Image: Microsoft
The massive Microsoft-Activision deal might fall through because of cloud gaming, of all things.
Microsoft’s massive acquisition of Activision Blizzard has hit its first major snag, following an announcement from UK regulators that they were officially blocking the deal. The proposed $68.7 billion acquisition of Activision was previously set to go through despite multiple regulatory reviews, but now it looks ready to fall apart at the seams.
UK antitrust regulator, the Competition and Markets Authority (CMA) largely justified its decision by pointing to the acquisition’s potential impact on cloud gaming. Surprisingly, blocking the deal had less to do with console exclusivity and the future of major game franchises like Call of Duty, and more to do with Microsoft dominating the cloud gaming market right now.
This makes sense when you consider that Microsoft not only runs a gaming division via Xbox and a PC software division via Windows, but also a robust cloud computing platform via Azure. The CMA stated that the deal would eventually lead to, “reduced innovation and less choice for UK gamers over the years to come.” Microsoft reportedly proposed a solution to this which had, “significant shortcomings and would require regulatory oversight by CMA.”
The CMA’s review of the acquisition took place over multiple months, and its findings were reported as follows:
Microsoft has a strong position in cloud gaming services and the 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. Microsoft already accounts for an estimated 60-70% 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 (Azure and Xbox Cloud Gaming).
Despite all the online debate over Sony PlayStation suffering from this potential acquisition, it appears that the tech company was barely a consideration for the CMA. Microsoft owns Xbox, Windows, Azure, Game Pass and multiple other game studios and companies even without Activision Blizzard being added to the family. Cloud gaming can be considered one of the more niche methods of gaming right now, but the CMA considers it a rapidly-growing market that Microsoft could easily dominate should this deal go through.
Microsoft’s president Brad Smith confirmed that the company would appeal the CMA’s decision, which means that this deal still has a chance of going through - albeit a slim one given how firm their case seems to be. Smith even criticised the CMA by saying, “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 actually works.”
A spokesperson from Activision Blizzard also said that the company would, “work aggressively with Microsoft to reverse this on appeal. The report’s conclusions are a disservice to U.K. citizens, who face increasingly dire economic prospects. We will reassess our growth plans for the U.K.. Global innovators large and small will take note that - despite all its rhetoric - the U.K. is clearly closed for business.”
Microsoft now has to successfully appeal the CMA’s decision if the deal is to go through before its July 18 deadline, after which the acquisition would officially and irrevocably fall through.