Analysts believe that the CMA's ban on the proposed acquisition does not necessarily mean that it will ultimately fail.
On April 26, Microsoft's deal with Activision Blizzard was blocked by the UK Competition and Markets Authority (CMA). According to the regulator, the reason behind this decision was the fear that the acquisition could have negative impacts on the cloud gaming market, innovation, and player choice.
The CMA suggested that Microsoft has a dominant position in the market for cloud gaming services and that the company would likely have benefitted financially by making Activision's games exclusive to its own cloud gaming platform.
It also expressed concern that if Microsoft were allowed to acquire Activision Blizzard, it would gain too much power and control over the rapidly growing cloud gaming market. According to the CMA, this could potentially undermine innovation and limit the development of new opportunities in this industry.
Martin Coleman, the chair of an independent panel that conducted an investigation for the regulator, emphasized the importance of protecting competition in the "emerging and exciting market" of cloud gaming.
"Microsoft already enjoys a powerful position and head start over other competitors in cloud gaming and this deal would strengthen that advantage giving it the ability to undermine new and innovative competitors," he said. "Cloud gaming needs a free, competitive market to drive innovation and choice. That is best achieved by allowing the current competitive dynamics in cloud gaming to continue to do their job."
According to Coleman, Microsoft had proposed certain measures to alleviate the concerns raised by the CMA but these measures were deemed ineffective.
Commenting on the CMA's decision, Microsoft's president Brad Smith said that the company is determined to proceed with the acquisition and will appeal the CMA's decision. He believes that the regulator's ruling fails to adopt a practical approach to addressing competition concerns and could discourage technological advancement and investment in the UK.
After the CMA's ruling, Activision Blizzard's CEO Bobby Kotick also made a statement regarding the decision. The head of the company admitted that he and the representatives from Microsoft were anticipating a different outcome from the CMA. However, despite the ruling not being in their favor, he expressed confidence in their position and reiterated their intention to appeal.
"This isn’t the news we wanted – but it is far from the final word on this deal," he said. "Alongside Microsoft, we can and will contest this decision, and we’ve already begun the work to appeal to the UK Competition Appeals Tribunal. We’re confident in our case because the facts are on our side: this deal is good for competition."
Kotick believes that the proposed deal would have been beneficial for the UK's technology industry, and if the decision is not overturned, it could potentially harm investment, competition, and employment opportunities in the country's gaming market.
"I’m going to do everything I personally can to advocate for us and help regulators understand the competitive dynamics in our industry. What gives me confidence is that, whether on our own or united with another company, we are one of the strongest companies in our industry, poised for continued growth, and building on our incredible IP," he added.
Apart from the interested parties, multiple industry analysts also offered their insights on the CMA's decision and its potential impact on Microsoft's attempt to purchase Activision Blizzard.
Ampere Analysis' Piers Harding-Rolls highlighted that the UK's Competition Appeal Tribunal usually strives to resolve most cases within nine months, with the possibility of the case being referred back to the CMA if Microsoft wins. He further added that the likelihood of the case being resolved this year appears to be "slim".
At the same time, the analyst noted that although "a majority of CMA appeals have been unsuccessful", "there is still a chance this can be overturned."
Michael Pachter, an analyst at Wedbush Securities, also said that the ban imposed by the CMA does not necessarily guarantee the failure of the deal. Speaking to VGC, he suggested that Microsoft could potentially appeal the decision and successfully proceed with the acquisition.
"While successfully appealing a CMA decision is a difficult task for several reasons, we think the CMA is on the wrong side of the law on this ruling, and believe its concerns can be addressed," Pachter said.
According to the analyst, by offering certain concessions and additional guarantees to maintain competition, Microsoft could persuade the antitrust authority to change its position on the deal.
He believes that Microsoft could potentially offer regional concessions to the CMA, such as excluding Activision Blizzard games from the Game Pass catalog in the UK. This would enable the company to gain regulatory clearance in the UK while still having the ability to add ActiBlizz games to its subscription catalog in other regions. Wedbush Securities predicts that this Game Pass-related term would be sufficient for the CMA to greenlight the acquisition.