3 years ago
Talha Sonmez
Microsoft's proposed $68.7 billion deal to acquire Activision, one of the world's largest video games publishers, has been blocked by UK regulators after the company failed to sufficiently address concerns raised by the Competition and Markets Authority (CMA). The CMA launched a review of the deal in September 2022 and found in February 2023 that the merger could make Microsoft too dominant in cloud gaming, leading to less competition in a rapidly growing market.
CMA's Cloud Gaming Concerns
The UK cloud gaming sector has experienced tremendous growth, with monthly active users in the country tripling between the start of 2021 and the end of 2022. By 2026, it is projected to be worth up to £11 billion globally and £1 billion in the UK, highlighting the industry's enormous potential.
Microsoft is already a significant player in cloud gaming, with an estimated 60-70% share of the global market. The company has an advantage in the market because it owns Xbox, the leading PC operating system (Windows), and a global cloud computing infrastructure (Azure and Xbox Cloud Gaming). The deal with Activision would have further strengthened Microsoft's market position by providing exclusive access to important gaming content, such as Call of Duty, Overwatch, and World of Warcraft.
The Plan
The CMA examined a proposal by Microsoft to address the competition concerns raised by the regulator but found significant areas for improvement. The proposal sought to regulate the behaviour of businesses involved in the merger by mandating requirements governing what games must be offered by Microsoft to what platforms and on what conditions over ten years. However, the proposal did not address different cloud gaming service business models, including multigame subscription services, was not sufficiently open to providers who might wish to offer versions of games on PC operating systems other than Windows, and would standardize the terms and conditions on which games are available.
Accepting Microsoft's proposal would have required ongoing regulatory oversight by the CMA, which would have replaced market forces in a growing and dynamic market with mandated regulatory obligations. Therefore, the CMA decided to prevent the merger, allowing market forces to continue shaping cloud gaming development without regulatory intervention.
Potential Benefits of Merger according to CMA
The CMA carefully considered whether the benefits of having Activision's content on Game Pass outweighed the harm the merger would cause to competition in cloud gaming in the UK. The CMA found that the new payment option, while beneficial to some customers, would not outweigh the overall harm to competition and UK gamers arising from the merger, particularly given the incentive for Microsoft to increase the cost of a Game Pass subscription post-merger to reflect the addition of Activision's valuable games.
According to Martin Coleman, the chair of the independent panel of experts conducting the investigation, the decision to block the merger is vital to protect competition in the emerging and exciting cloud gaming market. The market needs a free, competitive environment to drive innovation and choice, and preventing the merger allows current competitive dynamics in cloud gaming to continue to do their job. Microsoft engaged constructively with the CMA to address the issues. Their proposals could have been more effective in remedying the concerns. They would have replaced competition with ineffective regulation in a new and dynamic market.
**Disclaimers**
[Talha Sonmez](https://twitter.com/Roekaine) is the Founder & CEO of Stock Checker.
Images used in this article belong to Microsoft & Activision, respectively.