After over a year of deliberation between the powers at Microsoft and Activision regarding a potential $69 billion acquisition of the World of Warcraft and Call of Duty publisher, Activision Blizzard, the UK’s Competition and Markets Authority have rendered their final decision to prevent the controversial merger of the two gaming giants.
Microsoft and Activision have spent the last year convincing regulators around the world that excluding millions of gamers from some of the biggest gaming franchises in history would be beneficial to consumers, but following months worth of tweets and public statements from the heads of both companies, a decision has finally been rendered to block the potentially disastrous merger.
In a statement posted on the gov.uk website, the CMA said:
“The UK cloud gaming market is growing fast. Monthly active users in the UK more than tripled from the start of 2021 to the end of 2022. It is forecast to be worth up to £11 billion globally and £1 billion in the UK by 2026. By way of comparison, sales of recorded music in the UK in 2021 amounted to £1.1billion.
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.”https://www.gov.uk/government/news/microsoft-activision-deal-prevented-to-protect-innovation-and-choice-in-cloud-gaming
The regulators continued:
“The CMA carefully considered whether the benefit of having Activision’s content available on Game Pass outweighed the harm that the merger would cause to competition in cloud gaming in the UK. The CMA found that this new payment option, while beneficial to some customers, would not outweigh the overall harm to competition (and, ultimately, UK gamers) arising from this 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.”https://www.gov.uk/government/news/microsoft-activision-deal-prevented-to-protect-innovation-and-choice-in-cloud-gaming
This decision is a huge blow to Microsoft’s intentions to buy up some of the biggest names in the gaming industry, following years worth of acquisitions that include Skyrim and Fallout creator, Bethesda. There has been debate since the initial announcement in 2022 that the acquisition would not benefit gamers as a whole, despite Microsoft’s claims to the contrary.
The announcement by the UK regulatory body has already had a detrimental effect on the U.S giants, causing Activision Blizzard’s shares to drop by 10%.
The UK’s CMA partly raised concerns that the merger would not be beneficial to the overall gaming market, and particularly in the UK, would halt advancements in both technology and gaming innovation by moving particular games onto a singular platform.
Echoing a point that Game Observer recently raised in our article, The Death of Consoles: Will Streaming Create a Perfect Future for Gaming?, the chair of the CMA’s independent panel, Martin Coleman, offered the following:
“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.
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. That is best achieved by allowing the current competitive dynamics in cloud gaming to continue to do their job.”
This is a completely fair stand to take on the idea of this merger. Cloud gaming is a relatively new format, but it has already allowed more people than ever to enjoy games that were previously inaccessible to them; either because of income restrictions or a lack of hardware availability. One of Microsoft’s main arguments over the last year is that somehow restricting a game like Call of Duty to a singular service would be to the benefit of all gamers, yet the evidence or reasoning for this was never made clear.
In a letter sent to employees following the announcement, Activision CEO Bobby Kotick said:
“At a time when the fields of machine learning and artificial intelligence are thriving, we know the U.K. market would benefit from Microsoft’s bench strength in both domains, as well as our ability to put those technologies to use immediately. By contrast, if the CMA’s decision holds, it would stifle investment, competition, and job creation throughout the UK gaming industry.”
This continues the odd rhetoric offered by Kotick in February 2023 that “If a deal like this can’t get through, they are not going to be Silicon Valley, they will be Death Valley” in reference to the UK as a technological leader in the world.
For now, it looks like Microsoft has finally been dealt a huge blow to their recent acquisition efforts. But will this decision stick? Game Observer will continue to report as the situation develops.