Microsoft: why was Activision Blizzard deal blocked by UK CMA - why has deal been approved by EU regulators?

(Photo: Shutterstock)(Photo: Shutterstock)
(Photo: Shutterstock) | Shutterstock
Microsoft president Brad Smith said the company is ‘fully committed to this acquisition and will appeal’

EU regulators have approved the multi-billion dollar takeover deal between Microsoft and gaming company Activision Blizzard, depsite resistance to accept the deal in the UK.

The UK's competition watchdog - the Competition and Markets Authority (CMA) - blocked Microsoft and Activision's proposed $69 billion merger just weeks ago. Britain's competition watchdog published an interim order preventing the two companies from acquiring an interest in one another without its approval.

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However, the European Commission has now approved the deal within the EU. In a statement, regulators said: “The commitments fully address the competition concerns identified by the Commission and represent a significant improvement for cloud gaming as compared to the current situation."

The decision from their European counterparts have not changed the minds of UK regulators however. Sarah Cardell, CMA chief executive, said that the regulator "stands by its decision, adding:: “Microsoft’s proposals, accepted by the European Commission today, would allow Microsoft to set the terms and conditions for this market for the next 10 years."

In April, the vice chair and president of Microsoft criticised the watchdog’s decision to reject the software company’s acquisition of Activision Blizzard - which produces titles such as Call of Duty and Candy Crush - for $68.7 billion (£55 billion), calling it a "bad day for Britain."

The Competition and Markets Authority (CMA) blocked the enormous buyout on 26 April due to concerns in the cloud gaming industry. In response, Brad Smith warned that the "English Channel has never seemed wider", and said that the UK’s regulatory environment did not compare favourably to that of the EU.

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But the CMA defended its decision to reject Microsoft’s acquisition of Activision, and said the UK was “absolutely open for business”. Here is everything you need to know about it.

Why does Microsoft want to buy Activision Blizzard?

Microsoft, the owner and manufacturer of the Xbox line of games consoles, first struck a deal to buy Activision Blizzard in January 2022. Activision is the company that makes lucrative gaming titles like Candy Crush and Call of Duty, and the agreed purchase came as Microsoft made moves to expand its gaming division further.

Microsoft bosses continue to look for ways to strengthen the gaming arm of Microsoft, with the future of the gaming industry on their minds. Cloud gaming is one such area where they feel the future of the industry lies.

Cloud gaming is a type of gaming in which games are played on remote servers rather than on a local console or PC. Players use an internet connection to stream the game to their device and control the game using a keyboard, mouse or controller.

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It allows players to play high-quality games on any device with an internet connection, without the need for expensive hardware. This means that players can access games that their device may not have been able to handle otherwise.

Microsoft has been pushing into cloud gaming in recent years, and offers players the option of playing many of the games included in its Xbox Game Pass subscription service through the technology.

Unlike other recent cloud gaming endeavours - like Google’s failed Stadia project - the cloud option is offered alongside more traditional ways of play, like downloading the games locally to your console. This means that Microsoft has been able to expand its cloud gaming portfolio without forcing it upon players.

Cloud gaming does have some downsides, a major negative being that it requires a stable and fast internet connection, as any lag or latency can negatively impact the gameplay experience. Microsoft’s optional approach means gamers can choose to play how they want, if they have the requisite connections to support it.

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Bringing Activision Blizzard under its belt would be a boon for Microsoft, who would have publishing control over some of the biggest and most lucrative gaming titles and franchises in the world, and would be able to bring games like Call of Duty to Game Pass, attracting more subscribers and cloud gaming users.

Phil Spencer, CEO of Microsoft Gaming, and the person who heads the Xbox brand, said at the time of the acquisition’s announcement that “players everywhere love Activision Blizzard games, and we believe the creative teams [who make them] have their best work in front of them.

“Together we will build a future where people can play the games they want, virtually anywhere they want.”

Why was the deal blocked?

Cloud gaming allows players to play high-quality games on any device with an internet connection (Photo: INA FASSBENDER/AFP via Getty Images)Cloud gaming allows players to play high-quality games on any device with an internet connection (Photo: INA FASSBENDER/AFP via Getty Images)
Cloud gaming allows players to play high-quality games on any device with an internet connection (Photo: INA FASSBENDER/AFP via Getty Images) | AFP via Getty Images

Microsoft’s massive acquisition of Activision Blizzard Due was blocked by the CMA over concerns in the cloud gaming sector.

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The CMA is a non-ministerial government department responsible for promoting competition and preventing anti-competitive practices in UK markets. It was established in 2014, taking over from the Office of Fair Trading and the Competition Commission.

It has the power to investigate and, if necessary, take action against companies that engage in anti-competitive behaviour, such as abusing their dominant market position. It also has the authority to review and approve or reject large business deals and acquisitions that could significantly impact competition in UK markets.

According to the CMA, Microsoft’s partnership with Activision Blizzard would strengthen its position in cloud gaming, “stifling competition in this growing market”. The CMA said Microsoft was already responsible for between 60% and 70% of cloud gaming services.

Martin Coleman, chair of the independent panel of experts conducting the CMA investigation, said: “Microsoft already enjoys a powerful position and head start over other competitors in cloud gaming and this deal would strengthen that advantage, giving it the ability to undermine new and innovative competitors.

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“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. Cloud gaming needs a free, competitive market to drive innovation and choice.”

(Photo: Rich Polk/Getty Images for Activision)(Photo: Rich Polk/Getty Images for Activision)
(Photo: Rich Polk/Getty Images for Activision) | Getty Images for Activision

What would the takeover mean for both companies?

Microsoft and Activision have both said they will appeal the CMA’s decision, and if the acquisition does eventually one day go through, it would see Microsoft become the third biggest gaming company in the world by revenue behind Chinese company Tencent and PlayStation creator Sony.

With EU approval of the deal and UK regulators blocking the deal, at this moment in time if Microsoft goes through with the acquisition, the company would be able to operate in Europe but not in the UK.

Acquiring Activision Blizzard would also mean that Microsoft would have 30 development studios under its growing “Xbox Game Studios” umbrella - including Bethesda, which it acquired in 2021 - ready and primed to create high-quality, exclusive content for its consoles.

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Games made by those studios could be available exclusively on the Xbox consoles and Xbox Game Pass - though Microsoft has in recent months been keen to assuage fears that fans on rival platforms won’t outright lose huge franchises like Call of Duty, World of Warcraft, Overwatch, and Diablo.

What has the Competition and Markets Authority said?

Ahead of its ruling, the CMA had repeatedly warned both Microsoft and Activision Blizzard that the proposed deal would “substantially lessen competition in gaming consoles, multi-game subscription services, and cloud gaming service.”.

The regulator added: “Microsoft already has a leading gaming console (Xbox), a leading cloud platform (Azure), and the leading PC operating system (Windows OS), all of which could be important to its success in cloud gaming.”

Azure is Microsoft’s cloud computing platform, a collection of integrated cloud services that developers and IT professionals can use to build, deploy and manage applications and services through Microsoft’s global network of data centres.

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Speaking on the 27 April edition of BBC Radio 4’s Today programme, CMA head Sarah Cardell said the regulator wanted “to create an environment where a whole host of different companies can compete effectively, can grow and innovate”, claiming this was the “best thing for consumers and businesses”.

She said that after a “long and careful investigation” into the Microsoft deal, “combining those two businesses would really reinforce Microsoft’s strong position in cloud gaming. That would be problematic because it would really harm the ability of other platforms to compete effectively.”

What happens now?

Microsoft and Activision have both said they will appeal the CMA’s decision. Speaking on the Today programme, Microsoft vice chair and president Brad Smith said he was “very disappointed” at the move and that it was “probably the darkest day” in its 40-year history in the UK.

Smith said: “Microsoft has been in the United Kingdom for years and we play a vital role not just supporting businesses and non-profits, but even defending the nation from cybersecurity threats. This decision, I have to say, is probably the darkest day in our four decades in Britain.

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It does more than shake our confidence in the future of the opportunity to grow a technology business in Britain than we’ve ever confronted before.”

He added that he had hoped a post-Brexit Britain would have a more flexible regulatory environment, but said the “clear message” of the CMA’s decision was that “the European Union is a more attractive place to start a business if you want some day to sell it than the United Kingdom.”

In the immediate aftermath of the ruling, Smith said Microsoft remains “fully committed to this acquisition and will appeal.”

“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,” he added.

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A spokesperson for Activision Blizzard said: “The CMA’s report contradicts the ambitions of the UK to become an attractive country to build technology businesses. We will work aggressively with Microsoft to reverse this on appeal.

“The report’s conclusions are a disservice to UK citizens, who face increasingly dire economic prospects.”

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