In a surprising move, the decision to block Microsoft’s proposed takeover of Activision Blizzard in Britain was driven by the emerging cloud market, overshadowing the Xbox versus PlayStation rivalry.
Microsoft has been working diligently for months to address concerns raised by Britain’s Competition and Markets Authority (CMA) regarding the $69 billion deal. The CMA has been increasingly proactive in tackling the power of “Big Tech” since Brexit.
While Microsoft plans to appeal the ruling, it sets a precedent for the upcoming verdict from the European Commission and the US Federal Trade Commission.
As part of its efforts to ease concerns, Microsoft offered Sony a decade-long assurance that PlayStation users would have simultaneous access to new versions of the highly valuable Call of Duty franchise, just like Xbox users. A similar agreement was reached with Nintendo.
However, addressing console concerns was not enough for the CMA, as cloud gaming remained the sole remaining obstacle, albeit a seemingly lesser one.
Defining cloud gaming is a complex task, with evolving platform types and business models. Some “gaming as a platform” services, like Google Stadia, have struggled to succeed, as highlighted in a submission by UCL School of Management’s Joost Rietveld to the CMA’s inquiry.
The Controversy around Cloud Gaming
Activision, on the other hand, has refrained from making its titles available on cloud services, considering them a “transient technology.” Meanwhile, Microsoft, with its Xbox Game Pass service, sees cloud gaming as nothing more than a feature.
However, the CMA disagrees, asserting that the cloud is the fastest-growing sector in gaming, while consoles represent a mature market. The CMA recognizes that Microsoft already dominates 60-70 percent of global cloud gaming services and holds other advantages, including Xbox, the leading PC operating system, Windows, and the cloud provider Azure.
In an effort to address the cloud gaming concern, Microsoft agreed to make certain Activision games available on various cloud platforms like Nvidia, Boosteroid, and Ubitus.
Nevertheless, the CMA criticized Microsoft’s proposed solutions for excluding rival subscription models, similar to a Netflix for games, and providers that do not operate on Windows PCs.
The CMA stated, “(Microsoft’s) proposals were ineffective in addressing our concerns and would have replaced competition with ineffective regulation in a new and dynamic market.”
Analyst Ben Barringer from Quilter Cheviot equity research commented, “Since Brexit, the UK regulator has taken a firm stance against anti-competitive practices. This stance led to the decision to halt the acquisition, as the CMA concluded that Microsoft already holds a dominant position and ‘cloud gaming needs a free, competitive market to drive innovation and choice.'”
© Thomson Reuters 2023
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