UK CMA Blocks Microsoft-Activision Deal
The UK Competition and Markets Authority states that Microsoft already accounts for 60-70% of global cloud gaming services, making the deal overly beneficial for them.
In a huge turn of events, the UK Competition and Markets Authority (CMA) blocked the $68.7 billion takeover deal between Microsoft and Activision Blizzard. The alleged reason is cloud gaming. The CMA believes that Microsoft already accounts for a huge percentage (60-70%) of global cloud services, gaming and non-gaming related.
Microsoft already benefits from cloud services through Xbox, Windows and Azure; taking over Activision means that they will now have games like Call of Duty, Overwatch, and World of Warcraft in the cloud, and that they could exclusively benefit from them.
Microsoft 'behavioral' proposal to cloud concerns
Microsoft presented a ten-year proposal that sets out requirements stating what games must be offered by the company and on what platforms. The solution only applies to a specific set of Activision games: Call of Duty, Overwatch, League of Legends, et al.
This proposal did not reassure the CMA's concerns over cloud gaming. They stated that the solution is 'behavioral', and that it could be riddled with loopholes, needing persistent external regulation.
The CMA states that "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."
The CMA thinks that this remedy will require them to constantly oversight Microsoft's business practices during the ten-year period. Cloud gaming is a growing and dynamic global market, and the CMA's scope is limited to the UK only, at least on paper.
The report says that "Accepting Microsoft's remedy would inevitably require some degree of regulatory oversight by the CMA." This is far from ideal if the CMA wants to guarantee a fair market over the next ten years.
The CMA's solution
The simplest, yet most effective solution is to prevent the merger. The CMA report states that "By contrast, preventing the merger would effectively allow market forces to continue to operate and shape the development of cloud gaming without this regulatory intervention."
The CMA sees the benefits of having games like Call of Duty and others available on Xbox Game Pass from day one, however, this is a matter of pros and cons. They say that having these titles will be an "incentive for Microsoft to increase the cost of a Game Pass subscription post-merger to reflect the addition of Activision's valuable games."
The main concern here is that Microsoft could make games like Call of Duty, Overwatch, World of Warcraft, and Candy Crush exclusive to its cloud platform. Keep in mind that Phil Spencer's vision for Xbox Gaming is to turn it into a 'platform-less' experience. You will not need an Xbox console or a PC to enjoy playing their titles.
Martin Coleman, chair of the independent panel of experts said that "Microsoft already enjoys a powerful position and head start over other competitors in cloud gaming and this deal would strengthen that advantage giving it the ability to undermine new and innovative competitors."
Microsoft is appealing the CMA's decision
Naturally, Microsoft is not at all happy with the CMA's solution to block the merger. They will appeal against its decision once they improve on the shortcomings of their 'behavioral' solution.
Microsoft would need to cover different cloud service business models, like PS Plus, Nvidia GeForce, or Amazon Luna. They will also need to offer their cloud gaming platform on other PC operating systems like Linux-based operating systems, MacOS, and others.
Brad Smith, Vice Chair and President of Microsoft reassures that Microsoft is still committed to the Activision-Blizzard merger, and that they will appeal the CMA's decision.
CMA is not entirely convinced of Microsoft's promises to keep Call of Duty available on other platforms, and the 'behavioral' 10-year deals on other cloud gaming services. Perhaps Microsoft will have to offer a 100% legally-binding assurance that Call of Duty and other games will be always available on other platforms, including external cloud gaming services.
Having these games available on other platforms will also keep Microsoft from potentially increasing the price of Xbox Game Pass since titles like Call of Duty will also be available elsewhere.
The CMA is concerned about the lack or rigidity of Microsoft's remedies. Maybe legally binding these solutions will reassure the CMA that Microsoft will guarantee a fair market share for cloud gaming.
The current panorama
Microsoft wanted to close this deal before July 18; they are now forced to negotiate an extension to the merger agreement. If the appeal fails, they will need to pay Activision $3 billion in fees. The delay will take a big dent in Microsoft shares in the stock market.
The US Federal Trade Commission (FTC) also blocked the merger last year. The investigation is currently ongoing and Microsoft is expected to attend a hearing on August 2nd.
Regulators on other countries like Brazil, Japan, South Africa, etc. have approved the merger deal between Microsoft and Activision Blizzard. In the European Union a decision is yet to be made, however, the licensing agreement with Nvidia and Nintendo made by Microsoft will be the determining factor to approve the deal.
Not everything is lost at the moment for Microsoft. The appeal can overturn the CMA's decision, despite the odds being against the software giant. Perhaps they need to put on the table perpetual solutions that guarantee a fair market for established and new competitors.
What are your thoughts on the blocked deal? Does it benefit all gamers across all platforms? Let me know in the comments below.
Happy gaming.
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