The UK’s competition watchdog has blocked the £55-billion ($68.7-billion) acquisition of prominent video game publisher Activision Blizzard by technology giant Microsoft due to concerns that it will suppress competition in the cloud gaming market.

The proposed takeover would have created a gaming giant, adding Activision’s lineup of popular titles including Call of Duty, World of Warcraft, Hearthstone, Candy Crush Saga, and Overwatch to Microsoft’s growing stable of first-party developers and consoles.

However, the Competition and Markets Authority (CMA) said the deal would offer reduced innovation and less choice for gamers in the nascent but fast-growing cloud gaming market.

Cloud gaming enables gamers to access titles via companies’ remote servers, similar to streaming a movie or live sports on a platform. Microsoft believes it will become the mainstream way of playing games in the future.

The regulator’s concerns center around Microsoft making Activision’s games such as Call of Duty exclusive to its subscription cloud gaming platform, Xbox Game Pass, in the long run, cutting off distribution to other key industry players, including rival Sony’s PlayStation.

In a statement today (April 26), the CMA said: “Allowing Microsoft to take such a strong position in the could gaming market just as it begins to grow rapidly would risk undermining the innovation that is crucial to the development of these opportunities.”

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Microsoft had suggested solutions to ally the CMA’s concerns including “requirements governing what games must be offered by Microsoft to what platforms and on what conditions over a ten-year period.” It also offered Sony, Nintendo, Nvidia, and other firms 10-year agreements to continue bringing Call of Duty to their gaming platforms.

However, the regulator rejected the proposals, adding: “Given the remedy applies only to a defined set of Activision games, which can be streamed only in a defined set of cloud gaming services, provided they are purchased in a defined set of online stores, there are significant risks of disagreement and conflict between Microsoft and cloud gaming service providers, particularly over a ten-year period in a rapidly changing market.”

Microsoft and Activision have hit out at the decision and said they will appeal.

Microsoft vice chair and president Brad Smith said “The CMA’s 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.

“We are 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.”

An Activision Blizzard spokesperson added: “The CMA’s report contradicts the ambitions of the UK to become an attractive country to build technology business. We will work aggressively with Microsoft to reverse this on appeal.

“The report’s conclusions are a disservice to UK citizens, who face increasingly dire economic prospects. We will reassess our growth plans for the UK. Global innovators large and small will take note that – despite all its rhetoric – this UK is closed for business.”

Microsoft announced its intention to acquire Activision Blizzard in January 2022 in one of the biggest deals the video gaming industry has ever seen.

The agreement, which would be the most expensive acquisition ever for Microsoft, dwarfing its $26-billion takeover of LinkedIn in 2016, would see Microsoft paying $95 for each Activision Blizzard share.

The tech heavyweight said the acquisition will create the world’s third-largest esports and video game company in terms of revenue, behind Tencent and Sony.

Its original plan to close the deal by the end of July will now be pushed back amid an appeal of the decision. If the appeal fails or if Microsoft fails to get approval from other regulators looking into the deal, it will have to pay Activision $3 billion in breakup fees.

Regulators in Saudi Arabia, Brazil, Chile, Serbia, Japan, and South Africa have already approved the deal, while the European Union is due to decide by May 22.

The deal is also currently being investigated by the US Federal Trade Commission (FTC). In December last year, the FTC took legal action against Microsoft in an attempt to block the deal over similar concerns.

In its complaint, the FTC pointed to Microsoft’s record of acquiring well-known game developer Bethesda and making several titles exclusive to its consoles despite giving European antitrust authorities assurances it had no desire to do so.

Image: Belinda Jiao/Getty Images