UK regulator blocks Microsoft’s acquisition of Activision

Business regulators in the United Kingdom announced it has blocked Microsoft’s proposed acquisition of the video game company Activision Blizzard, citing their concerns that the move could prevent the future of cloud gaming.

The U.K.’s Competition and Markets Authority (CMA) announced last September it would launch a probe into Microsoft’s $68.7 billion deal to acquire the video game company.

In a news release posted on Wednesday, the CMA said the investigation revealed that Microsoft already accounts for an estimated 60 percent to 70 percent of global cloud gaming services. The agency said allowing the company to procure Activision’s gaming content — including the popular games Call of Duty, Overwatch and World of Warcraft — could allow Microsoft to monopolize the market.

“The cloud allows U.K. gamers to avoid buying expensive gaming consoles and PCs and gives them much more flexibility and choice as to how they play,” the CMA said in its news release. “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.”

CMA also said that Microsoft’s proposed deal “contained a number of significant shortcomings connected with the growing and fast-moving nature of cloud gaming services,” adding that the deal did not cover different gaming service business models, such as multigame subscription services. 

Regulators also criticized the deal for not being open to providers “who might wish to offer versions of games on PC operating systems other than Windows.” The agency claimed the acquisition would instead standardize the terms and conditions on which games are available, “as opposed to them being determined by the dynamism and creativity of competition in the market, as would be expected in the absence of the merger.”

“Gaming is the U.K.’s largest entertainment sector. Cloud gaming is growing fast with the potential to change gaming by altering the way games are played, freeing people from the need to rely on expensive consoles and gaming PCs and giving them more choice over how and where they play games,” said Martin Coleman, chairman of the independent panel that conducted the investigation, in a statement. “This means that it is vital that we protect competition in this emerging and exciting market.”

“Cloud gaming needs a free, competitive market to drive innovation and choice,” Coleman added. “That is best achieved by allowing the current competitive dynamics in cloud gaming to continue to do their job.”

The decision comes as regulators in several countries, such as Brazil, Chile, Serbia, Japan, and Saudi Arabia, will also have to approve the potential acquisition, according to The Verge. 

Reuters reported in March that European Union regulators are likely to approve the deal, with the union set to make a decision later next month. 

In a statement, Microsoft’s vice chair and president Brad Smith said the company would appeal CMA’s decision on the matter, saying the 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,” Smith added. “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.”

Activision also claimed that the CMA’s findings “contradict” the country’s ambitions to become “an attractive country to build technology businesses.”

“We will work aggressively with Microsoft to reverse this on appeal,” an Activision spokesperson told The Hill in a statement, adding that the report is a “disservice to U.K citizens, who face increasingly dire economic prospects.” 

“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,” the spokesperson said.