UK regulator blocks Microsoft’s purchase of Activision

On 26 April 2023, the UK’s Competition and Markets Authority (CMA) blocked Microsoft’s acquisition of Activision Blizzard, which the two companies had announced in January 2022 for $68.7 billion. The final decision followed provisional findings in February and an in-depth investigation opened in September 2022.

Why the CMA blocked it

The CMA’s concern centres on cloud gaming, a young market in which the game is streamed from servers. In the UK, monthly active users of cloud gaming more than tripled between early 2021 and the end of 2022, and the market is forecast to reach up to £11 billion worldwide and £1 billion in the UK by 2026. According to CMA estimates, Microsoft already holds between 60% and 70% of the world’s cloud gaming services, as well as the Xbox console, the Windows system and a global cloud infrastructure.

The CMA concluded that it would be commercially beneficial for Microsoft to make Activision’s games, such as Call of Duty, Overwatch or World of Warcraft, exclusive to its own cloud service, shutting out other operators and reducing innovation and choice for British gamers.

Microsoft had proposed a ten-year commitment setting out which games it would offer, on which platforms and on what terms. The CMA rejected it for three reasons: it did not adequately cover the different cloud business models, including multi-game subscriptions; it was not sufficiently open to providers offering games on PC operating systems other than Windows; and it would standardise terms instead of letting competition shape them. Martin Coleman, chair of the independent panel that decided, said Microsoft had engaged constructively, but that its proposals were not effective.

In consoles, by contrast, the CMA saw no problem: in March it had provisionally set aside that concern, because Microsoft would have no financial incentive to make Call of Duty exclusive to Xbox, and in its final decision it concluded that the deal did not significantly reduce competition in console gaming services in the UK. Sony, which opposes the purchase, fears Microsoft will eventually make the game exclusive; Microsoft had offered it the same agreement it gave Nintendo: Call of Duty on PlayStation at the same time as on Xbox and with the same features.

The reaction and what comes next

Brad Smith, Microsoft’s president, said the company remains fully committed to the purchase and will appeal, and that the decision reflects a flawed understanding of the market. Activision called the decision disproportionate, irrational and inconsistent with the evidence and said it expected the deal to go ahead; its chief executive, Bobby Kotick, told staff they had begun preparing the appeal to the UK’s Competition Appeal Tribunal, and a spokesperson said the company would reassess its growth plans in the country.

The CMA is not the only authority examining the purchase. The US Federal Trade Commission (FTC) sued in December 2022 to stop it, and the European Commission is still analysing its effects on competition. The British decision does not close the matter, but it is a major obstacle: Activision’s UK turnover in 2021 was more than £700 million.

What it teaches other companies

The case shows that a global deal can be reviewed by several authorities separately, and that each may reach different conclusions. Anyone preparing an acquisition or merger with activity in several countries should identify from the outset which authorities have to approve it, within what timescales, and how risks are allocated in the contract (conditions precedent, long-stop dates, commitments to sell assets). Ask your adviser how it applies to you.

A global merger does not depend on a single regulator, and one is enough to stop it.