investment in the United Kingdom,” he tweeted. “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,” he added.
Still, Microsoft will face more pressure to drop the deal. The US Federal Trade Commission has sued to stop the company from completing the acquisition over similar antitrust concerns.
The proposed acquisition also has a contractual deadline to be completed on July 18. If the deal fails to close by that time, then Activision Blizzard can trigger a $3 billion breakup fee or renegotiate extending the deadline.