The UK market regulator CMA blocks Microsoft’s acquisition of Activision Blizzard for the important market in Great Britain. Judgments from the EU and the USA are still pending. What chances does the deal still have? MeinMMO looks at reactions from experts.
In January 2022, the tech giant Microsoft announced that it wanted to fully acquire the gaming company Activision Blizzard (WoW, CoD, Diablo). It offered $95 per share, which corresponds to a purchase value of around $69 billion. A mammoth deal.
The scale of the merger prompted regulators around the world to act. Officials have been thoroughly examining the deal since then, with a focus on the authorities in the key markets of the USA, EU, and Great Britain.
In a statement on April 26, 2023, the regulator in Great Britain, the CMA (Competition and Markets Authority), announced that it would block the acquisition. Activision Blizzard subsequently lost around $7 billion in market value in just a few minutes.
The reason for this was not the shooter franchise Call of Duty, which competitor Sony likes to use as an argument against the acquisition, but cloud gaming. Does the deal still have any chance now?
Why is the deal being blocked?
The CMA cites the cloud gaming market as the reason, which also includes the Xbox Game Pass. This came as a surprise to observers of the deal. For a long time, Call of Duty and the console market were actually seen as the sticking points, as Sony has argued for months.
However, the British authority sees a greater risk that no other competitor would stand a chance against Microsoft in the future if the cloud gaming market takes off. The CMA states:
- Cloud gaming is a rapidly growing market with high dynamics
- Microsoft is already strong here through the Game Pass and could become even stronger with the games from Activision Blizzard – price increases that outweigh the benefits of the acquisition for consumers are expected
- They see cloud gaming as a strong future market because players would not have to buy expensive PCs or consoles anymore
- Microsoft’s arguments did not convince the regulators
Setback for Microsoft – But not the end yet
What are the chances for the deal now? Microsoft announced that it would appeal the decision. Activision Blizzard also remains committed to the deal and wants to “aggressively” fight with Microsoft to reverse the decision.
As an initial reaction, they want to challenge the decision of the British CMA. According to Bloomberg’s senior antitrust litigation analyst Jennifer Rie, this could take years (via bloomberg.com). The current decision should not be taken lightly.
Rie explains that the deal could indeed be at an end. It was stated in the acquisition contracts that the merger had to be completed by July 2023. Rie believes this deadline would definitely have to be extended. And negotiations have already been ongoing for over 15 months.
Analyst Piers Harding-Rolls, Research Director of Games at Ampere Analysis, is more optimistic. He shared his views with the US side VGC (via videogameschronicle.com). Harding-Rolls thinks that smaller appeals against decisions by the CMA could indeed be processed within a few months if Microsoft responds correctly to the regulators’ conclusions.
Examples of this come from Michael Pachter, Managing Director of Equity Research at Wedbush Securities. Microsoft could offer concessions or price guarantees.
Ultimately, the judgment depends on the CMA’s conviction that Microsoft will have pricing power due to its dominant market position in cloud gaming.
However, we firmly believe that Microsoft is willing to maintain pricing at $15 per month plus inflation and we believe that the CMA will change its position if Microsoft makes this offer.
If the appeal is unsuccessful, Pachter also brings up a separation of business areas. For example, the business with the Game Pass could be separated from the rest of the world and monitored directly by the CMA or designated third parties.
Pachter said: “We assume that this will be sufficient for the CMA to declare the merger acceptable, on the condition that Activision titles are not available on Game Pass.”
You see – after the CMA’s decision, the market is unsettled. The problem for Microsoft is that the regulator’s decision now stands for the time being. It will probably take at least a few months to change the CMA’s ruling.
In fact, there was even hope to leverage a positive decision from the CMA to stand better with the authorities in the USA and the EU.
It was a setback for Microsoft, but the deal is not dead yet. Now it remains to be seen how long the CMA will take to process the appeal and what decisions the EU (at the end of May) and the authorities in the USA will make (at the beginning of August).
If you have questions or an opinion on the topic, leave a comment. If you would rather read more about the gaming market, check it out here: Why haven’t we seen many good new MMORPGs in 9 years?
