Microsoft is losing its cloud gaming dreams

The Competition and Markets Authority (CMA) vs. Microsoft-Activision: A Case Study in a Game-Changing Environment

The British government opposed the Microsoft-Activision deal for fear of slowing down the growth of the cloud gaming market.

The only effective remedy for competition loss is to prohibit the Merger, said the Competition and Markets Authority in its final report. The companies have vowed to appeal.

In the run-up to the decision, Microsoft had been attempting to demonstrate that its takeover of Activision wouldn’t mean that blockbuster titles like Call of Duty would end up only being available on its hardware, signing deals with other, smaller, cloud gaming companies. The company has previously agreed to make Call of Duty available to its biggest competitors, Sony and Nintendo—though Sony has questioned whether it can trust those promises.

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.

“We remain fully committed to this acquisition and will appeal,” President Brad Smith said in a statement. He claimed that the watchdog’s decision “rejects a pragmatic path to addresscompetition concerns” and discourages innovation and investment in the United Kingdom.

“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.

Microsoft’s proposals to ease competition concerns were found to require oversight and that preventing the merger would allow cloud gaming to develop without intervention according to the watchdog.

In the window of Microsoft’s London flagship store on Oxford Circus, there’s a bigger-than-lifesize all-terrain vehicle—a souvenir of the company’s $7.5 billion takeover of ZeniMax, owner of game publisher Bethesda, creator of Halo, in 2021. After the deal closed, Microsoft embarked on a $65 billion play for the game industry giant, including Call of Duty, World of Warcraft and The Elder Scrolls.

Steven Weber is a professor at the University of California Berkeley’s School of Information and he says that the technology that allows you to play games is the same technology that allows a process engineer to walk through a virtual oil refinery. “So to be good at gaming is to be good at the metaverse.”

The CMA’s ruling is unusual in antitrust, because its judgment was based on what the merger would mean for an industry that’s still only at a nascent stage. According to research company Omdia, the sales of cloud-enabled services will be $5.1 billion in 2022, compared to more than $35 billion in console game sales. The regulators believes that Microsoft will have a strong commercial incentives to make its titles exclusive to its platforms because of the fast growth of cloud gaming.