The Competition and Markets Authority (CMA), Britain's antitrust regulator, has halted Microsoft's proposed acquisition of Activision Blizzard, one of the largest game publishers known for "Call of Duty."

This decision has potentially halted the $69B deal worldwide, despite earlier positive signs from the European Commission and the US Federal Trade Commission (FTC).

The CMA's merger inquiry provides insight into the concerns and rationale behind this decision.

  1. Reasons for Blocking the Acquisition: The CMA has cited concerns that the combined firm could gain too much clout and reduce consumer choice. The regulatory body expressed concerns about the potential dominance of Microsoft in the emerging cloud gaming market. With Microsoft already controlling two-thirds of the worldwide cloud gaming business, the addition of Activision's vast catalog of games could make the company unassailable, according to the CMA. The merger inquiry further reveals that the CMA doubts the effectiveness of ten-year deals in the new and fast-changing market.
  2. The Impact on Microsoft's Business in the United States: The CMA's decision, as detailed in its merger inquiry, could significantly impact Microsoft's future in the gaming industry. As Ben Thompson of Stratechery newsletter suggests, Microsoft's gaming division may struggle if its business model is dictated to them, considering Sony's dominance in the console market. This decision could also create uncertainty among investors and impact the company's valuation.
  3. Comparisons with Other High-Profile Tech Companies Barred from Acquisitions: Britain's CMA has a history of taking a solid stance against significant tech acquisitions. In 2021, the CMA forced Facebook (now Meta) to reverse its purchase of Giphy, an internet meme generator. This indicates that the CMA has become more assertive since Brexit, with tech companies now finding it harder to navigate the regulatory landscape in the UK.
  4. The Global Implications and Backlash: Britain's increasing regulatory power may have unintended consequences, as evidenced by the CMA's merger inquiry and recent decisions. Companies like WhatsApp have threatened to leave the country rather than apply its encryption rules worldwide. Activision's share price fell by a tenth after the ruling. The company indicated that it would reassess its British plans, implying that the UK may no longer be an attractive destination for global innovators.

How the tech industry will adapt to the increasingly stringent regulatory environment in Britain and other jurisdictions remains to be seen.

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