December 5, 2023

Microsoft’s attempted acquisition of Activision Blizzard, the development conglomerate behind games including Call of Duty, World of Warcraft and Candy Crush Saga, has been blocked by the UK’s competition watchdog in a surprise move. The $70bn (£65bn) purchase would have been the largest in gaming history but now, unless the two companies can convince a tribunal to overturn the ban on appeal, it is dead globally.

But what does this mean for tech, gaming and Rishi Sunak’s goal for the “Unicorn Kingdom”?

Why did Microsoft want to buy Activision Blizzard?

A massive multinational games developer, Activision Blizzard has an enormous backlist of titles, runs some of the biggest e-sports on the planet and comfortably tops bestseller lists every year. But almost all of that is irrelevant compared with the jewel in its crown, the Call of Duty series.

With a new entry pushed out every year by the three rotating studios that share development duty, supported in some way by nearly every other developer owned by the Activision wing of the conglomerate, Call of Duty is a phenomenon: its Warzone multiplayer mode alone was played by more than 6 million people in its first 24 hours.

Was Call of Duty what led to the deal being blocked?

Sort of, but in a more roundabout way than many expected. Sony, which owns PlayStation, the market-leading console, warned Microsoft could use ownership of Call of Duty to harm the console market, withholding it from PlayStation or producing a diminished version of it. Microsoft promised not to do that, and offered a deal to guarantee it would be on other platforms for at least a decade (which was taken up by other rivals including Nintendo).

The Competition and Markets Authority (CMA) accepted that promise and said it did not think the console market would be harmed – leading most to expect it to wave the deal through. But at the last minute it surprised everyone by blocking it on different grounds, arguing that the acquisition would give Microsoft undue power to shape the nascent field of cloud gaming.

Is the CMA’s decision unusual?

Yes. “Vertical” mergers, where a company buys a supplier, are generally considered safer than “horizontal” ones, where a company buys a competitor. They do not directly reduce competition, and while competitors (such as Sony) may express concerns that they will be frozen out of the market, regulators generally assume that such a withdrawal is unlikely to be profitable. In this case, that was exactly the argument Microsoft made with regards to Call of Duty: that it would not be in its economic interest to pull the game series from PlayStation, because it would lose too much money in foregone sales.

But the CMA made the unusual decision to instead focus on the deal’s effect on cloud gaming, a relatively small industry that involves streaming games to mobile phones and TVs without specialised hardware. There, the CMA said, Microsoft had few reasons not to withhold games like Call of Duty from competitors: the industry is small enough that it would not lose any sales, but might manage to stop competitors from even becoming a threat to its dominant position in the first place. The promises Microsoft tried to make in the area were not good enough, the CMA said, because they would warp the development of the entire sector.

Will this hurt the UK?

Microsoft and Activision Blizzard both think so. Brad Smith, Microsoft’s president, warned tsaid the block would discourage technology innovation and investment in the UK”. Activision Blizzard, whose chief communications officer, Lulu Cheng Meservey, went further, vowing to “reassess our growth plans for the UK”, adding: “Innovators large and small will take note that – despite all its rhetoric – the UK is clearly closed for business.”

That threat will worry Rishi Sunak, who on Monday declared the country “Unicorn Kingdom” and promoted it as a new home for startups – from Silicon Valley to Silicon Roundabout. But it remains to be seen whether it is a meaningful claim or an empty threat.


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