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Breaking: UK government blocks Microsoft-Activision deal

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Following several months of investigation, CMA (UK government’s Competition and Markets Authority) today rejected Microsoft’s proposed acquisition of Activision Blizzard. CMA mentioned that Microsoft’s proposed solution failed to effectively address the concerns in the cloud gaming sector which was outlined in its provisional findings.

CMA found the following issues if the deal is approved:

  • 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.

Microsoft offered several proposals to avoid the above issues, but CMA found that the proposal had a number of significant shortcomings connected with cloud gaming services:

  • It did not sufficiently cover different cloud gaming service business models, including multigame subscription services.
  • It was not sufficiently open to providers who might wish to offer versions of games on PC operating systems other than Windows.
  • It would standardise the terms and conditions on which games are available, as opposed to them being determined by the dynamism and creativity of competition in the market, as would be expected in the absence of the merger.

Accepting Microsoft’s remedy would inevitably require some degree of regulatory oversight by the CMA. By contrast, preventing the merger would effectively allow market forces to continue to operate and shape the development of cloud gaming without this regulatory intervention.

Martin Coleman, chair of the independent panel of experts conducting this investigation mentioned that Microsoft engaged constructively with them to try to address these issues and they are grateful for that.

Cloud gaming needs a free, competitive market to drive innovation and choice. That is best achieved by allowing the current competitive dynamics in cloud gaming to continue to do their job.

Microsoft offered the following statement regarding CMA’s rejection:

“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.”

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