Following hints from Activision Blizzard’s pre-market stock being down, the UK’s Competition and Markets Authority (CMA) regulatory body has rendered a negative verdict on Microsoft’s proposed $68.7 billion deal to buy the company.
This is unexpected following the CMA’s reversal and admission that the console market wouldn’t be endangered by the acquisition. The CMA has therefore ruled against the deal based on the supposed dangers for the cloud market, stating that the behavioral remedies proposed by Microsoft would not be enough.
The CMA’s press release says the company would have reason to make Activision Blizzard games exclusive to its cloud services, which are already in a strong position to begin with, according to the regulatory body. Here’s an excerpt from the overview document shared by the CMA:
On cloud gaming, our assessment is different. Microsoft already has strong advantages in this market. It owns Windows, which is by far the leading PC operating system, and the operating system on which most PC games run; it has significant cloud infrastructure and systems through Azure and Xcloud; and it has a strong gaming base through its Xbox ownership and a portfolio of
leading games. No other cloud gaming operator has this combination of advantages. Some of these strengths are already reflected in Microsoft’s current UK market share of cloud gaming of between 60-70%.
Activision games such as Call of Duty, Overwatch, and World of Warcraft are among the most popular content available on consoles and PCs. We found that Activision’s games are likely to be important to cloud gaming services in the future. While Activision has so far not offered its games on a cloud gaming service, the evidence shows that it will have strong incentives to do so, particularly given the significant growth projections for cloud gaming. We concluded that, without the merger, Activision games would become available on cloud gaming services in the UK in the near future.
We have therefore concluded that combining Activision’s strong portfolio of games with Microsoft’s current multiple cloud gaming strengths would enable Microsoft to harm current and emerging cloud gaming competitors by withholding Activision games from them and, unlike in the case of consoles, we have not found that there are any material reasons to stop it doing this.
Microsoft had endeavored to sign 10-year-long contracts with Nintendo and various cloud companies (NVIDIA’s GeForce NOW, Boosteroid, Ubitus, and EE) to try and assuage the CMA’s concerns. However, the CMA said the benefits of these deals are ‘highly uncertain’ and could not qualify as relevant customer benefits. Microsoft’s intention to put those games on its Game Pass subscription service was, on the other hand, valued as a relevant customer benefit, but it was counterbalanced by the CMA’s assessment that it would only represent improved value for a portion of the existing customers, and the likely increase in Game Pass subscription price would offset that anyway.
Rumors had just suggested Microsoft would close the deal even with the pending FTC lawsuit if the deal was approved by the UK and EU, but the CMA’s verdict has put a massive dent in that plan. Microsoft will appeal the ruling, as confirmed by president Brad Smith in a statement shared via Twitter that also laments a flawed understanding of the cloud market. Still, the chances of reversing the outcome appear slim.
Meanwhile, Activision Blizzard’s outspoken Executive VP of Corporate Affairs Lulu Meservey just tweeted that the decision is a ‘setback for the United Kingdom’s ambitions as a tech hub’, making it look like the UK is ‘closed for business’. She also said Activision Blizzard will work with Microsoft to change the ruling in the appeal.
As a reminder, Microsoft will owe Activision Blizzard $3 billion if the deal is not completed.
