UK blocks Microsoft-Activision gaming deal, biggest deal in tech | Entertainment

In its final report, the Competition and Markets Authority said the “sole effective remedy” for a substantial loss of competition was a “prohibition of the merger”. The companies have vowed to appeal.

The all-cash deal, announced 15 months ago, has faced fierce opposition from rival Sony, which makes PlayStation gaming systems, and has also come under scrutiny from U.S. and European regulators over concerns it would give Microsoft and its Xbox console control of the hit franchise Such as Call of Duty and World of Warcraft.

Liam Deane, a games industry analyst at research firm Omdia, said the U.K. regulator’s decision “surprised most” and added to global uncertainty about the deal.

“From Microsoft’s and Activision’s perspective, it’s a big enough market to put a sizeable wrench in the works, but if they also get a wrong decision from the European Commission in a few weeks, things will get worse ,”He said.

U.K. regulators’ concerns centered on how the deal would affect cloud gaming, which can be streamed to tablets, phones and other devices, freeing gamers from buying expensive consoles and gaming PCs. Gamers can continue to play key Activision titles on the platforms they normally use, including mobile titles like Candy Crush.

Martin Coleman, chair of the Competition and Markets Authority’s independent panel investigating the deal, said cloud gaming had the potential to transform the industry by giving people more choice about how and where they play.

“That means it’s critical that we protect competition in this emerging market,” he said.

The decision underscores Europe’s global lead in reining in the power of big tech companies. The move comes a day after the UK government published draft legislation that would give regulators more powers to protect consumers from online scams and fake reviews and boost digital competition.

The U.K. decision further dashed Microsoft’s hopes that a favorable outcome could help it settle a lawsuit brought by the U.S. Federal Trade Commission. The trial with the FTC’s in-house judge is scheduled to begin on Aug. 2. Meanwhile, the EU decision is due on May 22.

Activision lashed out, saying the regulator’s decision sent a bad signal to international investors in the UK at a time when the UK economy is facing serious challenges.

The California-based games maker said it would be “actively cooperating” with Microsoft on its appeal, claiming the move “contradicts the UK’s ambition to be an attractive place for tech companies”.

Activision said: “We will be reassessing our growth plans in the UK. Global innovators, big and small, will take note that despite all the rhetoric, the UK is clearly closed.”

Redmond, Wash.-based Microsoft also said it wasn’t ready to give up.

“We remain fully committed to this acquisition and will appeal it,” President Brad Smith said in a statement. He said the decision “rejects a pragmatic approach to addressing competition concerns” and hinders technological innovation and investment in the UK.

“We are particularly disappointed that, after lengthy deliberation, this decision appears to reflect an incorrect understanding of how this market and related cloud technologies actually work,” Smith said.

Activision CEO Bobby Kotick said in a blog post that the two companies have begun work on an appeal to the UK’s Competition Appeals Tribunal.

This isn’t the first time UK regulators have flexed their antitrust muscle in a big tech deal. They previously blocked Facebook parent Meta’s acquisition of Giphy over concerns it would limit innovation and competition. The social media giant lost its appeal in court and was forced to sell the GIF-sharing platform.

Microsoft already has a strong position in the overall cloud computing market, and regulators concluded that if the deal goes through, it would strengthen the company’s advantage by controlling a key game.

To assuage concerns, Microsoft struck deals with Nintendo and some cloud gaming providers to license Activision titles, such as Call of Duty, for 10 years—providing the same rights to Sony.

Sony’s European press office did not respond to a request for comment.

The regulator said it reviewed Microsoft’s remedies “quite deeply” but found that they required its oversight and that blocking the merger would allow cloud gaming to develop without intervention.

Cloud gaming is just a fraction of the UK’s £5 billion ($6.2 billion) video game market. But expert forecasts suggest it will see explosive growth in the next few years, with the number of users set to triple between early 2021 and the end of 2022, with the cloud gaming market expected to grow to £1bn by 2026, the regulator said.

Last month, they dismissed concerns that the deal would hurt console gaming, saying it wouldn’t be in Microsoft’s interest to keep Call of Duty exclusive to its Xbox console.

Associated Press Technology Writer Matt O’Brien in Providence, R.I., contributed to this report.