UK regulators block deal to buy US video game company Activision Blizzard

UK regulators block deal to buy US video game company Activision Blizzard

The CMA has just blocked Microsoft’s proposed purchase of Activision over concerns the deal would alter the future of the cloud gaming market and potential for innovation.

Part of this decision will come from a sense amongst the CMA and competition authorities more widely that they were asleep at the wheel when it comes to the rise and rise of Big Tech. The network effect has meant a ‘winner takes all’ market in the fields of social media and TV streaming and the CMA were no doubt concerned that cloud gaming could be next. If Microsoft were able to make popular titles such as Call of Duty exclusive to their cloud platform, this could draw gamers away from other cloud platforms and so inhibit their growth and therefore competition. Do you go to the empty restaurant with the limited menu or the one that has diners spilling out onto the street?

This would have been by far the biggest deal in the video games sector and even the wider tech sector – it raised eyebrows when it was announced, but recently the CMA had dropped one of their key concerns i.e. that it would distort competition in the console market (a much more established market where Microsoft does not hold a dominant position). Cloud gaming is just getting started and this is why the CMA’s decision is interesting – they are wanting to future proof an industry that barely exists. That said, Microsoft’s strength in the cloud with its Azure division does give it a head start in cloud gaming, so the CMA’s rationale is understandable.

This decision comes off the back of the CMA’s block of the Meta/Giphy deal last year and so indicates that they are determined to take a robust approach to Big Tech. It also underlines the lack of faith they place in ‘behavioural remedies’ (Microsoft had offered to keep Activision titles on other platforms for at least ten years) because they need to be policed on an ongoing basis. Their preference has always been for ‘structural’ remedies i.e. the disposal of the Call of Duty franchise. They could also point to Microsoft’s acquisition of Zenimax (which owns Bethesda), following which it announced that the hotly anticipated Bethesda game Starfield will be exclusive to Microsoft platforms.

It is also interesting as an example of a vertical merger (company buying a supplier) – which traditionally do not excite the competition authorities as much as horizontal mergers (company buying a competitor). Given the network effect, matching up popular content (Call of Duty) with a potentially dominant platform (Microsoft’s cloud gaming service) is seen as another way to reduce competition in a market, even if it does not involve two competing companies becoming one.

Microsoft and Activision have understandably made some very robust statements in response to the news, so this is not the end of the saga by any means. However, the deal also needs to be approved by the European Commission and the Federal Trade Commission in the US, both of which will be watching developments in the UK with interest.

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