UK regulator blocks Microsoft’s $104 billion takeover of Activision Blizzard

Software giant Microsoft has been dealt a major blow, with the United Kingdom blocking its eye-wateringly expensive takeover plan.

The United Kingdom has blocked Microsoft’s $US69 billion ($104 billion) takeover of American video game giant Activision Blizzard, leaving the company’s ambitious plans for the industry in further turmoil.

Britain’s Competition and Markets Authority, that nation’s rough equivalent to the Australian Competition and Consumer Commission, prevented the deal from going through over concerns that it “would alter the future of the fast-growing cloud gaming market” and therefore lead to “reduced innovation and less choice” for consumers in the coming years.

Video games are the world’s largest entertainment industry by far, producing more revenue each year than film and music combined, and Activision’s Call of Duty franchise is among the most lucrative in the history of the medium, frequently topping annual earnings charts.

That is one reason for the immense scrutiny on Microsoft’s proposed takeover of the company.

“Microsoft has a strong position in cloud gaming services and the evidence available to the Competition and Markets Authority (CMA) showed that Microsoft would find it commercially beneficial to make Activision’s games exclusive to its cloud gaming service,” the British regulator said in a statement.

“Microsoft already accounts for an estimated 60 to 70 per cent of global cloud gaming services and has other important strengths in cloud gaming from owning Xbox, the leading PC operating system Windows, and a global cloud computing infrastructure.

“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. The evidence available to the CMA indicates that, absent the merger, Activision would start providing games via cloud platforms in the foreseeable future.

“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.”

Activision publishes lucrative gaming franchises, including Call of Duty. Picture: Ina Fassbender/AFP

Call of Duty generates incredibly high revenue. Picture: Activision Blizzard

Martin Coleman, who chaired the panel of experts conducting the CMA’s analysis, said gaming was “the UK’s largest entertainment sector” and it was therefore “vital” that regulators “protect competition”.

“Microsoft already enjoys a powerful position and headstart over other competitors in cloud gaming and this deal would strengthen that advantage, giving it the ability to undermine new and innovative competitors,” Mr Coleman said.

Microsoft, Activision vow to fight

Microsoft intends to appeal the CMA’s decision.

“We remain fully committed to this acquisition,” said the company’s president, Brad Smith.

“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 works.”

Activision, meanwhile, described the CMA’s ruling as a “major setback for the UK’s ambitions to be a tech hub” and a “disservice to UK citizens”.

“We will work with Microsoft to reverse it on appeal,” the publisher said.

“We will need to reassess our growth strategy in the UK. Global innovators large and small will take note that, despite all its rhetoric, the UK is closed for business.”

It’s a massive setback for Microsoft’s plans. Picture: Josep Lago/AFP

The tech giant already owns Xbox.

The CMA argues Microsoft’s proposed remedies to its concerns contain “significant shortcomings” and would require further regulatory oversight instead of allowing market competition to run its course.

Adding to Microsoft’s troubles, the proposed takeover, which would create the world’s third biggest gaming company by revenue, also has yet to win regulatory approvals in Europe and the United States.

While the European Union is still conducting an investigation into the matter, America’s Federal Trade Commission is suing Microsoft to block the deal over its own competition concerns.

Originally published as UK regulator blocks Microsoft’s $104 billion takeover of Activision Blizzard