The U.K.’s Competition and Markets Authority (CMA) will ban Microsoft’s billion-dollar Activision acquisition because it would create “the most powerful operator” in cloud gaming.
Microsoft’s 60-70% dominance of the U.K. cloud gaming industry makes purchasing Activision’s games “substantially weaken competition,” according to the CMA. Microsoft would also benefit from withholding such titles from other gaming systems.
Last January, Microsoft announced plans to buy Activision for $68.7 billion, making it the third-largest gaming company by revenue behind Tencent and Sony and giving it direct control over mega-franchises like Call of Duty and World of Warcraft.
The CMA launched an antitrust investigation into the deal last July. Two months later, it provisionally concluded that it “could harm U.K. gamers” by raising prices, reducing choices, and slowing innovation. So last month, the CMA focused solely on cloud gaming, not console gaming.
Today, the CMA acknowledged that Microsoft would be “unlikely” to withdraw Call of Duty from Sony’s PlayStation, which would hurt its closest console competition. It stated this was because PlayStation has a “large and profitable user base that regularly buys Call of Duty” and that losing PlayStation customers would exceed any profits Microsoft would get from players transferring to Xbox.
In cloud gaming, the CMA observes that Microsoft’s market advantage due to Windows’ popularity and its “significant cloud infrastructure” companies would give it an unfair advantage if it acquired Activision Blizzard’s properties.
“No other cloud gaming operator has this combination of advantages,” the CMA said. For example, Microsoft has 60-70% of the UK cloud gaming market.
Microsoft vice chair and President Brad Smith issued a statement immediately after the CMA published its final position today, saying that Microsoft intends to appeal the decision and citing recent moves to address competition concerns, such as signing deals to make Activision Blizzard games available on rival devices. Smith wrote:
We will appeal. The CMA’s ruling hinders UK technological innovation and investment by rejecting a realistic approach to competition issues.
We are dedicated to enforcing our contracts to bring Activision Blizzard’s popular games to 150 million more devices through regulatory remedies.
After long debates, this choice indicates a faulty knowledge of this industry and the necessary cloud technologies.
Microsoft has pledged to maintain Activision titles on Sony, Nintendo, and Steam for ten years. However, the CMA believes Microsoft’s ideas can’t replace “competitive dynamism” and would only compensate for the loss of competition for ten years.
CMA wrote: We considered how to address these issues. Preventing the Merger would maintain cloud gaming’s competitiveness and innovation. Microsoft suggested a solution that would control its behavior and operations for ten years to compensate for losing a competition.
Microsoft’s approach did not restore the Merger’s competitive dynamic. Thus, the only effective and proportional solution is preserving competition rather than imposing worldwide regulatory monitoring.
Activision Blizzard responds to today’s news bluntly. A spokeswoman said the CMA report “contradicts the ambitions of the U.K. to become an attractive country to build technology businesses” and that it will “work aggressively with Microsoft” to appeal.
“The report’s conclusions are a disservice to U.K. citizens, who face increasingly dire economic prospects,” the spokesman stated. Next, we’ll review our UK growth strategies. Despite its rhetoric, the U.K. is closed for business.
The transaction is under review in several countries, notably the EU, which has been considering a deep investigation. However, following Microsoft’s further remedies, the European Commission (EC) postponed its decision deadline from April 25 to May 22.
The FTC is attempting to halt the acquisition in the U.S., although Microsoft recently won a private antitrust lawsuit brought by gamers.
