The CMA decision to block Microsoft from acquiring Activision could be detrimental in the long-run: it could scare off other companies who will choose to set up shop elsewhere, writes Jason Chapman
The UK placed itself at the forefront of the most significant regulatory battle in recent memory at the end of April. Britain’s antitrust watchdog, the Competition and Markets Authority (CMA), blocked Microsoft’s attempted $67.8bn (£55bn) acquisition of video game company Activision Blizzard.
Microsoft has been pushing to acquire Activision and its vast game catalogue, including Call of Duty and World of Warcraft, since 2022, in what would be the largest tech acquisition in history. The CMA’s decision, citing potential anti-competitive activity in “cloud gaming”, puts it in jeopardy. For the £160bn gaming market, this could be a sliding doors moment.
The Chancellor has expressed a desire to transform the UK into Europe’s Silicon Valley, but this ruling from the CMA sends a conflicting message. It also comes on the back of its rejection of Meta’s acquisition of GIPHY in 2022, the first time a major regulatory body had blocked a deal by a Silicon Valley company. Having acquired the platform for $400m, Meta was forced to sell GIPHY at an 87 per cent loss last month.
Alongside US regulatory body The Federal Trade Commission (FTC), fighting its case in court, the UK is the only other nation to obstruct the Activision acquisition. With EU and Chinese regulators approving the very same deal last month, it’s worth questioning whether the CMA has made the right decision for UK businesses in the long run.
The CMA was well within its rights to scrutinise this acquisition, since the UK accounts for 12 per cent of Activision’s £6bn global turnover. However, as Microsoft’s President Brad Smith pointed out, rejecting the merger over “cloud gaming” demonstrated a “flawed understanding” of the market and technology. Cloud gaming lets users play games online in real-time, in the same way streaming services like Netflix give us access to films. Microsoft has its own cloud gaming offering, xCloud, and would likely look to add popular Activision games to this arsenal.
UK regulators argue that the acquisition of Activision will allow Microsoft to exclusively bring games like Call of Duty to its xCloud platform and stifle emerging competition in the space. However, Microsoft has repeatedly stated it would keep Activision content available to other providers, an assurance which sufficiently satisfied the EU.
The gaming industry is a diversified market with a thriving startup scene, and it’s unlikely that one deal would disrupt that. Microsoft and Activision’s combined gaming revenues ($21bn) would still be smaller than China’s Tencent ($32bn), for example, with Sony ($18bn) and Apple ($15bn) not far behind.
The CMA has argued that Microsoft would take a lead in a UK market that might be worth £11bn by 2026, hinging its case around what could be anti-competitive down the line and setting a confusing precedent. The regulator is designed to protect British business and employee interests, but this decision could cause more harm than good in the long run.
Activision’s statement that the “UK is clearly closed for business” set off alarm bells for several MPs, who interrogated the CMA on their decision. At a time when the UK is looking to garner foreign direct investment, blocking deals on what may happen could make some investors and companies hesitate.
With the weight of the EU and 36 other countries’ approval behind them, Microsoft’s appeal plans have a good chance of overturning the CMA’s decision. However, if the decision stands, Microsoft would either have to cut the UK out of its future gaming plans, whereby UK gamers could potentially lose access to Activision games, or abandon the deal altogether. While the UK is looking to attract businesses to its shores, companies may see the CMA’s judgement as a canary in the coal mine, and choose to set up shop elsewhere.