The British competition authority blocks the billion-dollar takeover of the major game publisher Activision Blizzard by Microsoft. The Competition and Markets Authority (CMA) fears that the company with Activision Blizzard can gain too much market share in the young cloud gaming sector. Microsoft is appealing.
Company took off early last year almost 70 billion dollars (then about 60 billion euros) for Activision Blizzard, publisher of the extremely popular call of Dutygame series: the biggest acquisition ever in the game industry. But the size of the deal also attracted the attention of international competition authorities, who, after years of lenient policy, want to take tougher action against potentially market-disrupting tech mergers. The US FTC already filed a complaint with the court about the takeover in December. Microsoft hoped that CMA approval would strengthen its legal position in that battle.
The ruling from the British watchdog comes as a surprise to many people who follow the industry. Initially, researchers focused mainly on Microsoft’s position in the global game console market, which is ruled by three players: Sony, Nintendo, and Microsoft itself. Competitor and market leader Sony in particular fueled the fear that Microsoft could disrupt the market with this step. For example, Microsoft might plan to release Call of Duty games – worth $ 31 billion in sales since 2003 – only on its Xbox game computers, the lawyers of the PlayStation manufacturer, which is known for similar interventions in its own games. The UK competition authority seemed to share these concerns, suggesting in February that Microsoft should divest the popular series. But at the beginning of this month, the CMA abruptly announced that it no longer wanted to deal with the game console issue.
The deal instead falls flat on another sector: cloud gaming. This is a fairly young technology that makes it possible to stream games to a screen from a data centre, without the gamer having to have a (game) computer. Microsoft invested heavily in this technology and made it part of its Netflix-like subscription service Game Pass. Until now, tech companies such as Google have failed to make pure cloud gaming services a financial success. For Game Pass, which offers a selection of games to download and play for a fixed fee, cloud gaming is just an extra service to the user for the time being.
‘Cloud gaming market is growing rapidly’
“The UK cloud gaming market is growing rapidly,” writes the CMA. “The number of monthly users has more than tripled since 2021.” The competition authority expects the market to grow to 11 billion pounds worldwide (12.4 billion euros) by 2026. For comparison: according to estimates by market researcher Newzoo, the entire gaming industry in 2022 was worth about 166 billion euros.
Read also: US regulator opposes Microsoft’s acquisition of Activision Blizzard
Microsoft could take the lion’s share of the cloud gaming market if Call of Duty landed exclusively on Game Pass, warns the CMA. The company already owns about 60 to 70 percent of that market. “If we let Microsoft take such a large position in this sector, just when it is going to grow so fast, it could undermine innovation.” The solutions that Microsoft proposes, such as licensing agreements with other cloud parties, are not sufficient for the CMA. These are limited measures, for a limited number of games and a limited number of competing services, such as those from hardware manufacturer Nvidia. “The CMA should continue to monitor this market on an ongoing basis if this acquisition goes through.” Blocking the takeover is simpler: the market can then develop itself without interference from regulators, says the CMA.
Brad Smith, president of Microsoft, says in a statement that he is disappointed in the attitude of the CMA. “The CMA appears to be lacking in knowledge and understanding of the cloud gaming market and cloud gaming technology.” The company will not accept the decision, but will appeal.