Why The Microsoft Activision Deal Was Blocked By The UK Government

Microsoft's blockbuster acquisition bid for Activision Blizzard has been blocked in the UK, spelling trouble for the tech giant's mega purchase worth around $69 billion. The country's Competition and Markets Authority (CMA) has ruled that Microsoft couldn't adequately address its concerns about the company's position in the cloud gaming segment. The CMA started looking into the acquisition bid after multiple rivals — chief among them being Sony — raised concern that the deal would allow Microsoft an unfair advantage in the gaming segment by putting cash cows like "Call of Duty" and "World of Warcraft" under its exclusive Xbox label.

"Evidence available to the CMA showed that Microsoft would find it commercially beneficial to make Activision's games exclusive to its own cloud gaming service," the CMA said in its official press statement. The competition regulator argues that cloud gaming offers users an affordable option to enjoy games, decoupling them from the burden of splurging on expensive consoles and PC hardware. If the deal were to proceed, the CMA argues Microsoft — which already commands a decent share of the cloud gaming segment via Xbox Cloud Gaming — would only strengthen its position in the segment at the cost of reduced competition and stifled innovation. The CMA also notes that the remedies offered by Microsoft to address the concerns were inadequate. 

Microsoft offered to keep properties like "Call of Duty" on Sony's PlayStation platform for ten years, and even inked one such deal with Nintendo, rather than keeping these popular franchises exclusive to the Xbox ecosystem. However, the UK's competition watchdog notes that Microsoft's solution failed to "sufficiently cover different cloud gaming service business models, including multigame subscription services." The CMA also added that Microsoft failed to adequately address the freedom of choice for developers to offer their games on PC platforms other than Windows.

The CMA further argues that accepting Microsoft's proposal would essentially amount to regulatory oversight. On the contrary, blocking the acquisition would allow the gaming segment and market stakeholders to grow at their natural pace and foster the development of cloud gaming without any need for regulatory interference. Microsoft argued that putting Activision Blizzard games on its Xbox Game Pass subscription service would make it more affordable for users to enjoy those games. 

However, the CMA argues that Microsoft has all the incentives under its belt to increase the Game Pass price down the road, effectively negating the erstwhile benefit. The CMA blocking is a major setback for Microsoft, but the company also has to fight furiously against regulators in the EU bloc and will have to assuage the concerns raised by the US FTC, which filed a lawsuit to block the acquisition. Microsoft says it will appeal the CMA's verdict, with vice chair and president Brad Smith saying on Twitter that the "CMA's decision rejects a pragmatic path to address competition concerns."