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United Kingdom trade watchdog the Competition and Markets Authority (CMA) has announced that it will prevent the Xbox and Activision merger.
The regulator has stated that the companies involved have ‘failed to effectively address the concerns in the cloud gaming sector’ from its provisional findings report published in February 2022 that could lead to ‘reduced innovation and less choice for UK gamers over the years to come’.
This is a significant setback for the two gaming firms, and will need to be addressed and appealed in the near future for the merger to go ahead.
The statement from the Competition and Markets Authority is as follows:
“The CMA has prevented Microsoft’s proposed purchase of Activision over concerns the deal 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.
“The UK cloud gaming market is growing fast. Monthly active users in the UK more than tripled from the start of 2021 to the end of 2022. It is forecast to be worth up to £11 billion globally and £1 billion in the UK by 2026. By way of comparison, sales of recorded music in the UK in 2021 amounted to £1.1 billion.
“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.
“Microsoft already accounts for an estimated 60-70% of global cloud gaming services and has other important strengths in cloud gaming from owning Xbox, the leading PC operating system (Windows) and a global cloud computing infrastructure (Azure and Xbox Cloud Gaming).
“The deal would reinforce Microsoft’s advantage in the market by giving it control over important gaming content such as Call of Duty, Overwatch, and World of Warcraft. The evidence available to the CMA indicates that, absent the merger, Activision would start providing games via cloud platforms in the foreseeable future.
“The cloud allows UK gamers to avoid buying expensive gaming consoles and PCs and gives them much more flexibility and choice as to how they play. 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.”
In a follow-up statement released on Twitter, Microsoft president Brad Smith confirmed that the company will work with Activision Blizzard to appeal the CMA’s decision, a process that will involve talking to the UK Competition Appeals Tribunal.
“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,” said Smith.
“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.”
“The CMA’s decision highlights just how important cloud gaming is anticipated to be for the gaming industry. Traditional console gaming has long been dominated by just three companies, but there is scope for cloud gaming to become a much more diversified industry,” said Stuart Smith, partner and specialist corporate and commercial lawyer at leading media and entertainment law firm Simkins.
“With Microsoft already having an estimated 60-70% market share of cloud gaming, however, the CMA is clearly concerned that Microsoft’s commitments to make Call of Duty and other major Activision online games available to certain types of other cloud gaming services don’t go far enough to ensure that this exciting new part of the industry won’t simply be a case of history repeating.”
Competition and consumer protection regulators in Brazil, Chile, Saudi Arabia, Serbia, South Africa and Japan have all approved the Xbox and Activision Blizzard merger already. In the US, the Federal Trade Commission is currently suing Microsoft in a bid to block the deal, believing the merger to be anti-competitive.
The European Commission has said that it will release its repeatedly-delayed decision on the merger on May 22, 2023.
