The Microsoft-Activision Deal Just Hit a Massive Roadblock

The nearly $70 billion deal between Microsoft and Activision has been one of the biggest stories in the gaming industry over the last year. If successful, it would mean Microsoft would own some of the biggest series around, including Call of Duty, Candy Crush, Crash Bandicoot, and more.

However, the unprecedented acquisition has hit its biggest roadblock yet. The United Kingdom’s Competition and Markets Authority (CMA) has officially taken steps to block the acquisition, the biggest hurdle deal has faced so far.

What Happened?

The decision was announced on the UK agency’s website, saying it “prevented Microsoft’s proposed purchase of Activision over concerns the deal 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.”

It’s a bit of a different reaction than many were expecting, as the focus is squarely on the cloud gaming market. Just last month, the CMA stated it didn’t believe the deal would hurt competition between PlayStation and Xbox consoles.

In its lengthy new statement, the CMA pointed out that Microsoft is already in a strong position when it comes to cloud gaming, and the merger could deter competitors from even entering the market.

“Microsoft already accounts for an estimated 60-70 percent 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),” says the CMA statement. “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.”

Both Microsoft and Activision have responded to the block, with Microsoft president Brad Smith saying, “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."

Why Is This Happening Now?

The CMA has been deliberating the Microsoft deal for months now, and earlier this year the agency gave Microsoft a chance to address some of the concerns it raised. Apparently, Microsoft submitted a proposal that the CMA examined in “considerable depth,” but the solutions given had three major shortcomings in the eyes of regulators:

• 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.
• It would standardize the terms and conditions on which games are available, as opposed to them being determined by the dynamism and creativity of competition in the market, as would be expected in the absence of the merger.

Can the Microsoft-Activision Deal Still Happen?

While the CMA’s decision doesn’t necessarily mean the deal 100 percent won’t happen, it does make it a lot more unlikely. The next step is Microsoft appealing the decisions, which the company has already confirmed it plans to do. An Activision rep also told Axios, “We will work aggressively with Microsoft to reverse this on appeal.”

It’s possible the appeal could work, and Axios’ Stephen Totilo talked to analyst Michael Pachter about how that could happen. Pachter says Microsoft could “carve out Game Pass UK and have no Activision content there while they comply with all of the other requests (making content available on consoles).” This could theoretically put Xbox in compliance with any concerns the CMA has raised.

Microsoft’s deal is still under investigation in other parts of the world as well, with the company still in the midst of a Federal Trade Commission (FTC) lawsuit in the United States.