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CMA blocks Microsoft’s $69 billion acquisition of Activision Blizzard over concerns for cloud gaming market innovation and consumer choice

Microsoft's proposed $69 billion acquisition of Activision Blizzard has been blocked by the UK's Competition and Markets Authority (CMA), citing concerns that the deal would “alter the future of the fast-growing cloud gaming market” and stifle innovation and choice for consumers.[0] The CMA expressed concerns about potential price hikes for Game Pass subscriptions by Microsoft due to its multi-billion dollar acquisition of Activision. Additionally, fears were raised that Activision's titles may become exclusive to Microsoft's own services and inaccessible to computers without Windows operating systems.[1] The CMA's worry is that Microsoft could throttle the industry going forward as it becomes a more mass market technology.[2] According to the CMA, cloud gaming revenues witnessed a three-fold increase in the year 2022 compared to the previous year.[2]

Microsoft has since stated that it will appeal the decision.[3] If the deal had gone through, Microsoft may have restructured how Call of Duty games are developed.[4] For every year since 2005, a fresh addition to the Call of Duty franchise has been released. However, due to the rising expectations and game development costs, the feasibility of this approach has collapsed.[5] There needs to be a change.[5] In the event that Microsoft acquires Activision-Blizzard, it would gain the ability to provide exclusive access to games such as Call of Duty, Overwatch, and World of Warcraft through its cloud gaming services. This strategy would give Microsoft's cloud platform a significant edge in a growing market.[6]

The CMA’s research into the current gaming landscape led it to the conclusion that cloud gaming is on the verge of being potentially transformative for gaming within the next few years, including replacing consoles entirely for some. The UK market has experienced a growth of over three times its size since the beginning of 2021, with a projected value of over £1 billion by 2026, surpassing the recorded music market.[6] Although cloud gaming is currently facing challenges such as latency and internet connectivity, the CMA anticipates that these obstacles will be overcome in the near future, enabling cloud gaming to establish a strong foothold.[6]

“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,” the CMA wrote in its decision.[2] This deal is being proposed in a different landscape than it was five or ten years ago.[7] The gaming industry's technological future is being hailed as cloud gaming, particularly by Microsoft. However, the business model future of the industry is being shaped by game subscription services such as Game Pass. These services are aligning with the trend of subscription-based models becoming the norm for all other forms of media that have transitioned to cloud-based systems.

GeForce Now and Boosteroid are among the cloud gaming platforms that have entered into comparable agreements with Microsoft.[3] The CMA raises another concern that Microsoft's 10-year agreements enable them to keep the earnings from any transactions associated with Activision games, including those on alternative platforms.[3] According to the final report, “as a result, cloud game streaming services would not become rivals to Microsoft’s Game Pass Ultimate, but rather, they would become Microsoft’s customers.”

With an appeal on the way that will certainly focus on Xbox’s position in cloud gaming and what that might mean for video games as we know them, let’s take a look at why the CMA is so concerned in the first place, and what might Xbox might do to satisfy its worries and get the UK’s stamp of approval on the most expensive merger in gaming history.[6]

0. “Microsoft News Roundup: Farewell Activision Blizzard deal, goodbye Windows 10, and so long Microsoft-branded …” Windows Central, 30 Apr. 2023, https://www.windowscentral.com/microsoft/microsoft-news-roundup-farewell-activision-blizzard-deal-goodbye-windows-10-and-so-long-microsoft-branded-accessories

1. “The CMA is right to block the Microsoft and Activision deal” TrustedReviews, 26 Apr. 2023, https://www.trustedreviews.com/opinion/the-cma-is-right-to-block-the-microsoft-and-activision-deal-4321587

2. “Microsoft is betting its future on cloud gaming — but that's what tripped up the Activision deal” CNBC, 28 Apr. 2023, https://www.cnbc.com/2023/04/28/microsofts-big-bet-on-cloud-gaming-is-what-tripped-up-activision-deal.html

3. “Microsoft inks 10-year agreement with cloud gaming platform Nware” VentureBeat, 28 Apr. 2023, https://venturebeat.com/games/microsoft-inks-10-year-agreement-with-cloud-gaming-platform-nware/

4. “Microsoft’s Cloud Gaming Dreams Are Falling Apart” WIRED, 26 Apr. 2023, https://www.wired.com/story/microsoft-activision-blizzard-deal-blocked/

5. “Call of Duty's Only Hope for a Much-Needed Reset Was Just Blocked” Inverse, 27 Apr. 2023, https://www.inverse.com/gaming/microsoft-activision-deal-call-of-duty-status-quo

6. “Why Cloud Gaming, Not Call of Duty, Might Kill the Microsoft-Activision Merger” IGN, 27 Apr. 2023, https://www.ign.com/articles/why-cloud-gaming-not-call-of-duty-might-kill-the-microsoft-activision-merger

7. “The CMA and Microsoft agree on one thing: the cloud gaming market is what matters | Opinion” GamesIndustry.biz, 28 Apr. 2023, https://www.gamesindustry.biz/the-cma-and-microsoft-agree-on-one-thing-the-cloud-gaming-market-is-what-matters-opinion

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