British regulators have firmly rejected Microsoft’s record-setting bid to acquire Santa Monica-based video game publisher Activision Blizzard.
Although Microsoft, most known for its Windows computer operating system and Xbox video game console, plans to appeal the ruling, the decision may be the first domino to kill the deal. Similar regulators in the European Union and United States have their own decisions on the $69 billion deal pending in the coming months, and Microsoft had hoped to close the deal by mid-June.
In its announcement last week, the Competition and Markets Authority in the United Kingdom claimed that the deal would stifle competition within the bourgeoning cloud-gaming market, which allows individuals to play games that are streamed to devices such as cellphones in lieu of dedicated consoles or computers, which can be prohibitively expensive in some cases. Microsoft’s existing cloud-gaming operation has only strengthened in recent months following the shutdown of Google’s cloud platform Stadia.
“This means that it is vital that we protect competition in this emerging and exciting market,” Martin Coleman, chair of the British agency’s independent panel of experts, said in a statement. “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.”
The Federal Trade Commission signaled in December that it would seek to block the deal on similar grounds, alleging that the pairing of Activision Blizzard — developer and publisher of franchises like World of Warcraft, Crash Bandicoot and Candy Crush Saga — and Microsoft — itself a video game developer and publisher — would be a monopolistic move. Microsoft previously acquired Bethesda, another game developer, and Activision Blizzard offers many of its marquee titles exclusively through its own online platform.
Additionally, a private antitrust lawsuit has also been filed against Microsoft in U.S. District Court by a group of gamers seeking to kill the merger.
Microsoft has tried to alleviate the concerns of these agencies, in recent months striking 10-year deals with both Nvidia and Nintendo that would bring Activision Blizzard’s blockbuster Call of Duty franchise to their cloud gaming and console gaming platforms, respectively, should the merger be approved. Microsoft also essentially reupped a similar deal for Steam, the digital gaming store and distributor owned by Valve that has sold Call of Duty titles for years.
Microsoft has not yet reached a similar deal with Sony, the Japanese company behind the PlayStation console line that has held a significant share of Call of Duty sales for more than a decade. Sony has actively opposed the merger, in no small part because of the fears that the deal would make the bestselling franchise more exclusive.
Meanwhile, Activision Blizzard — which is still reeling from the legal fallout of workplace sexual harassment claims as well as other, separate, lawsuits — pledged to fight to save the deal. Stock prices for Activision Blizzard fell more than 11% following the CMA’s decision.
“The CMA’s report contradicts the ambitions of the U.K. to become an attractive country to build technology businesses,” the company said in a statement. “We will 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.”
