UK blocks Microsoft-Activision gaming deal, biggest in tech

British antitrust regulators on Wednesday blocked Microsoft’s $69bn purchase of video game maker Activision Blizzard, thwarting the biggest tech deal in history over worries that it would stifle competition for popular titles like Call of Duty in the fast-growing cloud gaming market.

The Competition and Markets Authority said in its final report that “the only effective remedy” to the substantial loss of competition “is to prohibit the Merger.” The companies have pledged to appeal.

The all-cash deal announced 15 months ago faced stiff opposition from rival Sony, which makes the PlayStation gaming system, and also was being scrutinised by regulators in the United States and Europe over fears that it would give Microsoft and its Xbox console control of hit franchises like Call of Duty and World of Warcraft.

The United Kingdom watchdog’s decision “came as a surprise to most people” and heightens global uncertainty over the deal, said Liam Deane, a game industry analyst for research firm Omdia.

“It’s a big enough market to throw a pretty serious spanner in the works from Microsoft and Activision’s perspective, but things will get a lot worse if they also get the wrong decision from the European Commission in a few weeks’ time,” he said.

The UK watchdog’s concerns centred on how the deal would affect cloud gaming, which streams to tablets, phones and other devices and frees players from buying expensive consoles and gaming computers. Gamers can keep playing major Activision titles, including mobile games like Candy Crush, on the platforms they typically use.

Cloud gaming has the potential to change the industry by giving people more choice over how and where they play, said Martin Colman, chair of the Competition and Markets Authority’s independent expert panel investigating the deal.

“This means that it is vital that we protect competition in this emerging and exciting market,” he said.

The decision underscored Europe’s reputation as the global leader in efforts to rein in the power of Big Tech companies. A day earlier, the UK government unveiled draft legislation that would give regulators more power to protect consumers from online scams and fake reviews and boost digital competition.

The UK decision further dashed Microsoft’s hopes that a favourable outcome could help it resolve a lawsuit brought by the US Federal Trade Commission. A trial before the FTC’s in-house judge is set to begin August 2. The European Union’s decision, meanwhile, is due May 22.

UK ‘closed for business’

Activision lashed out, portraying the watchdog’s decision as a bad signal to international investors in the UK at a time when the British economy faced severe challenges.

The California-based game maker said it would “work aggressively” with Microsoft to appeal, asserting that the move “contradicts the ambitions of the UK” to be an attractive place for tech companies.

“We will reassess our growth plans for the UK. Global innovators large and small will take note that — despite all its rhetoric — the UK is clearly closed for business,” Activision said.

Redmond, Washington-based Microsoft also signalled it was not ready to give up.

“We remain fully committed to this acquisition and will appeal,” President Brad Smith said in a statement. The decision “rejects a pragmatic path to address competition concerns” and discourages tech innovation and investment in the UK, he said.

“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,” Smith said.

Activision CEO Bobby Kotick said in a blog post that both companies have begun working on an appeal to the UK’s Competition Appeal Tribunal.

It was not the first time British regulators have flexed their antitrust muscles on a Big Tech deal. They previously blocked Facebook parent Meta’s purchase of Giphy over fears it would limit innovation and competition. The social media giant appealed the decision to the tribunal but lost and was forced to sell off the GIF-sharing platform.

Microsoft already has a strong position in the overall cloud computing market, and regulators concluded that if the deal went through, it would reinforce the company’s advantage by giving it control of key game titles.

In an attempt to ease concerns, Microsoft struck deals with Nintendo and some cloud gaming providers to license Activision titles like Call of Duty for 10 years — offering the same to Sony.

Sony’s European press office did not respond to a request for comment.

The watchdog said it reviewed Microsoft’s remedies “in considerable depth” but found they would require its oversight, whereas preventing the merger would allow cloud gaming to develop without intervention.

Cloud gaming is a small piece of the UK’s five-billion-pound ($6.2bn) video game market. But an expert forecast suggested it would see explosive growth in the coming years, with user numbers tripling from the start of 2021 to the end of 2022 and the cloud game market expected to grow to a value of one billion pounds ($1.2bn) by 2026, regulators said.

They dropped concerns last month that the deal would hurt console gaming, saying it would not benefit Microsoft to make Call of Duty exclusive to its Xbox console.