After a lengthy investigation, the UK Competition and Markets Authority (CMA) has blocked Microsoft’s proposed $69 million acquisition of Activision Blizzard. The decision was released on 26 April 2023, with the CMA expressing concerns about the potential impact on cloud gaming services rather than market dominance through franchise ownership. The CMA stated that the merger could harm current and future gamers by stifling competition in the growing and dynamic cloud gaming market. It found that the merger would make Microsoft an even stronger incumbent in this market, leading to limited competition, which could ultimately harm consumers by increasing prices and reducing quality, innovation and choice over time.

Exclusivity of Games Not a Priority, Says Microsoft

While owning Activision Blizzard’s extensive games library could contribute to Microsoft’s potential dominance in cloud gaming, the CMA revealed that it was not specifically concerned about this eventuality. Throughout the investigation process, Microsoft made it clear that exclusivity of games was not a priority, having signed multiple 10-year deals for Call of Duty to ensure that there were few incentives to make popular franchises exclusive to Xbox consoles. The CMA acknowledged this and stated that making Call of Duty exclusive to Xbox would result in significant financial losses for Microsoft.

Microsoft’s Innovation in Cloud Gaming Called Out

The CMA’s final report highlighted Microsoft’s innovation in cloud gaming as a significant factor in its decision to block the acquisition. The report noted that Microsoft’s strong position in the current market and established advantage over rivals such as Sony and Nintendo, combined with its acquisition of Activision Blizzard’s assets, could lead to a disparity in the future. The CMA was concerned that making Activision’s titles exclusive to Microsoft’s cloud gaming service would harm competition, particularly as Microsoft already holds a strong position in this market by virtue of its ownership of Windows, its cloud infrastructure, and its existing catalogue of first-party titles.

Microsoft to Appeal Decision

Microsoft has refuted the CMA’s assessment and has promised to appeal the decision. Brad Smith, Vice Chair and President of Microsoft, stated that the CMA’s decision rejects a pragmatic path to address competition concerns and discourages technology innovation and investment in the United Kingdom. Activision Blizzard’s CEO, Bobby Kotick, also expressed disappointment in the delay caused by the decision. The companies are preparing to address the concerns of the CMA and expect to hear more about appeal proceedings in the coming months. For now, the deal has been definitively blocked, with only a slim avenue for appeal remaining.

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