Does CMA decision to block Microsoft-Activision Blizzard deal reveal UK to be ‘anti-business’?

Does CMA decision to block Microsoft-Activision Blizzard deal reveal UK to be ‘anti-business’?
In a move that shook the gaming industry, Microsoft recently announced plans to acquire Activision Blizzard, a leading publisher and video games developer whose top titles include Call of Duty, World of Warcraft, Candy Crush Saga and Overwatch.

The landmark deal – one of the largest ever in the sector and valued at US$69 billion – has garnered significant attention and sparked a debate internationally about the interplay between competition, consumer protection and business growth.

Last month, the deal was approved by the European Commission.

However, in a move that surprised many, the United Kingdom competition authorities and the US Federal Trade Commission (FTC) are fighting to block the gaming partnership on the basis that it would be anti-competitive.

In the UK, the Competition & Markets Authority (CMA) chose to block the deal on the grounds that the acquisition would pose a significant threat to competition, particularly in the cloud gaming market. The body argued it was important to leave the door open for new and innovative competitors to emerge in the nascent industry.

The FTC also wants to stop the merger and has successfully managed to delay the buyout with a hearing set this week. The FTC argues that the transaction would give the Microsoft Xbox video games console exclusive access to Activision games, leaving Nintendo consoles and PlayStation from Sony at a significant disadvantage.

In written submissions, the authority argue the deal would give Microsoft the “ability and increased incentive to withhold or degrade Activision’s content in ways that substantially lessen competition”.

However, Microsoft’s hopes of securing the merger were revived by the European Commission which, while initially sharing the CMA’s concerns about the threat to competition in cloud gaming, ultimately accepted the companies’ proposed remedies to this problem and approved the deal.

Recognizing Microsoft’s commitment to expanding its cloud-based gaming services and the potential positive spill-over effects, the EU concluded that the buyout would not disproportionately harm competition in the region

Responding to the CMA’s decision to prevent the attempted takeover, the Call of Duty developer accused the UK of being “closed for business”. The question therefore arises as to whether the UK’s ruling positions it as a leader in big tech merger control or, as Microsoft and Activision argue, the decision will discourage technological innovation and investment within its borders.

Microsoft has been forthright in making its rejection of the CMA’s ruling known. It argues that the decision rests on a fundamental misunderstanding of the market dynamics at play.

In a note to employees, Activision Blizzard chief executive, Bobby Kotick, said: “The UK hopes to grow its leadership position in technology, and a combined Microsoft-Activision would accomplish exactly that.

“If the CMA’s decision holds, it would stifle investment, competition, and job creation throughout the UK gaming industry.”

Responding to concerns, Sarah Cardell, chief executive of the CMA, said: “This is a sector where we want to make sure, together, that we can create and support the best conditions for competition that will enable companies big and small to thrive, including many UK start-ups, many UK competitors.”

While the decision could cause Microsoft to withdraw investment from the UK, the regulator’s decision could equally be seen as encouragement to other players in the global tech industry.

It shows the UK is a place where competition is nurtured, even if this comes at the cost of pandering to ‘big tech’. The CMA’s decision reflects a desire to protect cloud-based delivery in a market where Microsoft already has an estimated 60-70 per cent share.

These contrasting perspectives from the EU, UK and US highlight the challenges of striking a balance between competition and business growth, particularly in an era of rapid technological advancements and unpredictable industry landscapes.

The gaming industry is constantly evolving, with new players and technologies emerging. Regulators face the complex task of encouraging competition while also enabling companies to adapt, innovate and drive the growth of new products and services.

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