UK regulators reject Microsoft’s proposed acquisition of Activision Blizzard
The United Kingdom’s Competition and Markets Authority (CMA) previously shared preliminary investigation findings, suggesting that following Microsoft’s acquisition of Activision Blizzard, the Xbox console series would not benefit from the exclusivity of the “Call of Duty” franchise. Instead, it would be more advantageous to continue offering “Call of Duty” titles on Sony’s PlayStation platform. Subsequently, the CMA shifted its investigation towards the cloud gaming market, with many believing Microsoft had overcome the largest point of contention.
Unexpectedly, the UK Competition and Markets Authority has formally rejected Microsoft’s acquisition of Activision Blizzard, citing concerns over the potential harm to the competitive order in the cloud gaming market due to Microsoft’s dominant position, which could result in higher prices, fewer choices, and less innovation for British gamers. The CMA shared the results of their investigation:
In the realm of cloud gaming, our assessment differs, as Microsoft already possesses a formidable advantage in this market. Microsoft owns Windows, the leading PC operating system to date, which supports the majority of PC games; holds significant cloud infrastructure and systems through Azure and Xcloud; and has a robust gaming foundation through its Xbox ownership and an array of premier gaming titles. No other cloud gaming operator currently boasts such a combination of advantages, a portion of which is already reflected in Microsoft’s current UK cloud gaming market share of 60% to 70%.
Activision Blizzard’s titles, such as “Call of Duty,” “Overwatch,” and “World of Warcraft,” rank among the most popular IPs on gaming consoles and PCs. We found that Activision Blizzard’s games may play a vital role in future cloud gaming services. Although Activision Blizzard has not yet offered its games on cloud gaming services, evidence suggests strong incentives to do so, particularly given the significant growth projections for cloud gaming. Our conclusion is that without the merger, Activision Blizzard’s games would be available on UK cloud gaming services in the near future.
We have therefore concluded that combining Activision Blizzard’s powerful gaming portfolio with Microsoft’s existing array of cloud gaming advantages would enable Microsoft to harm current and emerging cloud gaming competitors by monopolizing Activision Blizzard’s games. Moreover, unlike the gaming console market, we found no substantial reasons to prevent Microsoft from doing so.
The UK Competition and Markets Authority’s ruling has a significant impact on Microsoft’s acquisition of Activision Blizzard. It was recently reported that Microsoft would proceed with the transaction despite the pending lawsuit from the US Federal Trade Commission (FTC). However, the situation has now changed. Microsoft and Activision Blizzard will appeal the ruling, though the chances of reversing the outcome appear slim.
According to a public document filed with the US Securities and Exchange Commission (SEC), if Microsoft’s acquisition of Activision Blizzard fails under specific circumstances, Microsoft will owe Activision Blizzard $2 billion; if the transaction is terminated between January 18, 2023, and April 18, 2023, the amount increases to $2.5 billion; and if it is after April 18, 2023, the sum rises to $3 billion. The document contains detailed requirements for terminating the transaction and making payments.
