UK blocks Microsoft’s purchase of Activision Blizzard, but not because of CoD

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The British market surveillance authority CMA blocks the takeover of Activision Blizzard by Microsoft for the important market in Great Britain. Judgments from the EU and the USA are still pending. What chance does the deal still have? MeinMMO looks at reactions from experts.

As early as January 2022, the tech giant Microsoft announced that it wanted to completely take over the gaming group Activision Blizzard (WoW, CoD, Diablo). The bid was $95 per share, equivalent to a purchase value of around $69 billion. A mammoth deal.

The magnitude of the merger caught the attention of the world’s antitrust authorities. Since then, officials have been thoroughly examining the deal, with the focus on the authorities of the important markets USA, EU and Great Britain.

In a statement dated April 26, 2023, the authority in Great Britain, the CMA (Competition and Markets Authority), stated that the takeover would be blocked. Activision Blizzard then lost around 7 billion US dollars in market value in just a few minutes.

The reason for this was not the shooter franchise Call of Duty, which competitor Sony likes to use as an argument against the takeover, but cloud gaming. Does the deal even have a chance now?

The CMA cites the cloud gaming market as a reason, including Xbox Game Pass. That came as a surprise to observers of the deal. For a long time, Call of Duty and the console market were actually more of a sticking point, as Sony has been arguing for months.

But the British authority sees the danger that no other competitor would have a chance against Microsoft in the future when the cloud gaming market gets rolling. The CMA says:

  • Cloud gaming is a fast-growing, dynamic market
  • Microsoft is already strong here with Game Pass and could become even stronger with Activision Blizzard games – price increases are expected that exceed the benefits of the takeover for consumers
  • One sees a strong future market in cloud gaming because players would then no longer have to buy expensive PCs or consoles
  • Microsoft’s arguments could not convince the competition authorities

    • Setback for Microsoft – But not the end

    What are the chances of the deal now? Microsoft announced that it would appeal the decision. Activision Blizzard also stands by the deal and wants to “aggressively” fight with Microsoft to reverse the decision.

    So as a first reaction one would like to challenge the decision of the British CMA. That could take years, however, according to Bloomberg’s senior antitrust analyst Jennifer Rie (via bloomberg.com). The current decision should not be taken lightly.

    Rie explains that this could actually be the end of the deal. Acquisition agreements stated that the merger would have to be completed by July 2023. Rie thinks this deadline should definitely be extended. And after all, the negotiations have been going on for over 15 months.

    Analyst Piers Harding-Rolls, Research Director of Games at Ampere Analysis, is more optimistic. He shared his views with US site VGC (via videogameschronicle.com). Harding-Rolls believes that minor appeals against CMA decisions could well be settled in a few months if Microsoft responds correctly to the conclusions of the competition authorities.

    VGC gets examples of this from Michael Pachter, Managing Director of Equity Research at Wedbush Securities. Microsoft could offer concessions or price guarantees.

    Ultimately, the verdict depends on the CMA’s belief that Microsoft will have pricing power due to its dominant position in cloud gaming.

    However, we strongly believe Microsoft is willing to maintain pricing at $15 per month plus inflation, and we believe the CMA will change position if Microsoft makes that offer.

    If the objection is unsuccessful, Pachter also brings a separation of business areas into play. For example, you can separate the Game Pass business from the rest of the world and then have it monitored directly by the CMA or specified third parties.

    Pachter said, “We anticipate this will be sufficient for the CMA to declare the merger acceptable on the condition that Activision titles are not available on Game Pass.”

    You notice – after the decision of the CMA, the market is unsettled. The problem for Microsoft is that the authority’s decision is now in place. It will now probably take at least a few months to change the CMA’s ruling.

    Actually, there was even the hope of using a positive decision by the CMA to get a better deal from the authorities in the USA and the EU.

    It was a setback for Microsoft, but the deal isn’t dead yet. Now it remains to be seen how long the CMA will need to process the appeal and what decisions will be taken by the EU (end of May) and the US authorities (beginning of August).

    If you have any questions or an opinion on the topic, leave a comment. If you would rather read more about the gaming market, take a look here: Why have hardly any good new MMORPGs been released in the last 9 years?

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