British antitrust regulators have dealt a major blow to Microsoft's plan to buy the video game giant Activision Blizzard, for $69 billion. They blocked the deal and handed a significant victory to governments around the globe who are trying to reign in Big Tech.
The Competition and Markets Authority of Britain has delivered a potentially fatal blow to the biggest consumer tech acquisition since AOL acquired Time Warner in 1990. Microsoft's plans to make sure the acquisition wouldn't harm the competition failed to address concerns about the cloud gaming sector, a new part of gaming.
The unexpected ruling was a victory for those who want to regulate tech giants such as Microsoft, Amazon and Apple. It also boosted the efforts of the Federal Trade Commission in blocking the deal. Meta, Facebook's parent, Meta, won the battle. Recent court decisions and legislative failures have stymied their efforts, which were fueled by concerns that these companies had too much control over online communications and commerce.
William E. Kovacic said, "This is an important win for the larger effort to realign enforcement of antitrust laws." William E. Kovacic was a former Chairman of the F.T.C. Microsoft announced that it would appeal the decision.
The focus on whether this deal would hurt consumers was largely on the expensive gaming console market. But the Competition and Markets Authority focused on cloud gaming. This is a relatively recent technology that allows users to stream games directly to their devices without the need for gaming consoles.
The ruling is a sign that regulators are expanding their antitrust lenses to include emerging markets, and they are determined to help shape them so that fewer giant companies dominate them. Microsoft could walk away from an acquisition if it fails to get approval in a major market such as the United States or Britain, even if another regulatory body within the European Union still hasn't made a decision.
Lina Khan is the chair of F.T.C. Chair Lina Khan has made the challenge of mergers an important part of her plan for reining in tech giants. Microsoft tried to isolate Khan after the American agency filed suit in December to stop the video game deal. Microsoft pushed European authorities to come to a legal settlement that would address the concerns of the American agency and allow the deal through. The European Union's antitrust regulators are expected to make a decision on the acquisition before May 22.
Microsoft's Activision Bid: What you need to know
Microsoft announced on Jan. 18, 2022 that it would buy Activision Blizzard for $69 billion, the maker of popular games such as Call of Duty and Candy Crush. This acquisition would propel Microsoft to a top spot in the $175 million gaming industry.
Major setback. Microsoft's bid was rejected by a British regulator on April 26. The British Competition and Markets Authority's ruling could have been fatal to the deal, which would have been the largest consumer technology acquisition since AOL acquired Time Warner in 2000.
British officials claimed that the deal would threaten the competition in the cloud gaming market. Similar arguments are used by governments to block tech deals, frustrated at the speed Silicon Valley companies rush to dominate new technologies.
The British officials, however, signaled instead that the era of simple blockbuster deals in tech was over. The F.T.C. The F.T.C.
The F.T.C. The F.T.C. said that it aligned itself with the British regulator. Holly Vedova said that the Bureau of Competition director of the Agency expressed concerns about the anticompetitive nature of this deal.
Microsoft wants to complete the Activision purchase by July 18, according to a statement. Microsoft has said it wants to close the Activision acquisition by July 18.
Brad Smith, Microsoft president, stated in a press release that "we're particularly disappointed" because the decision seems to reflect an incorrect understanding of the market and how the cloud technology works.
Activision, publisher of Call of Duty and other blockbuster video games, has said that it will "work aggressively with Microsoft" to overturn the ruling.
Bobby Kotick is the chief executive of Activision. He said that if the C.M.A. decision stands, it will stifle investments, competition, and job creation in the U.K. video game industry.
Activision shares fell by 11 percent at the close of trading. Shares of Microsoft, which were trading higher after it reported stronger-than-expected earnings on Tuesday, rose 7 percent on Wednesday.
Microsoft announced its deal to purchase Activision in early 2013. It hoped to combine Microsoft’s Xbox consoles and video game subscription services with Activision’s blockbuster titles like Call of Duty World of Warcraft, and Candy Crush.
Activision, at the time, was reeling after a California lawsuit accusing them of cultivating a toxic and sexist work culture. Mr. Kotick had been called to resign.
The debate about the deal has largely focused on what will happen to hundreds of millions who have played Activision games. Sony, the company that makes the PlayStation, which is a rival to Microsoft's Xbox, was the one who spoke out most against the deal. Sony claimed that Call of Duty fans and others who play Activision games on Xbox and PlayStation will be forced to exclusively use Microsoft consoles and services.
Sony has declined to comment.
Microsoft has said that it will not limit Call of Duty exclusively to Xbox and that it believes the acquisition will give more people the opportunity to play the games. Microsoft focused on reaching agreements with regulators in other countries that would allow for the deal to be completed with certain conditions. It also guaranteed Call of Duty access on gaming platforms to demonstrate that it wouldn't restrict the popular game for other consoles.
In February, the British regulator said that the deal could hurt the competition between gaming consoles such as the PlayStation. It also claimed the cloud gaming industry was nascent. Cloud gaming involves using remote data centers to stream games to devices like iPhones or computers. In late March it changed its mind and said that it did not believe the deal was a threat to Sony. This seemed to give Microsoft a good position.
The Competition and Markets Authority instead focused on cloud gaming, which is only a few short years old, and the possibility that it could explode in popularity and be worth $1.3 billion (£1.2 billion) in Britain and $14 billion (£14 billion) globally by 2026.
In its decision on Wednesday, the agency stated that "the cloud allows U.K. players to avoid expensive gaming consoles or PCs and give them more flexibility and choices as to how they choose to play." Microsoft's strong position on the cloud gaming market at a time when it is growing rapidly could undermine the innovation necessary to develop these opportunities.
Cloud gaming will allow gamers to untether themselves from consoles in the future and move the focus away from hardware towards technology which allows games to stream from remote data centres. Microsoft's Xbox Game Pass monthly subscription service has over 25 million subscribers. This could make it a powerful tool. It hasn't been widely adopted yet, and the first attempts at cloud gaming by companies such as Microsoft, Google, and Amazon have not fared well. It is still prone to frequent errors and requires a good Wi-Fi connection.
David Gibson, senior analyst at MST Financial in Australia, said that cloud gaming could have a big impact in the future. But it would take a major shift in how games were made and sold.
Microsoft has signed several deals in recent months promising that Activision games can be streamed on cloud platforms for a period of 10 years, including Nvidia's GeForceNow streaming service. The Competition and Markets Authority, however, said that these solutions didn't cover enough cloud-based business models.
Microsoft was already responsible for 60-70 percent of all cloud gaming services in the world, according to the agency. The agency stated that if the deal was closed, Microsoft would likely benefit by making Activision games exclusive to Xbox Cloud Gaming. This could be harmful to consumers.
Martin Coleman, chair of the panel that investigated for the agency said that the deal would give it an advantage that could be used to undercut new and innovative competitors.
According to Pablo Ibanez Colomo of the London School of Economics, professor of law, Microsoft's appeals process will be relatively quick. However, it must meet a high standard: The tribunal overseeing appeals is primarily concerned with whether a decision was made lawfully and fairly.
Piers Harding Rolls, gaming researcher for Ampere Analysis London, said: "This is a major blow to the completion of the deal." This will inevitably delay things, and have an impact on Xbox's plans for commercial success.
Karen Weise reported from Seattle and Adam Satariano, Michael J. de la Merced and Michael J. de la Merced contributed from London.