Game over for Microsoft’s Activision Blizzard dream

• Decision of UK competition regulator to block Microsoft acquisition of Activision Blizzard could have big implications and impact in the US
• UK had major concerns over competition in cloud gaming market by one dominant company 
• Angry US companies hear call of duty and will appeal and “fight on” but analysts say the deal is now as good as dead
• Candy Crush crushed in Cambridgeshire, Ceredigion, Cornwall, County Down and Cumbria?
• World of Warcraft takes on a new transatlantic twist

The UK’s Competition and Markets Authority (CMA) has once more demonstrated its post-Brexit determination and ability to regulate US technology companies and so thwart their global ambitions, this time by blocking Microsoft’s US$69bn attempt to buy Activision Blizzard, the Santa Monica, California-headquartered video games company that is the fruit of the 2008 merger of Activision Inc. and Vivendi Games, whose products include Call of Duty, World of Warcraft and Candy Crush Saga.

Martin Coleman, chairman of the independent panel of experts that oversaw the CMA investigation, said, “Gaming is the UK’s largest entertainment sector. Cloud gaming is growing fast with the potential to change gaming by altering the way games are played, freeing people from the need to rely on expensive consoles and gaming PCs and giving them more choice over how and where they play games. This means that it is vital that we protect competition in this emerging and exciting market.

“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. Cloud gaming needs a free, competitive market to drive innovation and choice. That is best achieved by allowing the current competitive dynamics in cloud gaming to continue to do their job,” he added.

The acquisition would have been the biggest to date in the history of the electronic gaming industry but will be null and void in the UK unless lawyers can convince a sceptical government and a legal appeals tribunal that the buyout will not result in the emergence of a company that will dominate a consolidated market and decimate competition by making Activision’s games available only on Microsoft’s proprietary cloud gaming platform.

What’s more, and what will worry Microsoft and Activision Blizzard even more, the CMA’s action will provide welcome grist to the mill of regulators in the EU and in the US where the authorities are battling to curb the excesses of big tech. 

After the UK government issued a press release headed, “Microsoft/Activision deal prevented to protect innovation and choice in cloud gaming”, Activision Blizzard, evidently seeing red mist rather than a whiteout, issued an angry response, redolent with the vinegary tang of sour grapes, claiming that the CMA’s decision “contradicts the ambitions of the UK to become an attractive country to build technology businesses” and adding that the ruling is a “disservice to UK citizens, who face increasingly dire economic prospects.”

Just to make its outrage a bit more frosty, the company added, “The UK is clearly closed for business” presumably by an avalanche of vituperation.

Activision Blizzard’s CEO, Bobby Kotick, said the CMA’s decision “is far from the final word” and his company will fight tooth and nail to change it. Meanwhile, Brad Smith, president and vice-chairman of Microsoft, weighed in to say that the government’s decision shows “a flawed understanding of this market and the way the relevant cloud technology actually works” and “discourages technology innovation and investment in the United Kingdom.” He stressed that Microsoft “remains fully committed to this acquisition and will appeal.”

No wonder he is riled. If the deal collapses, Microsoft will have to pay Activision Blizzard a $3bn “break fee” in compensation. Activision Blizzard’s share price fell by 11% following the news.

The two companies are particularly incensed because only a few weeks ago the deal looked like being little more than an exercise in rubber-stamping when they seemingly succeeded in convincing the CMA that they would apply a licensing formula showing what games would be offered on which platform for at least a decade into the future. 

However, closer examination of the text roused the CMA’s concerns and raised its hackles. Citing the speed with which the cloud gaming market moves and Microsoft’s already dominant position within it (currently said to be between 60% and 70 %), the regulator decided that the proposed settlement had “significant shortcomings” and then moved to stymie the acquisition.

Now that the CMA’s decision has been published, all eyes will be on likely developments in Europe and North America. Hitherto the EU regulators have been fairly relaxed about the acquisition but could now tighten their requirements in light of the UK’s refusal to countenance the deal. That possibility is bad enough for Microsoft and Activision Blizzard, but the US Federal Trade Commission (FTC) has long been opposed to the merger and, back in December 2022, told the two companies that it would oppose and block it. They will now double-down on that determination.

The CMA’s clear-cut decision is certain to increase US regulatory resolve. In fact, industry analysts are already saying that, despite the noise and threats of lawsuits and appeals, the acquisition is as good as dead.

And finally, a few words of wisdom courtesy of one Stan Laurel, who, in the film “Pardon Us” with Oliver Hardy, defined a blizzard as “the inside of a buzzard”. It's dark in there.

- Martyn Warwick, Editor in Chief, TelecomTV