The UK competition regulator has blocked Microsoft’s $75bn acquisition of the Call of Duty maker Activision Blizzard, in a possibly fatal blow to the software giant’s biggest deal.
The Competition & Markets Authority said on Wednesday it believed the company would be commercially motivated to make Activision’s games exclusive to its own cloud gaming service.
Activision said the ruling “contradicts the ambitions of the UK to become an attractive country to build technology businesses” and was a “disservice to UK citizens, who face increasingly dire economic prospects”. In an email to employees on Wednesday, Activision chief executive Bobby Kotick said the decision was “far from the final word on this deal”.
Activision’s shares fell 11 per cent in pre-market trading.
If it goes through, the Activision deal would be Microsoft’s largest acquisition and make it the third-biggest gaming company by revenue, behind China’s Tencent and Japan’s Sony. Microsoft will have to pay a break fee of as much as $3bn if the deal falls apart.
The CMA argued that Microsoft had failed to address its concerns about protecting innovation in the nascent cloud gaming market.
But Brad Smith, Microsoft vice-chair and president, said his group “remains fully committed to this acquisition and will appeal”, warning that the decision “discourages technology innovation and investment in the United Kingdom”.
He added that the CMA’s decision reflected “a flawed understanding of this market and the way the relevant cloud technology actually works”.
The ruling is a huge blow to the deal’s global prospects and comes ahead of regulatory decisions in the EU and the US, with the Federal Trade Commission suing to block the deal last year.
It comes just a month after the CMA retreated from a key concern, in a step that had appeared to pave the way for the two sides to inch the deal through. The companies had hoped to reassure the CMA that licensing deals signed with cloud gaming platforms would be sufficient to appease the watchdog.
However, in an update on Wednesday, the regulator said that solution contained “significant shortcomings” considering the fast-moving nature of the cloud gaming market.
The UK competition regulator said Microsoft, which accounts for around 60 to 70 per cent of cloud gaming services, would gain control over key games like Call of Duty, Overwatch and World of Warcraft.
It said Activision would have started providing games on cloud gaming services without the Microsoft merger — something Activision has always denied. The developer has previously been reluctant to license its franchises to subscription services, and told the UK regulator it was sceptical of that market.
During the investigation, Microsoft struck 10-year licensing deals with streaming services including Nvidia’s GeForce Now service and Boosteroid, as well as pledging to bring Call of Duty to Nintendo’s Switch, in a bid to prove that owning Activision would expand the availability of the company’s games, rather than restrict them.
One shareholder in Activision told the Financial Times that Microsoft would “surely use every avenue to fight, but at the end of the day, this deal is dead already. It’s a zombie-deal now”.
The FTC, which filed to block the deal in December, said that owning Activision’s games could help Microsoft dominate the nascent cloud gaming market, giving it the chance to lead a new streaming market in the same way Netflix did for video.
The company is expecting a decision next month from regulators in Brussels, where the deal has been scrutinised for months. So far European Commission officials have been more willing to accept concessions to clear the deal.
The CMA had provisionally raised concerns in relation to both the cloud gaming market and in the market for games consoles. In February it said Microsoft could be motivated to make Call of Duty exclusive to its Xbox console.
PlayStation owner Sony, the console market leader, has consistently warned it would be disadvantaged if Microsoft limited availability of one of the industry’s most popular titles.
However, the regulator changed its mind about the risk to the console market after Microsoft highlighted what it said were errors in the CMA’s financial modelling. In its amended provisional findings last month, the CMA said it no longer believed Microsoft had a financial incentive to cut off console rivals’ access to the game, which has brought in more than $30bn in revenue for Activision over its lifetime, after reviewing new evidence.
Additional reporting by Javier Espinoza in Brussels and Arash Massoudi in London
Credit: Source link
