Microsoft vows to appeal as the UK regulator blocks its acquisition of Activision Blizzard

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Update, May 25, 2023: Microsoft has officially filed its appeal with the Competition Appeal Tribunal on May 24, Reuters reported, which was the deadline for the firm to do so.

While the CAT didn’t comment, Microsoft communications director Robin Koch simply said: "We can confirm we have filed our appeal."

As noted if our extensive guide to the Microsoft-ABK situation, the CAT’s website says it aims to deal with straightforward cases within nine months, after which it goes back to the CMA, so the case is far from over.

Original story, April 26, 2023: The UK's Competition and Markets Authority has announced it's "preventing" Microsoft's proposed acquisition of Activision Blizzard "over concerns the deal would alter the future of the fast-growing cloud gaming market."

In its statement, the CMA said that Microsoft "failed to effectively address the concerns in the cloud gaming sector."

Reacting to the CMA's decision, Microsoft vice chair and president Brad Smith said: "We remain fully committed to this acquisition and will appeal. The CMA’s decision rejects a pragmatic path to address competition concerns and discourages technology innovation and investment in the United Kingdom.

"We have already signed contracts to make Activision Blizzard’s popular games available on 150 million more devices, and we remain committed to reinforcing these agreements through regulatory remedies. 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."

An Activision Blizzard spokesperson added: "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. The report’s conclusions are a disservice to UK citizens, who face increasingly dire economic prospects. We will reassess our growth plans for the UK. Global innovators large and small will take note that - despite all its rhetoric - the UK is clearly closed for business."

Update: Activision Blizzard CEO Bobby Kotick has also shared a statement, saying the CMA's decision is "far from the final word" and stating that the deal "is good for competition."

"Alongside Microsoft, we can and will contest this decision, and we’ve already begun the work to appeal to the UK Competition Appeals Tribunal," he added. "We’re confident in our case because the facts are on our side: this deal is good for competition.

"The UK hopes to grow its leadership position in technology, and a combined Microsoft-Activision would accomplish exactly that. At a time when the fields of machine learning and artificial intelligence are thriving, we know the UK market would benefit from Microsoft’s bench strength in both domains, as well as our ability to put those technologies to use immediately. By contrast, if the CMA’s decision holds, it would stifle investment, competition, and job creation throughout the UK gaming industry."

He further added: "I’m going to do everything I personally can to advocate for us and help regulators understand the competitive dynamics in our industry."

Update 2: In its statement, the CMA said its decision to block the deal "comes after Microsoft’s proposed solution failed to effectively address the concerns in the cloud gaming sector, outlined in the Competition and Markets Authority’s (CMA) provisional findings published in February."

The regulator said the number of monthly active users for cloud gaming in the UK has more than tripled between the start of 2021 and the end of 2022, with the sector forcast to be worth £1 billion by 2026 (and up to £11 billion globally).

"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.

"Microsoft already accounts for an estimated 60-70% of global cloud gaming services and has other important strengths in cloud gaming from owning Xbox, the leading PC operating system (Windows) and a global cloud computing infrastructure (Azure and Xbox Cloud Gaming)."

"The deal would reinforce Microsoft’s advantage in the market by giving it control over important gaming content such as Call of Duty, Overwatch, and World of Warcraft. The evidence available to the CMA indicates that, absent the merger, Activision would start providing games via cloud platforms in the foreseeable future."

It added: "Allowing Microsoft to take such a strong position in the cloud gaming market just as it begins to grow rapidly would risk undermining the innovation that is crucial to the development of these opportunities."

Industry analyst Piers Harding-Rolls noted on Twitter that the UK's Competition Appeal Tribunal aims to deal with most cases within nine months. If Microsoft wins, the case will be returned to the CMA.

"Chances of this closing this year are now slim," he added.

The CMA previously also expressed concerns over Microsoft potentially making Call of Duty and other Activision Blizzard properties exclusive to the Xbox ecosystem. It retracted this concern last month, believing this move would be "significantly loss-making under any plausible scenario."

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