UK blocks Microsoft's $69 bln Activision deal over cloud gaming fears

The UK government has put a stop to Microsoft Corp’s (MSFT.O) $69 billion takeover of “Call of Duty” maker Activision Blizzard (ATVI.O), saying it could hurt competition and innovation in the gaming industry.

Digital Secretary Nadine Dorries announced the decision on Tuesday after a four-month probe by the Competition and Markets Authority (CMA), which found that the deal could reduce choice and quality for gamers and push up prices for cloud gaming services.

The CMA said Microsoft could use its dominance over popular games like “Call of Duty” and “World of Warcraft” to squeeze out rivals, such as Sony (6758.T) and Nintendo (7974.T), which compete with its Xbox console and Game Pass subscription service.

The CMA also said the deal could harm competition in the nascent market for cloud gaming services, where Microsoft has a leading position with its Azure platform and Windows operating system.

Microsoft said it was disappointed by the decision and would appeal to the Competition Appeal Tribunal.

“We believe this deal is good for gamers, good for the UK gaming industry, and good for innovation,” a Microsoft spokesperson said in a statement.

“We have offered significant commitments to address the CMA’s concerns, including making our games available on other platforms and ensuring fair access to our cloud services. We remain confident that this transaction is pro-competitive and will benefit consumers.”

Activision Blizzard said it was also disappointed by the UK’s decision and would work with Microsoft to pursue all available options to complete the deal.

The deal, which was announced in January, is the largest ever in gaming and would create a powerhouse with more than 30 billion monthly active users across various platforms.

The deal has also faced scrutiny from regulators in other jurisdictions, including the European Union, which opened an in-depth investigation in November.

The EU has set a deadline of March 23, 2023 to decide whether to clear or block the deal. Microsoft has offered licensing deals to rivals to address EU antitrust concerns, Reuters reported last month.

The deal has also drawn criticism from some gamers and industry experts, who fear that it could lead to less diversity and creativity in gaming content, as well as higher barriers to entry for independent developers.

Some analysts have also questioned the rationale behind Microsoft’s massive spending spree on gaming assets, which includes its $7.5 billion acquisition of ZeniMax Media last year.

Microsoft has said that it wants to expand its gaming ecosystem and reach more players across devices and platforms, as well as leverage its cloud capabilities to offer more immersive and interactive experiences.

Microsoft has also said that it will respect Activision Blizzard’s creative independence and culture, and that it will continue to support its existing franchises and studios.

However, some Activision Blizzard employees have expressed concerns about the deal, especially in light of the ongoing lawsuit against the company over allegations of sexual harassment and discrimination.

Activision Blizzard has been accused by California’s Department of Fair Employment and Housing of fostering a “frat boy” culture that enabled widespread abuse of female workers.

The company has denied the allegations and said it has taken steps to improve its workplace culture and policies.

Some employees have also formed a union called ABetterABK to demand better working conditions and representation.

The union has urged Microsoft to engage with them and ensure that their rights are protected under the new ownership.