UK blocks Microsoft-Activision gaming deal, biggest in tech

LONDON — British antitrust regulators on Wednesday blocked Microsoft’s $69 billion purchase of video game maker Activision Blizzard, thwarting the biggest tech deal in history over worries that it would stifle competition in the fast-growing cloud gaming market.

The Competition and Markets Authority said in its final report that “the only effective remedy” to the substantial loss of competition “is to prohibit the Merger.” The companies vowed to appeal.

The all-cash deal announced 15 months ago faced stiff opposition from rival Sony, which makes the PlayStation gaming system, and also was scrutinized by regulators in the U.S. and Europe over fears it would give Microsoft and its Xbox console control of hit franchises including Call of Duty and World of Warcraft.

The United Kingdom watchdog’s decision “came as a surprise to most people” and heightens global uncertainty over the deal, said Liam Deane, a game industry analyst for research firm Omdia.

“It’s a big enough market to throw a pretty serious spanner in the works from Microsoft and Activision’s perspective, but things will get a lot worse if they also get the wrong decision from the European Commission in a few weeks time,” he said.

The U.K. watchdog’s concerns centered on how the deal would affect cloud gaming, which streams to tablets, phones and other devices and frees players from buying expensive consoles and gaming computers. Gamers can keep playing major Activision titles, including mobile games like Candy Crush, on the platforms they typically use.

Cloud gaming has the potential to change the industry by giving people more choice over how and where they play, said Martin Colman, chair of the Competition and Markets Authority’s independent expert panel investigating the deal.

“This means that it is vital that we protect competition in this emerging and exciting market,” he said.

The decision underscores Europe’s reputation as the global leader in efforts to rein in the power of Big Tech companies. A day earlier, the U.K. government unveiled draft legislation that would give regulators more power to protect consumers from online scams and fake reviews and boost digital competition.

The U.K. decision dashes Microsoft’s hopes that a favorable outcome could help it resolve a lawsuit brought by the U.S. Federal Trade Commission. A trial before the FTC’s in-house judge is set to begin Aug. 2. The European Union’s decision, meanwhile, is due May 22.

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Redmond, Washington-based Microsoft signaled it wasn’t ready to give up.

“We remain fully committed to this acquisition and will appeal,” President Brad Smith said. The decision discourages tech innovation and investment in Britain, he said.

“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,” Smith said.

Activision CEO Bobby Kotick said in a blog post that both companies are working on an appeal to the U.K.’s Competition Appeal Tribunal.

Regulators concluded that if the Activision Blizzard deal went through, it would reinforce Microsoft’s advantage by giving it control of key game titles.

To ease concerns, Microsoft struck deals with Nintendo and some cloud gaming providers to license Activision titles such as Call of Duty for 10 years — offering the same to Sony.

Sony’s European press office did not respond to a request for comment.

The watchdog said it reviewed Microsoft’s remedies “in considerable depth” but found they would require its oversight, whereas preventing the merger would allow cloud gaming to develop without intervention.

Cloud gaming is a small piece of Britain’s $6.2 billion video game market but is expected to see explosive growth in coming years.