Watchdog was right to block Microsoft’s £55bn Activision takeover

There has been a lot of angry kvetching by Microsoft and others since the announcement, but not much of substance relating to the deal.

This decision matters for several reasons. Far from being niche, cloud gaming is a multi-industry and multibillion-dollar opportunity; telecommunications, advertising and marketing, entertainment, hospitality, and others all have a growing market to exploit.

For context, the most successful piece of media entertainment in history isn’t Avatar ($2.8 billion); it’s the video game Grand Theft Auto 5, grossing more than $7.7 billion of income since its 2013 release, of which over $1 billion has come from cloud gaming.

A game that was developed in the UK. Microsoft’s support literature says cloud gaming is just $2.3 billion of the current $100 billion-plus annual market. They don’t say, however, that it will be $14 billion by 2026.

Cloud gaming is in its infancy, and Microsoft already controls around 70% of the market. You don’t protect an entrepreneurial ecosystem by having one player control the platform on which all else is built.

The gaming industry in the UK has grown close to 10% yearly for the past five years. The UK is also the largest European video gaming market. This is a brilliant opportunity for our economy.

Microsoft president Brad Smith took the CMA decision with the pragmatism of a spoilt child told to stop playing World of Warcraft at 1am on a school night. Brad went full throttle, describing the decision as “a bad day for Britain”, “the darkest day in [Microsoft’s] four decades in Britain” and, my personal favourite, stating “the European Union is a more attractive place to start a business than the United Kingdom”. Ouch Brad, that hurts.

Microsoft’s relationship with the EU over the past 10 years hasn’t been smooth sailing. It has been fined a staggering £1.4 billion-plus for breaching antitrust rules and for failing to halt antitrust practices. Six months ago, it was fined £50 million-plus for bombarding advertising cookies on users by French regulators and, although not European, it’s worth mentioning that in April 2023, US regulators fined Microsoft $3.3 million for “allegedly” violating US sanctions on Russia.

Microsoft knew months ago that the CMA wasn’t warm to this deal. I can’t help but think a sense of “huge company entitlement” and perhaps an assumption we were just too weak post-Brexit to stand up to the mighty Microsoft played its part in their thinking.

Clearly, this was going to be a thorny issue, and Microsoft wasn’t up to the job of making the case for the takeover assessed by a CMA expert panel with in-depth knowledge of the gaming sector.

The CMA hasn’t made many friends with this move, but it’s hard, thus far, to fault it.

Brad Smith’s petulant attack on the UK as a bad place to start a business is an emotional response to an issue requiring data-driven facts and hard assurances regarding Microsoft’s intent. The President of Microsoft should play the ball and not the man.

However, Microsoft is still a powerful $2.3 trillion company, and during any appeal process, the CMA needs to be prepared to go the extra mile to ensure its rationale, whatever the outcome, is very clearly understood.

A repeat of the 18-month process in ruling on Amazon’s (successful) $500 million investment in Deliveroo that left the CEO, Will Shu complaining he was “treated like a criminal” isn’t good for UK business either.

A Pyrrhic victory is no victory at al