Trouble in the metaverse: Microsoft’s $68.7bn Activision deal shut down in the UK

Microsoft’s proposed purchase of Activision Blizzard has been blocked by the UK’s Competition and Markets Authority (CMA) over concerns the deal will alter the future of the cloud gaming market, leading to reduced innovation and less choice for UK gamers in the future.

A $68.7bn deal to buy global video games publisher Activision was entered by Microsoft in January 2022. The CMA launched an in-depth review to ensure the future of cloud gaming would be protected, citing concerns it could monopolise the growing market.

The majority of the video game industry’s revenue is generated  from game sales and in-game purchases. However, advertising is becoming an increasingly significant part of the video game business.

Cloud gaming is becoming increasingly popular in the UK. It’s a type of online gaming that runs video games on remote servers and streams them directly to a user’s device. From the beginning of 2021 to the end of 2022, monthly active users in the UK more than tripled and the market is estimated to top £1bn in net worth in the UK by 2026.

The cloud offers gamers flexibility and choice as to how they engage with popular games, allowing them to avoid buying expensive consoles and PCs. Microsoft currently holds a strong position in this market, roughly 60-70% globally, and the CMA deemed that allowing the tech company to take an even stronger position would undermine future innovation by stifling competition.

Attempted alleviation of the CMAs concerns

Microsoft submitted a proposal hoping to address some of these concerns, outlining potential requirements governing what games must be offered by Microsoft to platforms outside of its own interest.

The CMA determined that, as the proposal required Microsoft to, at times, act outside of its own commercial interests, it would require too much external regulation.

Additional shortcomings included its failure to sufficiently cover different cloud gaming service business models, it wasn’t open enough to providers offering versions of games on PC operating systems other than Windows and it would standardise the terms and conditions of which games are available, minimising the creativity and dynamism of competition in the market.

The CMA considered the possible benefit of Activision Blizzard’s content becoming available on Microsoft's Game Pass, but determined that it didn’t outweigh the negative implications of the merger on UK gamers.

Martin Coleman, Chair of the independent panel of experts conducting the investigation, concluded: “Cloud gaming needs a free, competitive market to drive innovation and choice. That is best achieved by allowing the current competitive dynamics in cloud gaming to continue to do their job.”