The CMA: friend or foe for the UK gaming sector?

The future of Microsoft’s Activision Blizzard acquisition has seen changing fortunes from week to week, with the unexpected move of the UK’s Competition and Markets Authority (CMA) in blocking the deal followed weeks later by the European Commission’s granting its approval, albeit with remedies attached. With two such major players within the gaming sector involved in this deal, many within the industry are now asking whether the move from the CMA will have a chilling effect on investment in the UK gaming space or instead boost competition in the cloud gaming industry.   

The proposed acquisition of Activision Blizzard by Microsoft, valued at $69 billion, sent shockwaves through the video game industry when it was announced in January 2022. The size and reach of both companies made it inevitable that regulators in the UK, EU, US and beyond would scrutinise the deal closely.  

The CMA expressed early scepticism about the merger’s impact on the gaming market, and the potential for blockbuster titles such as Call of Duty to be withheld from competitor’s consoles, but there was broad expectation that the deal would be nodded through. This assumption has now been found wanting, with the CMA finding ‘significant shortcomings’ in Microsoft’s solutions, especially around cloud gaming.  

The reaction to the decision was labelled as “disproportionate, irrational and inconsistent with the evidence” by Activision. Microsoft also did not take the news lightly, stating that it was their “darkest day in our four decades in Britain" and sent the wrong message to the global tech industry about the UK.  In response to the European Commission decision, which waved the deal through due to the commitments from Microsoft related to cloud gaming, the CMA doubled down on its stance, even seeming to criticise the EU’s approach. They argued that the proposed remedies agreed by the European Commission would allow the newly combined company to “set the terms and conditions for this market for the next 10 years”.  

So how will this decision specifically impact the UK gaming sector? The direct impact of the decision on the UK’s gaming sector is limited by the fact that it is likely, if the forthcoming appeal is rejected, to have a global impact – i.e., the CMA’s decision will almost inevitably stop the merger going ahead globally, not just in the UK.  

However, the CMA’s decisions on the Facebook/Giphy acquisition also point to a broader pattern of the regulator preventing larger tech platforms from acquiring smaller firms – so-called “killer acquisitions''. This implies options for smaller UK game developers looking to scale up or be acquired by larger companies will be increasingly restricted. In the past, this has proved to be a major development route for the UK gaming sector. For example, Warner Bros’ acquisition of TT Games led to its transformation to become a major player within the gaming industry. Other developers such as Codemasters have also met success in being acquired by larger parent companies, working now on major titles such as Need for Speed.  

For the UK’s gaming sector, there will therefore be questions about ‘exit options’ for start-ups and their venture capital backers in light of this decision. For the UK government, with the UK’s Digital Competition Bill also now currently in the Parliament, it may begin to wonder whether its pro-tech rhetoric is being matched by the actions of its regulator.