Microsoft’s £55bn takeover of Activision Blizzard blocked by UK’s regulators

The CMA has blocked Microsoft’s takeover of Activision, as it would "alter the future of the fast-growing cloud gaming market", leading to reduced innovation and fewer choices for UK gamers.

The decision was taken after Microsoft "failed to address" the concerns expressed by the CMA in February, following an investigation over the deal that would have seen Xbox-maker Microsoft acquire hit titles such as Call of Duty and Candy Crush in the “biggest takeover in tech history”.

The CMA reached its conclusion after analysing over three million Microsoft and Activision documents and more than 2,100 emails from the public. The regulator's main concern was the risk that Microsoft would make Activision’s games exclusive to its existing cloud gaming platform, Xbox Game Pass, cutting off distribution to other key players in the space.

“Microsoft has a strong position in cloud gaming services and 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 CMA said.

In February, the CMA expressed its concerns that the acquisition would result in higher prices, fewer choices and less innovation for the British video game market. Although Microsoft was reported to have proposed a solution, it was seen by UK regulators as containing "a number of significant shortcomings", connected with the growing and fast-moving nature of cloud gaming services.

Among these, the CMA said the proposal did not sufficiently cover different cloud gaming service business models, including multigame subscription services. It was also said to not be sufficiently open to providers who might wish to offer versions of games on PC operating systems other than Windows. Moreover, Microsoft's proposal would have standardised 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". 

“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," said Martin Coleman, chair of the independent panel of experts conducting the CMA investigation.

“Microsoft engaged constructively with us to try to address these issues and we are grateful for that, but their proposals were not effective to remedy our concerns and would have replaced competition with ineffective regulation in a new and dynamic market.”

Microsoft first announced its multi-billion deal to buy Activision in January 2022, while the CMA launched its review into the acquisition nine months later. 

The CMA has estimated that Microsoft controls around 60 to 70 per cent of the global cloud gaming services, which are forecast to be worth up to £11bn globally and £1bn in the UK by 2026. For this reason, the acquisition of Activision's extremely popular games such as Call of Duty, Overwatch, and World of Warcraft would give Microsoft a significant advantage in the cloud gaming market.

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

Microsoft has argued that it wouldn’t be financially beneficial to withhold Call of Duty from PlayStation, Nintendo and other rivals given the licensing income it generates, going as far as to offer 10-year license agreements to these other platforms.

Brad Smith, vice chair and president of Microsoft, said: “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’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.”

A spokeswoman for Activision Blizzard added: “The CMA’s report contradicts the ambitions of the UK to become an attractive country to build technology businesses. We will work aggressively with Microsoft to reverse this on appeal. The report’s conclusions are a disservice to UK citizens, who face increasingly dire economic prospects.

“We will reassess our growth plans for the UK. Global innovators large and small will take note that – despite all its rhetoric – the UK is clearly closed for business.”

However, the UK regulators are not the only obstacle to Microsoft's acquisition. In the US, the Federal Trade Commission (FTC) has already sued to block the deal, while the EU is also currently investigating the merger and its potential anti-competitive repercussions.  

Earlier this year, Microsoft made headlines after launching a revamped version of its search engine Bing, powered by the popular AI chatbot ChatGPT. The news followed an announcement that the global company would be cutting 10,000 jobs in the latest round of redundancies to hit the tech industry.