UK regulator blocks Microsoft’s $104 billion Activision Blizzard acquisition, frustrating the biggest tech deal in history

Overnight UK’s Competition and Markets Authority (CMA) blocked Microsoft’s $104 billion acquisition of video game giant Activision Blizzard.

So far regulators across Japan, South Africa, Saudi Arabia, Brazil and more have given the deal the thumbs up. The companies are still waiting on approval from EU regulators, which are set to hand down their decision on May 22.

The CMA has been deliberating on the biggest tech deal in history since September 2022. During the review process it scoured 3 million documents from Microsoft and Activision Blizzard and over 2,000 public emails.

It cited concerns over market domination in the cloud gaming space as a key reason for the block.

“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 reported.

And it is certainly not wrong about the company’s position. Microsoft owns Xbox and Windows, meaning it is already in control of two leading cloud gaming offers — Xbox Cloud Gaming and Microsoft Azure.

According to the CMA, this accounts for between 60 and 70% of cloud gaming services globally. It also notes that cloud gaming is estimated to be worth $20.7 billion globally by 2026.

On its point about exclusivity, that would be quite the coup for Microsoft. Activision Blizzard owns some of the biggest gaming properties in the world, such as Call of Duty, Overwatch, World of Warcraft, Diablo, and Starcraft.

“The evidence available to the CMA indicates that, absent the merger, Activision would start providing games via cloud platforms in the foreseeable future,” the CMA said.

It also noted that cloud gaming allows players to avoid buying expensive PCS and consoles and provides more choice and flexibility.

“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.”

Microsoft attempted to address some of the concerns

In the lead-up to this decision, Microsoft tried to address some of the monopoly concerns by signing deals with other cloud gaming services such as NVIDIA, Boosteroid and Ubitus. It also made a similar deal with Nintendo in December 2022.

These were 10-year deals that would allow Activision Blizzard titles such as Call of Duty to be streamed on these competitor services.

While these were taken into consideration by the CMA, the regulator has said the deals contained “significant shortcomings”.

According to the CMA, the deals didn’t sufficiently cover issues such as multi-game subscription services and allowing providers to offer versions of the game on operating systems other than Windows. The CMA also took issue with these deals having standardised terms and conditions, as opposed to ones determined “by the dynamism and creativity of competition in the market, as would be expected in the absence of the merger.”

“Given the remedy applies only to a defined set of Activision games, which can be streamed only in a defined set of cloud gaming services, provided they are purchased in a defined set of online stores, there are significant risks of disagreement and conflict between Microsoft and cloud gaming service providers, particularly over a ten-year period in a rapidly changing market,” the CMA said.

Microsoft and Activision Blizzard hit back

Microsoft and Activision Blizzard have stated publicly that they will be appealing the decision. The companies aimed to close the merger by July but will now need to extend.

If the appeal is successful, the CMA will need to pay almost $4.5 billion in break-up costs.

“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” Microsoft president, Brad Smith, said in a statement.

“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.”

We remain fully committed to our acquisition with @ATVI_AB and will appeal today's determination by the CMA. Here's our statement. pic.twitter.com/ylvDP5RUqQ

— Brad Smith (@BradSmi) April 26, 2023

Activision Blizzard CEO, Bobby Kotick, informed employees of the intention to appeal in a company email.

“Alongside Microsoft, we can and will contest this decision, and we’ve already begun the work to appeal to the UK Competition Appeals Tribunal,” Kotick said.

“We’re confident in our case because the facts are on our side: this deal is good for competition.”

Activision also hit back hard at the CMA in a public statement, saying it will “work aggressively” to reverse the appeal.

“The CMA’s report contradicts the ambitions of the UK to become an attractive country to build technology businesses,” a company spokesperson said.

“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.”