Today, the UK is blocking Microsoft’s $69 billion offer to acquire Activision Blizzard on the grounds that it would hurt cloud gaming.

The original deal, proposed more than a year ago, would have been the largest acquisition in history. But according to the UK Competition and Markets Authority, the deal could cripple the cloud gaming market before it even starts, hurting competition.

Microsoft launched its cloud gaming service in 2020 called Project xCloud, which is now part of the Game Pass Ultimate service. As the UK CMA points out, cloud gaming allows consumers with high-speed broadband access to not pay for a gaming console. Instead, they can stream games over the Internet by playing them on a remote server. Most Microsoft Game Pass Ultimate services (available for a low price if you know how) are available through cloud gaming. The CMA was afraid that Activision would launch its own cloud gaming service. According to the CMA, the acquisition by Activision will crush that competition.

“Letting Microsoft have such a strong position in the cloud gaming market once it begins to grow rapidly could undermine the innovation that is critical to the development of these capabilities,” the UK CMA said in a statement. Cloud gaming in the UK will cost £1bn by 2026, according to the CMA.

Apparently, Microsoft was trying to bargain with a counteroffer that regulated which games would be available on which platforms over a ten-year period. It was ultimately rejected by the CMA on the grounds that it did not address cloud gaming, was not sufficiently open to other operating systems, and “standardized the terms under which games are available”.

The agency also had concerns that Microsoft would raise the price of Game Pass after the merger. “Microsoft has engaged constructively with us in trying to address these issues and we are grateful for that, but their proposals have not been effective in addressing our concerns and would have replaced competition with ineffective regulation in a new and dynamic marketplace,” said Martin Coleman, Chairman of the Board. an independent panel of experts who conducted the investigation for the UK

And now what?

Microsoft President Brad Smith said in a statement that the company will file an appeal. “We have already signed contracts to make popular Activision Blizzard games available on an additional 150 million devices, and we remain committed to strengthening those agreements through regulatory action,” he said.

The story gives some idea of ​​what Microsoft could have done. In 2009, Microsoft shipped versions of Windows 7 and 7 E to Europe to allay concerns that Microsoft was illegally embedding Internet Explorer into the operating system. But how can Microsoft apply this model to a gaming service (pull Game Pass out of the UK? Refuse to offer Activision games to the UK cloud gaming audience?) is unclear.

It is worth noting that not only the UK government, but also the US Federal Trade Commission opposes the deal.

Smith’s statement implies that Microsoft intends to continue the deal with Activision Blizzard. Whether this is still possible or not is the question.