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The UK competition regulator has blocked the $68.7bn merger of Microsoft and Activision over concerns that it would lead to reduced “innovation and less choice for UK gamers”.
The Competition and Markets Authority (CMA) first flagged its concern with the deal last July. The deal would see the Xbox owner take over the developer of popular games such as Call of Duty.
However, the CMA said the two US firms did not propose solutions that would “effectively address the concerns in the cloud gaming sector”.
Microsoft and Activision said they will appeal the decision. Both issued statements that took aim at the regulator, arguing the decision would reduce innovation in the UK.
Brad Smith, vice chair and president at Microsoft, said: “The CMA’s decision rejects the pragmatic path to address concerns and discourages technology innovation and investment in the United Kingdom.”
Activision Blizzard CEO Bobby Kotick said it is “far from the final word on this deal”. The merger also faces regulatory scrutiny in the US and the EU.
Kotick added that the CMA’s decision to block the merger would “stifle investment, competition, and job creation throughout the UK gaming industry”.
The watchdog concluded that Microsoft was not able to effectively assuage concerns that the deal would create an unfair landscape in the cloud gaming sector.
The CMA said that because Microsoft is a key player in the cloud gaming market, it would be in its interest to lock Activision’s games into Microsoft’s exclusive platforms.
The regulator said Microsoft’s existing 60-70% market share of cloud gaming means the US tech firm risks obtaining an unfair level of dominance in the growing industry.
Microsoft provided a proposal to the CMA in an effort to protect the deal.
However, the regulator said it “did not sufficiently cover different cloud gaming service business models”, it was not “open to providers who might wish to offer versions of games on PC operating systems other than Windows”, and it would “standardise 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”.
Martin Coleman, chair of the independent panel of experts that conducted the investigation, said: “Microsoft already enjoys a powerful position and head start over other competitors in cloud gaming and this deal would strengthen that advantage giving it the ability to undermine new and innovative competitors.
“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.”
Stuart Smith, partner and specialist corporate and commercial lawyer at law firm Simkins, said: “The CMA’s decision highlights just how important cloud gaming is anticipated to be for the gaming industry. Traditional console gaming has long been dominated by just three companies, but there is scope for cloud gaming to become a much more diversified industry.”
Alex Haffner, competition partner at law firm Fladgate, added:”Whether the CMA’s decision causes the entire deal now to fall apart must be open to question, but no doubt the parties’ advisers will be thinking very carefully about how they might be able to salvage it.”