Microsoft’s $69 billion acquisition of video game developer Activision Blizzard was blocked by British regulators on Wednesday, thwarting the largest tech transaction in history over concerns that it would stifle competition in the rapidly expanding cloud gaming market.
In its final report, the Competition and Markets Authority stated that “the only effective remedy” for the substantial loss of competition “is to prohibit the Merger.” The companies intend to file an appeal.
The all-cash transaction faced stiff opposition from Sony and was scrutinized by U.S. and European regulators over concerns that Microsoft would gain control of popular game franchises such as Call of Duty, World of Warcraft, and Candy Crush.
The U.K. regulator was concerned about the deal’s impact on competition in cloud gaming, which entails streaming games to tablets, smartphones, and other devices. This eliminates the need for players to purchase costly consoles and gaming computers.
Martin Colman, chairman of the Competition and Markets Authority’s independent expert panel investigating the transaction, stated that cloud gaming has the potential to transform the industry by providing players with more options for how and where to play.
“Therefore, it is crucial that we protect competition in this burgeoning and exciting market,” he stated.
Microsoft expressed disappointment and indicated it would not give up.
“We remain fully committed to this acquisition and will file an appeal,” said President Brad Smith in a statement. He stated that the watchdog’s decision “rejects a pragmatic path to address competition concerns” and discourages innovation and investment in the United Kingdom’s technology sector.
“We are especially disappointed that, after extensive deliberation, this decision appears to be based on a flawed understanding of this market and how the relevant cloud technology actually operates,” Smith said.
Activision retaliated by stating that it would “work aggressively with Microsoft to reverse this decision on appeal.”
Last month, regulators dismissed concerns that the agreement would harm console gaming, stating that making Call of Duty exclusive to the Xbox console would not benefit Microsoft.
The watchdog announced on Wednesday that it had evaluated Microsoft’s proposals to allay competition concerns “in great detail” but concluded that these solutions would require its oversight, whereas preventing the merger would allow cloud gaming to develop without interference.
Microsoft already holds a dominant position in the cloud computing market, and regulators determined that if the deal went through, Microsoft’s advantage would be strengthened by gaining control of crucial game titles.