The Competition and Markets Authority has blocked Microsoft’s proposed $68.7 billion purchase of gaming giant Activision.

The watchdog has concerns the deal – originally agreed in January 2022 – would alter the future of the fast-growing cloud gaming market, leading to reduced innovation and less choice for UK gamers over the years to come.

The final decision to prevent the deal comes after Microsoft’s proposed solution failed to effectively address the concerns in the cloud gaming sector, outlined in the CMA’s provisional findings published in February.

However the CMA has changed tack, having signalled in its original findings that a pledge to continue to make games such as Call of Duty available on Sony’s PlayStation for 10 years would likely satisfy its concerns.

An Activision Blizzard spokesperson said the report “contradicts the ambitions of the UK to become an attractive country to build technology businesses”. 

“We will work aggressively with Microsoft to reverse this on appeal,” they added.

“The report’s conclusions are a disservice to UK citizens, who face increasingly dire economic prospects. 

“We will reassess our growth plans for the UK. Global innovators large and small will take note that – despite all its rhetoric – the UK is clearly closed for business.”

Microsoft vice-chair and president Brad Smith said the block “rejects a pragmatic path to address competition concerns and discourages technology innovation and investment in the UK”.

He added: “We have already signed contracts to make Activision Blizzard’s popular games available on 150m more devices, and we remain committed to reinforcing these agreements through regulatory remedies. 

“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.”

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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 £11bn globally and £1bn in the UK by 2026.

Microsoft 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).

The CMA says there was evidence that Microsoft would find it commercially beneficial to make Activision’s games – including Call of Duty, Overwatch and World of Warcraft – exclusive to its own cloud gaming service.

“The evidence available to the CMA indicates that, absent the merger, Activision would start providing games via cloud platforms in the foreseeable future,” said the CMA.

“The cloud allows UK gamers to avoid buying expensive gaming consoles and PCs and gives them much more flexibility and choice as to how they play. 

“Allowing Microsoft to take such a strong position in the cloud gaming market just as it begins to grow rapidly would risk undermining the innovation that is crucial to the development of these opportunities.”

It said of Microsoft’s proposed 10-year proposal: “Such remedies are described as ‘behavioural’ because they seek to regulate the behaviour of the businesses involved in a merger, requiring them to behave in a way which may be contrary to their commercial incentives.

“Given the remedy applies only to a defined set of Activision games, which can be streamed only in a defined set of cloud gaming services, provided they are purchased in a defined set of online stores, there are significant risks of disagreement and conflict between Microsoft and cloud gaming service providers, particularly over a 10-year period in a rapidly changing market.”

Martin Coleman, chair of the independent panel of experts conducting the investigation, said: “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.”

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