Microsoft is angry. Last week, a surprise decision by the UK’s Competition and Markets Authority (CMA) left its $68.7 billion deal to acquire Activision Blizzard blocked in Britain, thanks to concerns about the future of cloud gaming.
Microsoft chief Brad Smith was up at 2 a.m. that morning in a hurry typing a response from across the pond, according to a report. bloomberg. He spoke to the BBC the next day and described the UK regulator’s decision as Microsoft’s “darkest day” in four decades of doing business in Britain. He has gone so far as to say that “the EU is a more attractive place to start a business” than the UK, a particularly stinging statement given the political issues surrounding Brexit.
Now, Microsoft is bruised and angry and planning its next move. If Brad Smith’s talk of a fight is anything to do with it, Microsoft will try to keep this deal alive. But the CMA’s decision will not be easy to appeal.
British regulators have been cracking down on M&A activities in recent years, coinciding with the UK’s exit from the European Union. To counter its latest decision, Microsoft will have to file notice with the Competition Appeals Tribunal (CAT), a process that could take months. It will have to convince a panel of judges that the Capital Markets Authority has acted irrationally, illegally, improperly or procedurally unfair. And the chances of winning are slim. “The CMA has won 67 percent of all merger applications since 2010,” Nicole Carr, partner at law firm Linklaters, wrote in 2020. I spoke to Carr after Microsoft’s CMA decision, and she confirmed that the CMA still won the majority of any appeals.
Meta’s battle with CMA over its acquisition of Giphy shows what Microsoft might have in store. Meta was originally ordered to sell Giphy in 2021 but appealed to no avail. Ultimately, Meta had to comply with the UK’s competition watchdog and divest itself of the social media GIF library Giphy. Viagogo’s acquisition of StubHub was also partially blocked by the CMA, forcing the company to retain StubHub’s US and Canadian operations while selling its UK and international businesses.
Microsoft got into skirmishes with the CMA during the audit process, publicly criticizing the regulator’s accounts and forcing it to fix “apparent errors” in its financial accounts about the reservation. Call of duty from Playstation.
These missteps forced the CMA to make a rare U-turn with its interim results, easing concerns Call of duty and the impact of the Microsoft deal on console competition. But crucially, cloud gaming concerns kept it open — blocking the deal. Sony, which has emerged as one of the main opponents (along with Google) of Microsoft’s acquisition of Activision, called CMA’s initial turnaround a “sudden, unprecedented and irrational” decision, but the PlayStation maker has yet to comment on the regulator’s decision to block the deal.
The CMA said in September that it was concerned about the impact Microsoft’s acquisition of Activision Blizzard games would have on existing competitors and emerging entrants that offer multi-game subscriptions and cloud gaming services. I tweeted at the time That’s all the headlines around Call of duty It was just noise, and there will be bigger concerns about Microsoft’s ability to leverage Windows and Azure, unlike its competitors, and how it could affect game distribution and revenue shares across the gaming industry with an Xbox Game Pass subscription.
Microsoft knew cloud gaming would be a major concern, which is why it spent the last couple of months preparing by signing deals with Boosteroid, Ubitus, and Nvidia to allow Xbox games to be played on competing cloud gaming hardware. These 10-year deals will also include access to Call of duty and other Activision Blizzard games if Microsoft’s deal is approved by regulators. If not approved, deals for Activision games will be shut down, offering access only to Microsoft’s Xbox PC games.
But these deals did not convince the UK. The CMA says it is “very limited in scope” with models that mean players have to earn the right to play games “by purchasing them from certain stores or subscribing to certain services.” There is also concern about Microsoft retaining all revenue from Activision game sales and in-app purchases or the inability of cloud providers to provide access to these games on competing multi-game subscription services or offer them on computer operating systems other than Windows.
Limiting support to Windows could make Microsoft’s rival cloud gaming services customers, helping the software giant secure its dominance in operating systems if there’s a bigger shift to cloud gaming. Valve’s SteamOS provides the only realistic threat to Windows gaming dominance right now, and if cloud providers are to license Windows to run games like Call of dutyIt’s unlikely we’ll see the shift to Linux that Google tried to push with its failed Stadia cloud gaming service.
Most of that deal now falls to the European Union. The cloud deals Microsoft has signed are also designed to appease EU regulators. Reuters It reported last month that the Activision deal was likely to be approved by EU regulators following Nvidia and Nintendo’s licensing agreements. The European Union is due to make a decision by May 22nd, and Microsoft is once again trying to get out of the way of regulators by signing a new deal with European cloud gaming platform Nware. Nvidia and Boosteroid, which both signed a 10-year cloud deal from Microsoft openly questioned The decision of the Capital Markets Authority, as Microsoft hopes that this type of support will affect the regulators in the European Union.
EU approval could offer a glimmer of hope for the Microsoft giant’s deal, as such a move would put pressure on the UK as the only major market to block a takeover outright. Regulators in Saudi Arabia, Brazil, Chile, Serbia, Japan and South Africa have already approved the deal. However, Microsoft is having problems close to home.
In the US, the Federal Trade Commission sued to block Microsoft and Activision Blizzard’s deal late last year. The FTC case is still in the document discovery phase, and an evidentiary hearing is scheduled for August 2nd. Attorneys for Microsoft and Sony are already arguing about which (and how many) documents to provide as part of the legal discovery process, and we’re months away from finding out how the case will play out.
Microsoft has always maintained that the deal will close by the end of its fiscal year 2023, which is the end of June. But that deadline seems incredibly unrealistic now, given the CMA’s involvement. We’re sure to see some fighting from Microsoft in the coming weeks, but if EU regulators share the same concerns as the CMA, it’s almost certainly game over for Microsoft. It’s hard to imagine it’s really willing to fight it out in the courts for months or years with multiple regulators in Europe, all while facing the prospect of the Federal Trade Commission trying to break the deal. So for the next few weeks, all eyes are now on Brussels.