UK's competition watchdog stops Microsoft from buying Activision
What's the story
In a massive blow to Microsoft, UK's competition watchdog, the Competition and Markets Authority (CMA), has blocked its $69 billion deal to acquire Activision Blizzard.
The CMA prevented the deal over concerns that it would alter the cloud gaming market, it said in a press release.
Microsoft failed to reassure CMA that it would not. Activision and Microsoft may appeal this decision.
Context
Why does this story matter?
Microsoft's proposed acquisition of Activision has been in limbo for a while. The tech giant announced its plan to purchase the iconic gaming company in January last year.
Since then, it has been under regulatory lenses. Microsoft's biggest challenges to the deal were Sony and the US Federal Trade Commission (FTC), in that order.
It can now add CMA to the list.
Blocked
CMA is concerned about the deal's impact on cloud gaming
Most of the conversation surrounding Microsoft's acquisition of Activision has been about how it would affect the console market, considering the former owns Xbox.
The UK's competition watchdog, however, was worried about how the deal would affect cloud gaming.
"Microsoft would find it commercially viable to make Activision's games exclusive to its own gaming services," CMA said.
Cloud gaming
Preventing the merger is easier than implementing Microsoft's remedies: CMA
The competition watchdog estimated that Microsoft controls 60-70% of the global cloud gaming business. The addition of Activision's games to the list would "reinforce Microsoft's advantage," the CMA said.
Microsoft's attempts at alleviating CMA's concerns fell on deaf ears. The regulator noted implementing Microsoft's remedy would require regulatory oversight by CMA.
Preventing the merger would allow the market to operate without intervention, it added.
Alleviation
CMA found 'shortcomings' in Microsoft's deals with cloud-gaming rivals
In the build-up to the decision, Microsoft tried to address the concerns about cloud gaming by reaching deals with rival platforms, including NVIDIA and Nintendo, to allow Xbox games to run on these platforms.
The deals also included Activision's games, if regulators approve the acquisition. The CMA, however, found "a number of significant shortcomings" in these deals.
Microsoft-Activision
Microsoft and Activision will appeal the decision
"We remain fully committed to this acquisition and will appeal," said Microsoft's president Brad Smith.
"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," he added.
Activision CEO Boby Kotick echoed Smith's sentiments. "Alongside Microsoft, we can and will contest this decision," he said.
Implications
Microsoft will have to pay Activision if it loses appeal
The CMA's decision puts Microsoft in a tough spot. The company's plan to close the deal by July 18 will not be possible now.
If it loses the appeal, it will owe $3 billion to Activision in break-up fees. The UK watchdog's ruling may or may not impact other regulators.
EU is likely to approve the deal, while the FTC may not.