UK blocks Microsoft’s $69 billion aquisition of Activision Blizzard

Wednesday, April 26th 2023

LONDON — Britain’s top competition regulator on Wednesday moved to block Microsoft’s acquisition of video game publisher Activision Blizzard

The measure marks a major blow for the U.S. tech giant, as it seeks to convince authorities that the deal will benefit competition.

Microsoft announced its intention to acquire Activision Blizzard in January 2022 for $69 billion, in one of the biggest deals the video game industry has seen to date.

Executives at the Redmond, Washington-based technology giant believe the acquisition will boost its efforts in gaming by adding lucrative franchises like Call of Duty and Candy Crush Saga to its content offerings.

However, some of Microsoft’s competitors contested the deal, concerned it may give Microsoft a tight grip on the $200 billion games market. Of particular concern was the prospect that Microsoft may shut off distribution access to Activision’s popular Call of Duty franchise for certain platforms.

Sony, in particular, has voiced concern with Microsoft’s Activision purchase. The Japanese gaming giant fears that Microsoft could make Call of Duty exclusive to its Xbox consoles in the long run.

Microsoft sought to allay those concerns by offering Sony, Nintendo, Nvidia and other firms 10-year agreements to continue bringing Call of Duty to their respective gaming platforms.

Microsoft argues it wouldn’t be financially beneficial to withhold Call of Duty from PlayStation, Nintendo and other rivals given the licensing income it generates from keeping the game available on their platforms.

Microsoft President Brad Smith told CNBC last month that the company is offering Sony the same agreement as it did Nintendo — to make Call of Duty available on PlayStation at the same time as on Xbox, with the same features. Sony still opposes the deal.

The CMA had raised concerns with the potential for Microsoft to hinder competition in the nascent cloud gaming market via its Xbox Game Pass subscription service, which offers cloud gaming among its perks. Microsoft has committed to bring new Call of Duty titles to Xbox Game Pass on day one of its release.

Cloud gaming, or the ability to access games via PC or mobile devices over the internet, is still in its infancy and requires a strong broadband connection to work well. According to network intelligence firm Sandvine, cloud gaming made up less than 1% of global internet traffic in 2022.

Even with the CMA’s blessing, Microsoft will still need to convince other regulators not to block the deal. The EU continues to probe the merger to assess whether it hurts competition, while the U.S. Federal Trade

Activision Blizzard CEO Bobby Kotick has reacted to Wednesday’s news that the UK’s regulator has prevented its sale to Microsoft, and insisted “it is far from the final word on this deal”.

After months of investigation, the UK’s Competition and Markets Authority (CMA) became the first of the three major global regulators to publish its final report on the $69 billion deal on Wednesday.

It said it had prevented the deal over concerns it would “alter the future of the fast-growing cloud gaming market, leading to reduced innovation and less choice for UK gamers over the years to come.”

Microsoft has confirmed it will appeal the CMA’s decision.

In a statement published shortly after the decision, Bobby Kotick said work on an appeal had already begun and claimed the company was confident in its case “because the facts are on our side”.

“Alongside Microsoft, we can and will contest this decision, and we’ve already begun the work to appeal to the UK Competition Appeals Tribunal. We’re confident in our case because the facts are on our side: this deal is good for competition.”

“Alongside Microsoft, we can and will contest this decision, and we’ve already begun the work to appeal to the UK Competition Appeals Tribunal. We’re confident in our case because the facts are on our side: this deal is good for competition.”

He continued: “The UK hopes to grow its leadership position in technology, and a combined Microsoft-Activision would accomplish exactly that. At a time when the fields of machine learning and artificial intelligence are thriving, we know the UK market would benefit from Microsoft’s bench strength in both domains, as well as our ability to put those technologies to use immediately.

“By contrast, if the CMA’s decision holds, it would stifle investment, competition, and job creation throughout the UK gaming industry.

“This merger is a complex process, and I know I’m not the only one frustrated by the hurdles and delays. We’re accustomed to a company culture that moves quickly to accomplish big goals, so it’s tough when we can’t close things out at our usual energetic pace.

“We’ll keep pressing our case, because we know that this merger will benefit our employees, the broader UK tech workforce, and players around the world.

“I’m going to do everything I personally can to advocate for us and help regulators understand the competitive dynamics in our industry. What gives me confidence is that, whether on our own or united with another company, we are one of the strongest companies in our industry, poised for continued growth, and building on our incredible IP.

“I appreciate your continued hard work and focus, and for continuing to connect and engage our players around the world. This is the best time to be in our field, and you all represent the best of our industry. We’ll be sure to keep you updated on next steps as they happen.”

Initially, it had appeared that the UK regulator was moving towards approving the deal before today’s announcement.

While the CMA provisionally found in February that the merger could reduce competition and “result in higher prices, fewer choices, or less innovation for UK gamers,” it partially reversed its decision a month later.

In a bid to address regulatory concerns, earlier this year Microsoft struck game distribution deals with several cloud gaming services including GeForce Now, Boosteroid and Ubitus.