Khaleejtimes: Microsoft is seeking to further tap into booming demand for cloud services that stream gameplay

Britain on Wednesday blocked Microsoft's $69-billion takeover of "Call of Duty" video games giant Activision Blizzard, arguing it would harm competition in cloud gaming.

The ruling will be appealed by both US companies -- but analysts warned it could spell game over for the gigantic takeover of Activision, whose hit titles also include "Candy Crush" and "World of Warcraft".

Xbox-owner Microsoft launched its audacious bid for Activision in early 2022 to create the world's third biggest gaming firm by revenue after China's Tencent and Japan's PlayStation maker Sony, triggering antitrust concerns.

 
Following its lengthy probe, the UK's Competition and Markets Authority announced Wednesday it has prevented the deal "over concerns... (it) would alter the future of the fast-growing cloud gaming market, leading to reduced innovation and less choice for UK gamers over the years to come".

Both firms said they will appeal and expressed deep disappointment over Britain's decision regarding the gigantic takeover.

Activision threatened to reassess its growth plans for Britain amid chances that the deal could now be blocked elsewhere, although it has been approved in Japan.

"If the competition appeal tribunal (in Britain) confirms the decision, it's Game Over for Microsoft," said Anne Witt, a professor of anti-trust law at EDHEC business school in France.

"If Microsoft is in the UK market, it has to abide by the rules. It's the price you pay to be a global player," she told AFP.

Microsoft is seeking to further tap into booming demand for cloud services that stream gameplay over a range of devices like mobile phones and tablets.

But it already accounts for between 60 per cent and 70 per cent of cloud gaming services, according to a CMA analysis.

"The deal would reinforce Microsoft's advantage in the market by giving it control over important gaming content such as Call of Duty, Overwatch, and World of Warcraft," it said.

"The evidence available to the CMA indicates that, absent the merger, Activision would start providing games via cloud platforms in the foreseeable future."

In addition, the CMA said Microsoft's proposed remedies over cloud gaming contained "significant shortcomings" and would require further regulatory oversight instead of allowing the market to decide and the industry to shape its own future.

"Preventing the merger would effectively allow market forces to continue to operate and shape the development of cloud gaming without this regulatory intervention," it added in the statement.

Martin Coleman, chair of the independent panel of experts conducting the CMA probe, said the transaction would hand Microsoft even more power over rivals.

"Microsoft already enjoys a powerful position and head start over other competitors in cloud gaming and this deal would strengthen that advantage, giving it the ability to undermine new and innovative competitors," Coleman said.

In response, Microsoft's vice chair and president Brad Smith said it remained "fully committed to this acquisition and will appeal".

The decision "rejects a pragmatic path to address competition concerns and discourages technology innovation and investment in the United Kingdom".

Activision also slammed the regulator's verdict, arguing it showed Britain was "closed for business" for its industry, despite the UK government's insistence that it was a global hub for technology.

"We will work aggressively with Microsoft to reverse this on appeal," it said.

"The report's conclusions are a disservice to UK citizens, who face increasingly dire economic prospects."

Wednesday's announcement comes despite the CMA having recently narrowed the scope of its probe to cloud gaming, after recently concluding that Microsoft's deal would not damage competition in relation to console gaming.

In Wall Street trade on Wednesday, Microsoft's shares rallied seven percent on investor relief, although the stock also won a boost from quarterly results that beat expectations with $18.3 billion in profit thanks to a strong performance in cloud activities.

Activision's share price however sank nine percent in value.

The European Union is meanwhile due to announce its ruling on the blockbuster deal by May 22.

The US Federal Trade Commission last year filed a suit to block the takeover, alleging that Microsoft had previously acquired smaller gaming companies to take the games exclusive.