- Microsoft's $68.7 billion takeover of Activision has been blocked by UK regulators.
- The UK's CMA blocked the deal on Wednesday over concerns antitrust concerns.
Microsoft's $68.7 billion takeover of "Call of Duty" developer Activision has been blocked by the UK's competition regulator, marking a devastating blow to the blockbuster deal.
The UK's Competition and Markets Authority (CMA) said on Wednesday that the deal, struck in January 2022, risked "stifling competition" in the market amid concerns that Microsoft would make Activision's lucrative games exclusive to its services at the expense of consumers.
"The CMA has prevented Microsoft's proposed purchase of Activision over concerns the deal 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 regulator said.
The CMA first launched its in-depth review of the deal in September 2022, announcing in its provisional findings in February this year that the merger would harm Microsoft's competitors, which include the likes of PlayStation maker Sony.
According to the CMA, Microsoft already accounts for around 60-70% of global cloud gaming services through its Xbox platform and Azure. The deal, it said, "would reinforce Microsoft's advantage in the market by giving it control" over games such as "Call of Duty" and "Overwatch."
In response, Microsoft president Brad Smith said the company remains "fully committed to this acquisition and will appeal," with the CMA's decision rejecting "a pragmatic path" to addressing competition concerns while discouraging technology innovation and investment in the UK.
"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," Smith said. Both Microsoft and Activision will appeal the decision.
Microsoft had submitted a proposal to address the concerns the CMA flagged, but found that the proposal contained "a number of significant shortcomings connected with the growing and fast-moving nature of cloud gaming services."
Microsoft did not immediately respond to Insider's request for comment.
In a letter to employees, seen by Insider, Activision CEO Bobby Kotick said the CMA's ruling was "far from the final word on this deal," though acknowledged that "this merger is a complex process" while expressing frustrations with "the hurdles and delays."
In a statement to Insider, Activision said "the CMA's 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."Activision's shares fell sharply by 11% in pre-market trading.
The decision from the UK's competition regulator comes as Microsoft and Activision have faced intense scrutiny from both sides of the Atlantic over the ramifications of the deal for the rest of the gaming sector.
In December, the Federal Trade Commission (FTC) sued Microsoft over the buyout, with Holly Vedova, director of the bureau of competition at the FTC, stating that the agency was intent on stopping Microsoft from controlling the independent studio and "using it to harm competition.
"The deal would be the biggest targeted under the watch of chair Lina Khan, who has made it her mission to rein in what she sees as the monopolistic powers of Big Tech companies since taking the helm of the agency in 2021.
Stuart Smith, partner at law firm Simkins, said the decision from the CMA highlights just how significant the shift to cloud gaming has become for an industry that was once dominated by a few console-based companies.
"Traditional console gaming has long been dominated by just three companies, but there is scope for cloud gaming to become a much more diversified industry," Smith said.
Microsoft has been on a spending spree for gaming studios, having purchased Bethesda for $7.5 billion in September 2020. Though the deal raised some antitrust concerns among regulators in the European Union, the deal passed within six months.