Last month, the UK Competition and Markets Authority (CMA) blocked Microsoft’s £55 billion takeover of video game publisher and cloud gaming company Activision. Cloud gaming is a service where you can stream titles in real time, replacing the need for physical console games. There’s been a lot of outcry by Microsoft and others since the announcement, but not much related to the deal itself.
This decision matters for several reasons. Far from being niche, cloud gaming is a multi-industry and multi-billion dollar opportunity; Telecom, advertising and marketing, entertainment, hospitality, and others all have a growing market to exploit. For context, Avatar isn’t the most successful piece of media entertainment in history ($2.8bn); This is the video game Grand Theft Auto 5, which has made over $7.7bn+ since its release in 2013, of which over $1bn has come from cloud gaming. a sport that was developed in the UK
Microsoft’s support literature says cloud gaming is just $2.3bn of the current $100bn+ annual market. However, they do not say that it will grow to $14bn by 2026. Cloud gaming is in its infancy, and Microsoft already controls about 70% of the market. You don’t protect an entrepreneurial ecosystem by having one player control the platform on which all the others are built. The gaming industry in the UK has grown at close to 10% annually for the last five years. The UK is also the largest European video gaming market. This is a great opportunity for our economy.
Microsoft’s president, Brad Smith, took the CMA decision with the plausibility of a spoiled child who was told to stop playing World of Warcraft at 1 a.m. on a school night. Brad described the decision as ‘a bad day’, ‘darkest day’ for Britain [Microsoft’s] Four decades in the UK’ and, my personal favourite, saying that ‘the European Union is a more attractive place to start a business than the United Kingdom.’ Ouch Brad, this hurts.
Microsoft’s relationship with the European Union has not been smooth sailing over the past 10 years. It has been fined a staggering £1.4bn+ for breaching antitrust rules and failing to stop antitrust practices. Six months ago, users were fined £50m+ by French regulators for bombarding advertising cookies, although not European. It is notable that in April 2023, US regulators fined Russia for allegedly violating US sanctions. Microsoft was fined $3.3m.
Microsoft knew months ago that the CMA wasn’t hot on the deal. I can’t help but think a sense of ‘giant company entitlement’ and perhaps a belief that we were too vulnerable after Brexit, with the mighty Microsoft played a part in their thinking. Clearly, this was going to be a thorny issue, and Microsoft was not up to the task of making the case for the acquisition as assessed by a CMA expert panel with deep knowledge of the gaming sector.
This move hasn’t made CMA many friends, but so far, it’s hard to fault it. Brad Smith’s aggressive attack on the UK as a bad place to start a business is an emotional response to an issue requiring data-driven facts and rigorous reassurance about Microsoft’s intent. The president of Microsoft should be playing with the ball, not the man.
However, Microsoft is still a mighty $2.3 trillion company, and during any appeals process, the CMA needs to be prepared to go the extra mile to make sure its propriety, whatever the outcome, is very clearly is understood from A repeat of an 18-month process in ruling out Amazon’s (successful) $500m investment in Deliveroo, which saw the CEO, Will Shue, complain he was ‘treated like a criminal’, isn’t good for UK business either . A pyrrhic victory is no victory.