Britain's antitrust watchdog on Wednesday blocked Microsoft's $68.7 billion takeover of video game company Activision Blizzard Inc.

The Competition and Markets Authority (CMA) of the U.K. vetoed the tech giant's largest-ever acquisition over concerns the deal would alter the future of the fast-growing cloud gaming market, leading to reduced innovation and less choice for Britain’s gamers over the years to come.

"The final decision to prevent the deal comes after Microsoft's proposed solution failed to effectively address the concerns in the cloud gaming sector," the antitrust regulator says.

Microsoft entered into a $68.7 billion deal to buy Activision, one of the most popular video game publishers in the world, in January 2022. The deal would have made Microsoft the world's third-largest gaming company by revenue, behind Tencent and Sony.

Britain's competition watchdog launched an in-depth review of the deal in September 2022, and in February 2023 provisionally found that the merger could make Microsoft even stronger in cloud gaming, stifling competition in this growing market.

Microsoft has a strong position in cloud gaming services and the evidence available to the CMA showed that the company would find it commercially beneficial to make Activision's games exclusive to its own cloud gaming service, the U.K.'s antitrust regulator says.

The Satya Nadella-led tech behemoth already accounts for an estimated 60-70% of global cloud gaming services and has other important strengths in cloud gaming from owning Xbox, the leading PC operating system (Windows) and a global cloud computing infrastructure (Azure and Xbox Cloud Gaming).

"The deal would reinforce Microsoft's advantage in the market by giving it control over important gaming content such as Call of Duty, Overwatch, and World of Warcraft," the competition authority says.

The cloud allows U.K. gamers to avoid buying expensive gaming consoles and PCs and gives them much more flexibility and choice as to how they play, CMA says.

Allowing Microsoft to take such a strong position in the cloud gaming market just as it begins to grow rapidly would risk undermining the innovation that is crucial to the development of these opportunities, it adds.

"Gaming is the UK's largest entertainment sector. Cloud gaming is growing fast with the potential to change gaming by altering the way games are played, freeing people from the need to rely on expensive consoles and gaming PCs and giving them more choice over how and where they play games. This means that it is vital that we protect competition in this emerging and exciting market," says Martin Coleman, chair of the panel of experts that conducted the investigation.

"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," Coleman adds.

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