San Francisco Frontiers - UK block leaves Microsoft's $69-bn Activision takeover in peril

The ruling will be appealed but could potentially spell 'Game Over' for the blockbuster deal.

Xbox-owner Microsoft in 2022 launched its bid to create the world's third biggest gaming company by revenue with the takeover of Activision, owner of hit games "Candy Crush" and "Call Of Duty", triggering antitrust concerns worldwide.

Following its lengthy probe, the UK's Competition and Markets Authority prevented the deal "over concerns... (it) would alter the future of the fast-growing cloud gaming market, leading to reduced innovation and less choice for UK gamers over the years to come".

Both firms said they would appeal the final verdict and expressed deep disappointment over Britain's decision regarding the gigantic takeover, which has yet to win regulatory nods in Europe or the United States.

Activision threatened to reassess its growth prospects for Britain amid chances that the deal would be blocked elsewhere following Wednesday's ruling.

- Market forces -

The CMA on Wednesday said Microsoft's proposed remedies over cloud gaming -- which allows to play over a range of devices like mobile phones and tablets -- contained "significant shortcomings" and would require further regulatory oversight instead of allowing the market to decide and the industry to shape its own future.

"Preventing the merger would effectively allow market forces to continue to operate and shape the development of cloud gaming without this regulatory intervention," it added in the statement.

Martin Coleman, chair of the independent panel of experts conducting the CMA probe, said the landmark transaction would hand Microsoft even more power over rivals.

"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," Coleman said.

While "Microsoft engaged constructively... their proposals were not effective to remedy our concerns and would have replaced competition with ineffective regulation in a new and dynamic market", he added.

The video games market needs competition in cloud gaming to continue to thrive, the CMA argued.

"Cloud gaming needs a free, competitive market to drive innovation and choice," added Coleman.

"That is best achieved by allowing the current competitive dynamics in cloud gaming to continue to do their job."

In response, Microsoft's vice chair and president Brad Smith said it remained "fully committed to this acquisition and will appeal".

The decision "rejects a pragmatic path to address competition concerns and discourages technology innovation and investment in the United Kingdom", he added.

- UK 'closed for business' -

Activision also slammed the regulator's verdict, arguing it showed Britain was "closed for business" for its industry, despite the UK government's insistence that it was a global hub for technology.

"We will work aggressively with Microsoft to reverse this on appeal," it said.

"The report's conclusions are a disservice to UK citizens, who face increasingly dire economic prospects."

Wednesday's announcement comes despite the CMA having recently narrowed the scope of its probe to cloud gaming, after concluding that Microsoft's deal would not damage competition in relation to console gaming, citing fresh evidence.

Prior CMA analysis had assumed Microsoft would seek to make "Call of Duty" exclusive to the Xbox console, at the expense of Sony's PlayStation.

However, the CMA last month concluded that this strategy "would be significantly loss-making under any plausible scenario" for Microsoft.

Microsoft's shares rallied eight percent in pre-market trading on Wall Street, although the stock won a boost from quarterly results that beat expectations with $18.3 billion in profit thanks to a strong performance in cloud activities.

Y.Gomez--SFF