CLOUD GAMING – does it need a free and competitive market?

The Competition & Markets Authority (CMA) is the primary UK consumer protection and market competition regulator. The CMA has recently blocked a planned takeover of Activision. Top of its list of concerns was the CMA duty to promote free market competition in the UK cloud gaming market. Microsoft and Activision are very angry.

“The UK is clearly closed for business,” said a spokesman for Microsoft and Activision. With respect, both corporations are wrong.

THE DEAL

It’s a big deal. Microsoft was planning to pay $68.7bn for Activision.

The

CMA’S

Investigation

The CMA announced its investigation in September 2022, published its interim report in February this year, and blocked the deal in May.

The Facts

The UK cloud gaming market is growing. By 2026, forecasters are suggesting UK sales of £1bn. Global gaming is forecasted to reach £11bn by that time. Microsoft accounts for 60-70% of global cloud gaming. Activision owns Call of Duty, Overwatch and Warcraft. Microsoft owns Xbox, and Azure together with Xbox Cloud. So, the deal would combine Activision’s games with Microsoft’s cloud infrastructure.

The Arguments

Microsoft made proposals to deal with the concerns of the CMA at the interim report stage. These included making games available on various platforms for a 10-year period. Microsoft further proposed having Activision games available on Game Pass and argued that this outweighed any damage to competition by the merger.

The Conclusion

The CMA looked very carefully at the Microsoft arguments. Then it dismissed them.

n First, the CMA found that cloud gaming is fast growing in the UK.

n Second, that cloud gaming allowed consumers to play without buying expensive consoles.

n Third, that cloud gaming allowed consumers greater choice in when and where they played.

n Fourth, that Microsoft dominates cloud gaming.

n Fifth, that this deal would strengthen the position of Microsoft in the cloud gaming sector further.

n Sixth, that the proposals of Microsoft, though real and substantial, were not sufficient to meet their concerns.

n And finally, that cloud gaming needs a free and competitive market.

The Fury

The reaction of both Activision and Microsoft has been one of fury. “The CMA’s report contradicts the ambitions of the UK to become an attractive country to build technology businesses,” a spokesperson for Activision said and continued, “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.”

Jonathan is a Dispute Resolution and Litigation partner at DMH Stallard, based in our Surrey office. He is qualified both as a barrister and a solicitor, with his experience as an advocate strongly underpinning his commercial litigation work.