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The UK’s Competition and Markets Authority (CMA) has rejected Microsoft’s $68.7 billion acquisition of Activision Blizzard. The CMA has decided that the transaction might “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” after months of analysis including 3 million documents from Microsoft and Activision as well as more than 2,100 letters from the general public.
The ruling is a setback to Microsoft’s intentions of acquiring Activision Blizzard, and if an appeal is rejected, it will probably prohibit the corporation from concluding its significant transaction.
“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,” says the CMA.
Adding control over Call of Duty, Overwatch, and World of Warcraft would give Microsoft a huge competitive edge in the cloud gaming sector, according to the CMA, which estimates that Microsoft owns 60 to 70 percent of all global cloud gaming services.
Microsoft made an effort to allay worries about cloud gaming prior to making this choice. Following a similar agreement with Nintendo in December, the software giant secured cloud gaming agreements with Boosteroid, Ubitus, and Nvidia to allow Xbox PC titles to run on these competing cloud gaming platforms. If the agreement is authorized by regulators, these 10-year contracts also include access to Call of Duty and other Activision Blizzard titles.
The CMA claims to have looked at these agreements but finds “a number of significant shortcomings” in the cloud gaming services they offer.
The CMA claims that the agreements are “too limited in scope” and that the models required that gamers obtain the permission to play games “by purchasing them on specific stores or subscribing to specific services.”” The agreements excluded granting Microsoft access to these games through competing multi-game subscription services or granting competitors the right “to offer versions of games on PC operating systems other than Windows.”
The CMA also stated that the agreements will “standardize the terms and conditions on which games are available,” as opposed to allowing for free market competition in the cloud gaming business. “We came to the conclusion that Activision games would soon be accessible in the UK on cloud gaming services even without the merger.”
Last month, the CMA originally sided with Microsoft over concerns about Call of Duty on PlayStation, pointing out that it would be expensive for Microsoft to exclude PlayStation from the successful brand. However, the regulator claims it examined whether the advantages of having Activision’s content on Game Pass exceeded the worries about cloud gaming in the UK. This left certain cloud gaming concerns on the table.
We remain fully committed to our acquisition with @ATVI_AB and will appeal today’s determination by the CMA. Here’s our statement. pic.twitter.com/ylvDP5RUqQ
— Brad Smith (@BradSmi) April 26, 2023
“Microsoft engaged constructively with us to try to address these issues and we are grateful for that, but their proposals were not effective to remedy our concerns and would have replaced competition with ineffective regulation in a new and dynamic market,” says Martin Coleman, chair of the independent panel of experts conducting the investigation.
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“We remain fully committed to this acquisition and will appeal,” says Microsoft president Brad Smith in a statement to The Verge. “The CMA’s decision rejects a pragmatic path to address competition concerns and discourages technology innovation and investment in the United Kingdom. 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.”