In a significant move, the UK market regulator on Wednesday announced it was blocking Microsoft's proposed $68.7 billion acquisition of gaming giant Activision Blizzard, the developer behind hugely-popular Call of Duty (CoD) franchise.
The final decision to prevent 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.
Microsoft entered into a $68.7 billion deal to buy Activision, one of the most popular video games publishers in the world, in January 2022.
The CMA launched an in-depth review of the deal in September 2022, and in February 2023, provisionally found that the merger could make Microsoft even stronger in cloud gaming, stifling competition in this growing market.
Microsoft submitted a proposal to address some of these concerns which the CMA examined in considerable depth. The proposed remedy set out requirements governing what games must be offered by Microsoft to what platforms and on what conditions over a ten-year period.
"Cloud gaming is growing fast with the potential to change gaming by altering the way games are played, freeing people from the need to rely on expensive consoles and gaming PCs and giving them more choice over how and where they play games. This means that it is vital that we protect competition in this emerging and exciting market," said Martin Coleman, chair of the independent panel of experts conducting this investigation.
Microsoft already enjoys a powerful position and head start over other competitors in cloud gaming and "this deal would strengthen that advantage giving it the ability to undermine new and innovative competitors," he added.
Microsoft President Brad Smith, in a tweet, said that the company remains fully committed to this acquisition and will appeal against the decision.
"The 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," Smith argued.
According to the CMA, Microsoft's proposal contained a number of significant shortcomings connected with the growing and fast-moving nature of cloud gaming services.
"It did not sufficiently cover different cloud gaming service business models, including multigame subscription services. It was not sufficiently open to providers who might wish to offer versions of games on PC operating systems other than Windows," said the UK regulator.
Microsoft already accounts for an estimated 60-70 per cent 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," according to the UK regulator.