Microsoft's $68.7 billion Activision buy has been killed by UK regulators

Demonstrating a complete lack of understanding of the entire gaming market, UK's Competition and Markets Authority has officially declared that Microsoft buying Activision/Blizzard will result in reduced competition and won't be allowed.

In a ruling issued early on Wednesday morning, UK's Competition and Markets Authority (CMA) has blocked Microsoft's buy of Activision. The CMA still believes that Microsoft would find it "commercially beneficial to make Activision games exclusive to its own cloud gaming service (or only available on other services under materially worse conditions)."

Despite a lengthy comment period, the CMA said that Microsoft "failed to effectively address the concerns in the cloud gaming sector." Furthermore, it noted that it was "not sufficiently open to providers who might wish to offer versions of games on PC operating systems other than Windows."

"Microsoft already enjoys a powerful position and head start over other competitors in cloud gaming, CMA panel chair Martin Coleman said. "This deal would strengthen that advantage giving it the ability to undermine new and innovative competitors."

The CMA estimates that Microsoft already has around 60% to 70% of global cloud gaming services and also owns Xbox, which includes Xbox Cloud Gaming. Consequently, it believes the Activision deal could "reinforce this strong position and substantially reduce the competition" that Microsoft would otherwise face.

What happens next

It's not clear why the CMA has the viewpoint it does, nor if it fully understands the market it is addressing. Microsoft is not the dominant player in video gaming, nor is it at all clear if it has the majority stake in cloud gaming — which in itself is a very small percentage of the overall gaming market.

Sony's PlayStation has a larger market share of the global console market as it stands in February 2023. And Microsoft said that it would use the fruits of the merger to take on Apple to increase competition, not decrease it.

Microsoft has also said to the CMA that it will continue publishing Activision titles on the PlayStation console for years to come. Doing otherwise would be an incredibly bad idea from a financial standpoint, as the market favors the competing console.

According to the CMA's own guidance reports, it has the authority to investigate mergers in specific circumstances. The proposed merger must mean that "two or more enterprises cease to be distinct," and also there is an impact on the UK market, such as the acquired company's annual turnover exceeding $83 million.

Following its investigating and reporting phases, the CMA has the ability to block a merger, acquisition, or joint venture. It can also require that businesses be sold off separately.

Other than the US Federal Trade Commission, which had not yet ruled, the rest of the world's regulators gave the deal the go-ahead.

Microsoft is expected to appeal the decision.

"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," Microsoft President Brad Smith said in a statement.