UK regulator blocks Microsoft's Activision Blizzard merger over cloud concerns

The UK’s antitrust regulator, the Competition and Markets Authority, has announced it will block Microsoft’s eye-popping purchase of Activision Blizzard. In a statement, the body said the deal risks harming the nascent cloud-gaming market by creating a monopoly player. It added that, if the deal concluded, Microsoft would have a market share of between 60 and 70 percent, “incentive to withhold [Activision Blizzard] games from competitors and substantially weaken competition in this important growing market.”

The nature of the UK’s investigation originally centered both on cloud issues but also the broader console gaming market. But in March of this year, said that the console market would be less of an issue than it had originally suspected. It conclusion was, broadly speaking, that while Microsoft could block high-profile Activision Blizzard titles, like Call of Duty, Overwatch and World of Warcraft from rival platforms, it didn’t make much business sense to leave all of those sales on the table. And Microsoft did attempt to head off those concerns by signing a pact with Nintendo for access to Call of Duty, and made overtures to Sony for the same. Consequently, the investigation refocused on the cloud gaming market, which is where it found greater cause for concern.

In its report (.PDF), the CMA says that Microsoft’s strengths as a brand and as an infrastructure provider needed to be taken into consideration. Specifically that it already controls Windows and Xbox, both big brands for gaming and gamers, as well as the infrastructure to support it, with xCloud and Azure on the cloud side. Regulators said if those were combined with Activision Blizzard’s portfolio of gaming titles, could be more readily weaponized in the cloud gaming sphere. And even if they weren’t used as a cudgel against Sony and Nintendo, as well as other cloud gaming companies, there was still a risk of the more general ills of a monopoly provider. For instance, it said the deal would “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.”

By comparison, regulators believed that without the merger, Activision Blizzard “would start providing games via cloud platforms in the foreseeable future.” And that if it did, users will have a wider choice of service providers than if all of that content was locked inside Microsoft’s ecosystem, or at the very least made available to users at more preferential terms (.PDF). This, officials felt, would constitute a "significant lessening of competition," which was enough to put the hammer down.

In addition, the CMA felt that Microsoft's proposed remedies didn't go far enough to reassure regulators of its intentions. For instance, while the company had offered console support for 10 years to rival platforms, it "did not sufficiently cover different cloud gaming service business models, including multi-game subscription services." Another objection centered on the fact Microsoft didn't promise much to "providers who might wish to offer versions of games on PC operating systems other than Windows."

This is not the only instance of regulators raising concerns that Microsoft's purchase of Activision Blizzard may be a step too far. In the US, the FTC has sued in an attempt to prevent the deal, saying that Microsoft had previously made promises to share its IP with rival platforms, only to change its mind later on. It pointed to the late decisions to make the (Microsoft-owned) Bethesda titles Starfield and Redfall exclusives as evidence that its assurances couldn't be counted upon. The EU, meanwhile, initially objected to the deal on similar competition grounds, but is now expected to offer its blessing to the deal.

Activision Blizzard issued a statement, saying that the CMA "contradicts the ambitions of the UK to become an attractive country to build technology businesses." It added that it will work "aggressively with Microsoft" to appeal the decision, and that the results are a "disservice to UK citizens," and threatening to "reassess" its growth plans for the country, saying that the "UK is clearly closed for business." Activision Blizzard CEO Bobby Kotick has published a note (via Substack) saying that while the news isn’t what he wanted, “it is far from the final word on this deal.” He added that Microsoft will contest the decision, saying that blocking the deal will “stifle investment, competition and job creation throughout the UK gaming industry.” Microsoft Vice Chair and President Brad Smith has also published a note on Twitter, saying that the decision “appears to reflect a flawed understanding of this market and the way the relevant cloud technology actually works."