The UK’s Competition and Markets Authority (CMA) has officially blocked Microsoft’s proposed $69 billion takeover of videogame publisher Activision Blizzard.

Last month, the CMA provided some hope to the merger after stating that it would not harm competition in the console space – an issue which console rival Sony had argued, highlighting blockbuster franchise Call of Duty in particular. However, the watchdog at the time said that it would continue to look into Microsoft’s dominance in cloud gaming and this is what has created this latest hurdle.

In a statement, the CMA said that it had reached a final decision to block the biggest tech deal in history "over concerns the deal would alter the future of the fast-growing cloud gaming market, leading to reduced innovation and less choice for UK gamers over the years to come."

The watchdog said that the cloud gaming market is forecast to be worth up to £11 billion globally and £1 billion in the UK by 2026. Microsoft, the CMA said, already accounts for an estimated 60-70 per cent of global cloud gaming services and argued that "the evidence available to the CMA showed that Microsoft would find it commercially beneficial to make Activision’s games exclusive to its own cloud gaming service."

The report added that it had found without the deal that Activision would start providing games via cloud platforms in the foreseeable future, and that tying this exclusively to Microsoft “would risk undermining the innovation that is crucial to the development of these opportunities.”

The CMA said that Microsoft had submitted a proposal to address the concerns, but that it did not sufficiently cover different cloud gaming service business models, it was not open to providers who may want to offer versions of games on non-Windows PC operating system, and that it would standardise the terms and conditions on which games are available.

The statement concluded that the benefits of Microsoft incorporating Activision games into its Game Pass subscription would not outweigh the potential negative outcomes. It said: “Accepting Microsoft’s remedy would inevitably require some degree of regulatory oversight by the CMA. By contrast, preventing the merger would effectively allow market forces to continue to operate and shape the development of cloud gaming without this regulatory intervention.”

Martin Coleman, chair of the independent panel of experts conducting this investigation, said: “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.”

“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.”

In a statement published on Twitter, Microsoft president Brad Smith said that the company would appeal the decision and argued that the CMA is discouraging technology innovation and investment in the UK. He said: “We have already signed contracts to make Activision Blizzard's popular games available on 150 million more devices, and we remain committed to reinforcing these agreements through regulatory remedies.

“We're especially disappointed that after lengthy deliberations, this decision appears to reflect a flawed understanding of this market and the way the relevant cloud technology actually works.”

Activision Blizzard chief exec Bobby Kotick took a similarly strong stance in an open email to staff. Describing the CMA's decision as "far from the final word on this deal," Kotick wrote that the company is "confident in our case because the facts are on our side: this deal is good for competition."

He added: “At a time when the fields of machine learning and artificial intelligence are thriving, we know the UK market would benefit from Microsoft’s bench strength in both domains, as well as our ability to put those technologies to use immediately. By contrast, if the CMA’s decision holds, it would stifle investment, competition, and job creation throughout the UK gaming industry.”

In a separate statement, Activision Blizzard said that it would “reassess” its growth plans for the UK, and suggested that this move would set a precedent. “Global innovators large and small will take note that – despite all its rhetoric – the UK is clearly closed for business,” it said.

EU regulators will weigh in on the deal by May 22, while the US Federal Trade Commission has not put a timeline on its ambitions to block the transaction.

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