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UK watchdog blocks Microsoft's Activision Blizzard acquisition

That's not very Unicorn Kingdom of you

UK regulators have dealt a serious blow to Microsoft's hopes of acquiring gaming giant Activision Blizzard, with the Competition and Markets Authority blocking the massive deal because Microsoft's proposed remedies "had significant shortcomings." 

The $68.7 billion purchase would be the largest in the gaming industry's history if it ever goes through, but if the CMA's final decision ends up standing it won't happen at all.

According to the CMA, Microsoft's responses to the regulator's preliminary findings delivered in February "failed to effectively address the concerns in the cloud gaming sector," which the CMA said "could make Microsoft even stronger in cloud gaming, stifling competition in this growing market."

Microsoft is already in control of some 60 percent to 70 percent of the cloud gaming market, which the CMA described as still in its nascent stage. If Microsoft is allowed to consume Activision Blizzard, the combined company would have "such a strong position in the cloud gaming market just as it begins to grow rapidly [and] would risk undermining the innovation that is crucial to the development of these opportunities," the CMA said. 

… and we don't want to play global video game cop

Microsoft proposed a series of behavioral remedies that would include licensing the popular Call of Duty franchise for use on other cloud gaming platforms and consoles, like Sony's Playstation, which the Japanese gaming company roundly rejected as doing nothing to help ensure fair competition.

The CMA isn't keen on Microsoft's remedy proposal, either, and characterized it as "replacing market forces in a growing and dynamic market with mandated regulatory obligations ultimately overseen, and enforced by, the CMA – in this case at a global level."

The authority said that Microsoft's proposals didn't cover different cloud gaming business models (like multigame subscription services) and did nothing for providers who would want to port games to non-Windows operating systems. It would also standardize terms and conditions for games, which the CMA said wouldn't be the case in the absence of the merger. 

"The evidence available to the CMA indicates that, absent the merger, Activision would start providing games via cloud platforms in the foreseeable future," the CMA said. 

The CMA also said it had no reason to believe Microsoft wouldn't act to restrict Activision games to its own service given the chance. "Microsoft has a strong position in cloud gaming services and the evidence available to the CMA showed that Microsoft would find it commercially beneficial to make Activision's games exclusive to its own cloud gaming service," the Authority said in its decision. 

"Microsoft engaged constructively with us to try to address these issues and we are grateful for that, but their proposals were not effective to remedy our concerns and would have replaced competition with ineffective regulation in a new and dynamic market," said Martin Coleman, chair of an independent panel of experts conducting the CMA merger investigation. 

Game over. Continue?

In a tweet this morning, Microsoft vice chair and president Brad Smith said Microsoft was committed to continuing its fight to acquire Activision Blizzard and that it would appeal the CMA decision. 

"The CMA's decision rejects a pragmatic path to address competition concerns," Smith said. "We're especially disappointed that after lengthy deliberations, the decision appears to reflect a flawed understanding of this market and the way the relevant cloud technology actually works," the Microsoft leader added. 

Activision said much the same, adding that: "The CMA's report contradicts the ambitions of the UK to become an attractive country to build technology businesses," and that it would be joining Microsoft to appeal the decision. 

EU regulators are expected to approve the deal, but the US Federal Trade Commission has also objected to the merger in a case that's spilled into court. The FTC's arguments are largely the same as the CMA's – that the merger would stifle competition in the subscription and cloud gaming industries. 

An evidentiary hearing is scheduled for this August in the FTC-Microsoft case, though if Microsoft's UK appeals are unsuccessful it may not matter. ®

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