Finance

U.K. Blocks Microsoft’s $69 Billion Bid for Activision, a Blow for Tech Deals

British antitrust regulators on Wednesday blocked Microsoft’s plans to acquire the video game giant Activision Blizzard for $69 billion, a significant hurdle for what would be the largest consumer tech acquisition since AOL bought Time Warner two decades ago.

The Competition and Markets Authority in Britain said in a statement that Microsoft’s proposal for a settlement “failed to effectively address the concerns in the cloud gaming sector.” Cloud gaming is a nascent technology that allows people to stream games to their devices, circumventing the need for hardware like gaming consoles.

“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,” Martin Coleman, the chair of a panel that conducted an investigation for the C.M.A., said in a statement.

The announcement bolstered an effort by the Federal Trade Commission to block the acquisition. Microsoft had hoped to undercut a challenge to the deal by the F.T.C. chair, Lina Khan, by reaching settlements with the British regulator and its counterpart in the European Union.

The decision in Britain is a red flag for big technology companies trying to make large deals despite increasing government scrutiny. Lawmakers and regulators have in recent years threatened a host of measures to rein in companies like Microsoft, Amazon, Apple, Google and Facebook’s owner, Meta, which they say hold too much sway over culture, communications and commerce.

Microsoft said it would appeal the ruling.

“We’re especially disappointed that after lengthy deliberations, this decision appears to reflect a flawed understanding of this market and the way the relevant cloud technology actually works,” Brad Smith, Microsoft president, said in a statement.

Activision, the publisher of blockbuster games like Call of Duty, said it would “work aggressively” with Microsoft to reverse the ruling.

“If the C.M.A.’s decision holds, it would stifle investment, competition and job creation throughout the U.K. gaming industry,” said Bobby Kotick, Activision’s chief executive.

The decision is a boon to Ms. Khan, the F.T.C.’s chair, who has made challenging mergers a central part of her attempt to rein in the power of major technology companies. After it unsuccessfully tried to stop Meta from buying a virtual reality start-up, the agency’s case against the mammoth Microsoft deal is its most prominent remaining challenge to consolidation in the tech industry.

“If we look at the whole portfolio of merger-related work they’re doing now, this one’s extremely important,” said William E. Kovacic, a former chairman of the agency. An F.T.C. spokesman did not immediately respond to a request for comment.

Microsoft announced the deal to buy Activision early last year, hoping to combine Microsoft’s Xbox console and video game subscription service with Activision’s blockbuster games like Call of Duty, World of Warcraft and Candy Crush.

At the time, Activision was reeling from a California lawsuit accusing it of fostering a toxic, sexist workplace culture and Mr. Kotick faced calls to resign.

For more than a year, the debate over the deal largely centered on what would happen to the hundreds of millions of people who play Activision’s games. The company that opposed the deal the most vocally was Sony, which makes the PlayStation console, a competitor to Microsoft’s Xbox. Sony argued that fans of Call of Duty and other Activision titles who can currently play the games on the Xbox or PlayStation would be forced to use Microsoft’s consoles and services exclusively.

Sony did not immediately respond to a request for comment on the ruling.

Microsoft said it would not restrict Call of Duty to the Xbox, and it argued the acquisition would actually give more people access to the games. It focused on reaching settlements with regulators outside the United States that would allow the deal to go through with some conditions. It also offered gaming platforms guaranteed access to Call of Duty in an effort to show it would not restrict the popular game on other consoles.

The British regulator in February initially said the deal would hurt competition for gaming consoles like the PlayStation and the nascent cloud gaming industry, which involves harnessing the power of remote data centers to stream a game to a device like an iPhone or computer. But in late March, it reversed course and said that it no longer believed the deal posed a threat to Sony, which seemed to put Microsoft in a strong position.

Instead, the C.M.A. zeroed in on the cloud gaming market, which has been around for just a few years, and focused on the possibility that cloud gaming could explode in popularity, eventually being worth $14 billion globally and $1.3 billion in Britain by 2026.

“The cloud allows U.K. gamers to avoid buying expensive gaming consoles and PCs and gives them much more flexibility and choice as to how they play,” the C.M.A. wrote in its ruling on Wednesday. “Allowing Microsoft to take such a strong position in the cloud gaming market just as it begins to grow rapidly would risk undermining the innovation that is crucial to the development of these opportunities.”

In recent months, Microsoft signed a number of deals promising it would allow Activision’s games to be played for 10 years on cloud streaming platforms, such as Nvidia’s GeForce Now streaming service. But the C.M.A. said those solutions did not cover enough cloud business models.

“This is a significant blow to the deal completing,” said Piers Harding-Rolls, a gaming researcher at the analytics firm Ampere Analysis in London. “Inevitably this will delay things and will impact Xbox’s commercial plans.”

Activision’s stock fell by more than 10 percent in premarket trading. Shares of Microsoft, which were trading higher after it reported stronger-than-expected earnings on Tuesday, were up about 8 percent.

Karen Weise contributed reporting from Seattle, and Adam Satariano from London.

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