Microsoft’s Acquisition of Activision Blizzard Blocked by UK Watchdog

On the 26th of April, the UK’s Competition and Markets Authority (CMA) blocked the proposed $69 billion deal between Microsoft and Activision Blizzard. It intended to prevent Microsoft from acquiring dominance in the gaming industry and utilising the pulling power of Activision’s strongest IPs. 

The strength of the deal

As one of the highest-grossing games, Microsoft’s acquisition of the Call of Duty franchise forms one of the key elements of the deal. Despite its debut almost 20 years, the development of new instalments every year means that the franchise remains popular. In 2022, it made $1bn in sales within its first 10 days.

Is the deal worth the trouble for Activision?

Since the last reports on the attempted acquisition, the issues regarding sexual misconduct and inappropriate behaviour at Activation Blizzard seem to have been remedied. Following a series of dismissals, which have impacted some of the company’s top franchises such as Overwatch, Activision has been able to remain out of trouble and largely return to investors’ good books. Alongside the success of last year’s Call of Duty release, the company’s stock price increased by 10% at the start of 2023, in comparison to 2022. Activision’s ability to independently prosper once again raises questions about the need for a big move and a change in management.

Activision’s current CEO, Bobby Kotick, believes that pursuing the deal is still worth it. In his view, whilst the CMA is focusing on competition in the console gaming marketplace, the true value of the deal lies in the mobile world.

In exploring the implications of the deal, he stated that their console franchises would not become exclusive to Microsoft platforms. This is the predominant concern for companies such as Sony whose PlayStation platform greatly relies on Activision’s games. He denounced this idea as irrational considering Sony’s “80% market share” in the console gaming world and the risk of harming the company by forcing gamers to move to a different platform.

Instead, Kotick claims the deal would seek to capitalise on the emerging cloud gaming market, as well as Activision’s mobile arm which currently owns the Candy Crush IP. Importantly, the King company, Activision’s subsidiary that owns Candy Crush, is based in the UK. It generates over $700m a year. Activision’s intentions to expand the sector could benefit London-based office operations.

Microsoft’s Xbox Game Pass appears to be the way forward for the company in relation to cloud gaming. The system allows players to treat games like movies on a streaming service. By streaming games on their hardware, Microsoft allows people to be more mobile and enjoy a greater selection of games by virtue of a lower monthly fee in comparison to the high cost of buying a digital licence. In 2012, this system generated $3 billion in revenue. Its user base continues increasing year-on-year. By working under the same umbrella, the companies could offer the service to more users and host a greater selection of games.

In a recent interview, Kotick stated that he will continue to pursue the acquisition. He believes that the CMA has made a mistake. He also argues that the block makes the UK unattractive to the technology sector, pushing large companies such as King away from its shores.

Conclusion

Activision and Microsoft have the right to appeal the CMA’s decision. However, Activision’s ability to rebuild from the struggles of recent years seems to decrease the importance of the acquisition for the future success of the brand. The clear resistance in the UK, alongside moves to block the deal across the Atlantic, signal that Microsoft and Activision Blizzard may have to go their separate ways.

By Samuel Axford