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British Competition and Markets Authority (CMA) has stopped the takeover of Activision Blizzard by Microsoft. The deal worth $68.7 billion was blocked by the British watchdog over concerns that it would stifle competition in the cloud gaming market.

Microsoft will not backdown from takeover of Activision

If the deal had gone through, it would have been the highest price paid by a US tech company in a takeover. However, in the final report released on Wednesday 26 April 2023, the CMA said stopping the deal was “the only effective remedy” to competition fears.

Microsoft first proposed the takeover of Activision, one of the top video game publishers worldwide, in January last year. After the announcement of the proposal, the CMA initiated a thorough scrutiny of the deal in September of the same year. By February 2023, the CMA discovered that the acquisition would increase Microsoft’s dominance in cloud gaming and suffocate competition in the growing market.

“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,” read CMA’s final report. “The evidence available to the CMA indicates that in the absence of the merger, Activision would start providing games via cloud platforms in the foreseeable future.

The all-cash deal has also attracted scrutiny from European and U.S. regulators. In the Report, the CMA also highlighted the importance of cloud gaming to UK gamers.

“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 will not back down from the takeover of Activision without a fight

Microsoft takeover of Activision Blizzard is under scrutiny

Regardless of the details of the CMA report, Microsoft appears resolute in making the takeover of Activision a success. In a reaction, Microsoft President Brad Smith rejected the CMA report saying it was anti-innovation and deters investment in the UK.

“We remain fully committed to the takeover of Activision and will appeal,” said Smith. “We are 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.”

It appears Activision is also eager to hand over the keys to Microsoft. The game publisher said it would “work aggressively with Microsoft to reverse this on appeal”. The news about the blocking of the takeover of Activision Blizzard by the CMA plunged the company’s shares by 12%.

Microsoft had earlier handed in a proposal to address the concerns raised by the CMA. In the proposal, Microsoft made a 10-year recommendation including setting out guidelines on what games Microsoft must offer and to what platforms, and on what conditions.

The recommendations by Microsoft are termed ‘behavioral’ because they try to control the behavior of the businesses taking part in a merger. Although the recommendations sounded promising, they had some flaws, particularly concerning the rapidly growing cloud gaming services. The shortcomings of the proposal were as follows;

  • It failed to properly account for different cloud gaming service business models like multigame subscription services
  • It was a bit restrictive to developers that may want to offer versions of their games on other PC operating systems aside from Windows
  • The proposal will lead to the standardization of game terms and conditions which opposes the current creativity and dynamism dictated by competition in the market which is projected to happen in the absence of the merger

Was there ever a positive to the deal?

Microsoft takeover of Activision blocked by the CMA
Microsoft’s takeover of Activision was blocked by the CMA

The CMA decided to block the takeover of Activision by Microsoft because accepting the company’s proposals would require some regulatory oversight from the CMA. However, by blocking the deal, CMA is allowing market forces to continue to shape the development of cloud gaming without regulatory intervention.

To reach a decision, the CMA carefully considered if the benefits of having Activision games on Game Pass outweigh the risks to cloud gaming in the UK. Eventually, they found that the benefits were not significantly higher than the risks it would have to UK gamers.

This is because Microsoft may be tempted to raise the price of a Game Pass subscription after the merger to reflect the inclusion of the valuable games from Activision.

“Cloud gaming needs a free, competitive market to drive innovation and choice,” said Martin Coleman, the chairman of the independent panel of experts tasked with carrying out the investigation. “That is best achieved by allowing the current competitive dynamics in cloud gaming to continue to do their job.”

Are you in support of or against the proposed Microsoft takeover of Activision Blizzard? Share your thoughts in the comment box below.

Do you support the merger between Microsoft and Activision?


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