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Here’s Why The Competition & Markets Authority (CMA) Scuppered Microsoft’s $68 Billion


The UK’s Competition and Markets Authority (CMA) has ordered Microsoft to jettison its planned purchase of Activision Blizzard, one of the world’s largest video game publishers with a catalogue including Call of Duty, Overwatch, World of Warcraft and Candy Crush. The CMA said that the deal, worth $68.7 billion, would harm competition and innovation in the emerging cloud gaming market, where Microsoft already has a dominant position. The CMA ruled that the acquisition would not Significantly Lessen Competition in the console gaming market to which Sony (Playstation) and Nintendo (Switch) compete with Microsoft.

The move emphasises the regulatory activism of the UK’s antitrust enforcers after it ordered Meta to sell Giphy last year, on the grounds that it would reduce competition in Social Media advertising markets with the GIF embellishment it provides to users’ keyboards across the globe.

Microsoft, in the ascendancy after its expedited integration of Open AIs GPT-4 model into its search engine, was unscathed by the roadblock. Its stock price has increased around 10% since the announcement, on account of its roll out of Bing Chat, connected to the internet, as it seeks to supplant Google in the search and browser market.

For the acquiree, the markets were not so kind. Its share price has dropped about 2% since the verdict. With the UK taking a stand against Big Tech dominance, corporate finance professionals and analysts will be wondering if the era of “buy over build” is over for the winners of the internet era. 

The Activist Regulator

The regulator faced a complex case, tasked with whether Microsoft would be limiting competition in both the console and cloud gaming market. Cloud gaming allows players to stream games over the internet without needing expensive hardware such as consoles or PCs. It is a fast-growing sector that is expected to reach £1 billion in the UK and £11 billion globally by 2026. Microsoft offered a remedy to address some of the CMA’s concerns, which involved committing to make certain Activision games available on other cloud platforms for a period of ten years.

However, the CMA rejected this proposal as insufficient and impractical, saying that it would require ongoing regulatory oversight and would not prevent Microsoft from leveraging its other advantages in cloud gaming, such as owning Xbox, Windows, and Azure. With internet businesses trying to fit into 20th century laws around monopolies harming of consumers, it is harder to judge given the complexity of digital business models. Yet it is clear that Microsoft had a vertical advantage in the emerging cloud gaming market. With Xbox having just 30% of the console market to Sony Playstation’s 70%, in terms of their latest releases, its PC operating system and giant Cloud business set it up to claw back.

The CMA found evidence “that CoD is a popular game in the PC market, and that it is consistently one of the most requested titles by current cloud gaming users.” Thus, it concluded that Microsoft would have incentive to make the titles exclusive to its cloud gaming pass, where other competitors didn’t have the data centre infrastructure to create a competitive advantage. 

One communications professional who worked on the deal, but wished to remain anonymous, told Disruption Banking that Microsoft tried to show that Sony were refusing to play ball. “We took pictures of our execs dangling a contract offer to Sony (that would give them a 10-year license), we wanted to show that it was a fair offer that would not restrict their competitiveness.”

Head of Xbox Phil Spencer called the CMA decision to block Microsoft’s Activision-Blizzard acquisition disappointing while reiterating the company’s confidence in and commitment to closing the deal in spite of this. Microsoft, as previously announced, is appealing the CMA decision. The company is simultaneously working to secure approval from the European Union and fighting a lawsuit against the United States Federal Trade Commission, which sued to block the acquisition in December.

One competition lawyer working on the Meta—Giphy appeal said “Regulators are making expansive interpretations, going far beyond protecting consumers in defining what is anticompetitive behaviour.” It follows the CMA defining GIFs as a key competitive advantage in social media advertising, despite Google acquiring GIF-maker Tenor in 2018. Spencer argues that a similarly expansive remit has been excercised in the cloud gaming market that “in my mind doesn’t really exist yet today…”


The decision has put the brakes on turbocharging one of Microsofts divisions that was already struggling. Its gaming division — led by Xbox content and services — reported a 13% year-over-year decline in sales in fiscal Q2 of 2022. Yet Microsoft saw some of its revenue declines offset by its Xbox Game Pass offering reporting a record 120 million active users per month at that time.

Still, it seems like its gaming focus is a sidepiece to the interaction of generative AI into its entire suite of office apps, while seeking to claw back some dominance in advertising with LinkedIn and Bing too. The market has rewarded its aggressive adoption of LLMs, with the added boost to its strength in cloud with the Azure offering. 

Microsoft won’t give up on the Activision deal any time soon, as long as the market rewards it for its other endeavours. Equally, it seems competition regulators in Brussels and Washington will be following the UK’s lead on Big Tech enforcement. It seems that the only deals they will allow are those where the acquirer is acquiring talent rather than a product. For companies looking for liquidity, that gives them less routes to exit — and for big tech firms, building themselves is hardly a possibility due to pandemic overhiring that has now caused workforce trimming.

Still, the Microsoft juggernaut goes on. It might not be able to catch Sony in gaming, but maybe it can finally takedown 20 years of Google dominance with the advent of generative AI. The market seems to think it might have a chance. 

Author: Tal Feingold

All stock price details are taken from TradingView and were correct as of May 9th 2023 COB in London. The announcement of the decision of the CMA is taken as being the 26th of April 2023.

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