Activision brands UK ‘clearly closed for business’ after regulator shoots down €68bn Microsoft deal

The UK competition regulator has blocked Microsoft’s $75 billion (€68.3 billion) acquisition of Activision Blizzard, drawing a furious response from the video games maker, which branded Britain “clearly closed for business”.

The Competition and Markets Authority (CMA) on Wednesday delivered a potentially fatal blow to Microsoft’s biggest-ever deal by concluding that the software giant could make Activision’s games exclusive to its own cloud gaming service.

Activision, maker of the hit game Call of Duty, said the ruling “contradicts the ambitions of the UK to become an attractive country to build technology businesses”. It labelled the decision a “disservice to UK citizens, who face increasingly dire economic prospects”, adding: “the UK is clearly closed for business.”

In an email to employees on Wednesday, Activision chief executive Bobby Kotick vowed to fight to conclude the deal and said the CMA decision was “far from the final word”.

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Brad Smith, Microsoft vice-chairman 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”.

Activision’s shares fell 11.35 per cent in morning trading.

If it goes through, the deal would make Microsoft 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 $3 billion if the deal falls apart.

Mr Smith 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 in advance of regulatory decisions in the EU and the US, with the Federal Trade Commission (FTC) suing to block it last year.

It comes just a month after the CMA retreated from a key concern, in a step that had appeared to improve the chances of the deal concluding. 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 CMA said Microsoft, which accounts for about 60 to 70 per cent of cloud gaming services, would gain control over games such as 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 in the same way Netflix did for video streaming.

A decision is expected next month from regulators in Brussels. 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. PlayStation owner Sony, the console market leader, has consistently warned it will 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 Call of Duty, which has brought in more than $30 billion in revenue for Activision over its lifetime.

– Copyright The Financial Times Limited 2023