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Microsoft Encounters Stumbling Block in Britain Regarding Activision Deal

Britain’s Competition and Markets Authority has blocked Microsoft’s acquisition of gaming publisher Activision Blizzard (NASDAQ: ATVI). On Wednesday, the top UK regulator opposed Microsoft’s acquisition of the “Call of Duty” publisher. This verdict comes a month after the UK CMA deemed the tech giant’s impending control of Activision non-threatening to video gaming competition. However, the British competition regulator now believes that Microsoft’s ownership of Activision could hamper competition in the cloud gaming market.

In a press release, the CMA explained:

“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.”

The London-based non-ministerial government department also fears that Microsoft Corporation (NASDAQ: MSFT) could commandeer Activision’s games exclusively for its cloud gaming platform. Such a potential move would allow only Xbox Game Pass access to the publisher’s vaunted library at the expense of other key players.

The CMA’s decision to block Microsoft’s $69 billion acquisition of the gaming publisher is a massive blow to the computer software giant. Microsoft had hoped to convince authorities in Britain that its ownership of Activision would still benefit competition. Nonetheless, the Redmond, Washington-based company plans to appeal the decision.

Although cloud gaming is still in its early phase, Microsoft has already identified the technology as the next mainstream way to play games. The tech giant previously attempted to assuage the CMA’s concerns regarding any perceived monopolistic tendencies – but fell short. Microsoft’s concessions include sharing specific Activision gaming properties with other rivals for a sustained period.

However, the CMA wondered if such agreements would hold up over time in an increasingly dynamic market. Given the terms and conditions offered by Microsoft, the UK regulator said that “there are significant risks of disagreement and conflict between Microsoft and cloud gaming service providers, particularly over a ten-year period in a rapidly changing market”.

Meanwhile, expressing Microsoft’s unwavering commitment to the Activision acquisition, Microsoft Vice Chair and President Brad Smith said:

“We remain committed to reinforcing these agreements through regulatory remedies.”

Smith further explained that Microsoft had already signed contracts that would make Activision’s games available on hundreds of millions of devices. The company’s Vice Chair expressed disappointment at the CMA’s decision after “lengthy deliberations”. According to Smith, the CMA’s verdict rejects a practical way of addressing competition concerns and reflects a flawed understanding of the cloud gaming market. In addition, Smith pointed out that the CMA’s stance discourages tech innovation and investment.

Activision CEO Bobby Kotick intimated staff on the video game publisher’s joint appeal process with Microsoft in a letter to employees. Kotick was confident about a fair hearing from the UK Competition Appeals Tribunal because the deal was good for competition.

Microsoft Encounters Stumbling Block in Britain Regarding Activision Deal

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