UK Competition Regulator stops Microsoft’s cloud gaming acquisition

Microsoft is a name that comes to everyone’s mind when we think of computer software. Microsoft also has an estimated market share of 60-70% in global cloud gaming services. While Microsoft has been celebrating its impressive market position, it has met with a stumbling block from the UK competition regulator, the Competition and Markets Authority (“CMA”). The CMA has blocked Microsoft’s planned $68.7bn acquisition of Activision Blizzard amid concerns over reduced innovation within the cloud gaming industry.

While both Activision and Microsoft are disappointed with the CMA’s decision, stating that it contradicts  the UK’s desire to build its technology sector, the CMA considered that cloud gaming is still at an early stage of development and that this acquisition could hamper competition in the cloud gaming business.

The CMA’s concerns in its review, conducted under the UK merger controls regime, took into account that Microsoft is already estimated to control approximately two thirds of global cloud gaming services, as well as having competitive advantages including owning Xbox, PC operating system Windows, the Xbox game studio (through which Microsoft is a developer, publisher and distributor of games) and cloud provider Azure.

Activision has developed top-selling games including ‘Call of Duty’ and ‘World of Warcraft’ – both of which are available on Xbox and PlayStation. Whilst Microsoft has signed deals with cloud gaming providers such as Nvidia and Boosteroid to bring its content to their cloud gaming services, the CMA has said if the acquisition was to proceed, it would give Microsoft a greater advantage and control over gaming content. The CMA believes this would curtail the scope for further innovation and development in the cloud gaming industry, thereby leading to an expectation that a substantial lessening of competition would occur in the supply of cloud gaming services in the UK.

The CMA’s rationale comes from its analysis of the evidence produced which indicated that (amongst other things) cloud gaming providers would, absent the Microsoft acquisition, move towards cloud streaming of Activision’s most valuable games on their services on the release date in the foreseeable future. The CMA found that the proposed acquisition would give Microsoft an incentive to make Activision’s games exclusive to its cloud gaming service, which it was felt was likely to harm competition both now and in the future.

It is yet to be seen what steps Microsoft and Activision might take as a result of this decision and whether they will push for the acquisition to be approved.  

For strategic legal advice on regulatory matters contact Mark Chapman, Partner at mark.chapman@herrington-carmichael.com or call 01276 686222.