Microsoft Following Activision Deal Block: 'This is the Darkest Day in Our 4 Decades in Britain' - News
by William D'Angelo , posted on 01 May 2023 / 4,512 Views
The Vice Chair and President of Microsoft Brad Smith speaking during the BBC's Wake Up To Money said the confidence the company has with the UK has been shaken following the UK regulator, Competition and Markets Authority (CMA), blocking Microsoft's acquisition of Activision Blizzard over concerns with cloud gaming.
"I think it's bad for Britain," said Smith via a transcription by GamesIndudstry. "The business community, the investment community and the technology sector around the world have been following this case. And the strong message that the CMA has sent, is not just to surprise everyone who fully expected this acquisition to be approved, but to send a message that will discourage innovation and investment in the United Kingdom. And I think in that sense the impact of this decision is far broader than on Microsoft or this acquisition alone."
He added, "Microsoft has been in the United Kingdom for 40 years and we play a vital role, not just supporting businesses and non-profits but even defending the nation from cyber-security threats. But this decision, I have to say, is probably the darkest day in our four decades in Britain. It does more than shake our confidence in the future of the opportunity to grow a technology business in Britain than we've ever confronted before."
Smith said the reasoning the UK regulator gave for blocking the deal was due to a "flawed understanding'" of cloud gaming and Microsoft giving other cloud streaming services access to its games was more than adequate to address the concerns of the regulator.
"It's all about a potential concern about what could become the cloud streaming of games, like you see the streaming of movies on a network like Netflix," said Smith. "But this business is so small today, that Microsoft can't even stream games to more than 5,000 people at a time in the entirety of the United Kingdom.
"So for regulators to step in and seek to torpedo a $68 billion global traction out of a concern of a part of the business that is so small, and to reject so may proposals to try and address their concern, it leaves people worried and it leaves people thinking that, actually, the process in Brussels worked far better than what we are now address in London."
Smith added that Microsoft believes the European Union is a friendlier place for technology companies to operate in. He is optimistic the European Union regulator, the European Commission, will accept the remedies Microsoft has put in place in relation to cloud gaming.
"I am optimistic that the European Commission will continue to go forward, as it has signalled in recent weeks and months, that it will regard the very promises that the CMA has rejected as far more appropriate," he said. "It is all about being pragmatic. Don't we want regulators to be pragmatic? Don't we want regulators to actually talk to the people they're regulating? Don't we want regulators to look for solutions rather than reasons to block people moving forward."
Smith added, "We thought we had answered every question that the CMA panel had put to us. And we specifically said 'if you have any other questions or concerns, please let us know. We want to address them.' But they went silent. We heard nothing from them. This is not the way regulators in Brussels work with companies, you have more of a conversation.
"Investments flow to places where people have confidence in the way laws and regulations work, and for all of us who had some hope that post-Brexit the UK would construct a constructor that would be more flexible, better for investment, better for technology, we're finding the opposite is true."
He added, "What is most striking to me is that the English Channel has never seemed wider in terms of Europe as a continent being attractive to investment [and] Brussels being a place where one can sit down and have a conversation with the regulators who are accountable to the elected leaders. And the difference we now confront in London, where we have regulators who are not only unelected and unaccountable and now making decisions that are fundamentally unwise."
Smith in a message to the UK Prime Minister stated, "If the Government of the United Kingdom wants to bring in investment, if it wants to create jobs, and if it wants to make the United Kingdom a home where technology is not only going to flourish, but be creative… then it needs to look hard at the role of the CMA, this regulatory structure in the United Kingdom, this transaction and the message that the United Kingdom has just sent to the world.
"Because I can tell you, while I might have a point-of-view that is based in part on an interest our company has, I have heard from a great many around the world. People are shocked, people are disappointed and people's confidence in technology in the United Kingdom has been severely shaken."
Smith says that people might be reluctant to start companies in the UK if they feel the UK regulator would block their effort to sell or merge with other companies.
"There's a clear message here: The European Union is a more attractive place to start a business if you want someday to sell it, than in the United Kingdom," Smith concluded.
A life-long and avid gamer, William D'Angelo was first introduced to VGChartz in 2007. After years of supporting the site, he was brought on in 2010 as a junior analyst, working his way up to lead analyst in 2012 and taking over the hardware estimates in 2017. He has expanded his involvement in the gaming community by producing content on his own YouTube channel and Twitch channel. You can contact the author on Twitter @TrunksWD.
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So dramatic. MS added $140 billion in market cap yesterday...
Brad's statements are just a flat out lie. Investments in the UK tech sector are growing and it was the #1 spot in all of the EU in 2022 and #3 in the world. Just because his trillion dollar company didn't get to make the biggest purchase in tech history does not mean every tech company is now going to view the UK industry from that sort of angle. His company is so large he's out of touch within his own industry.
It's not a lie if that's his genuine belief. And in any case, IMO the more important allegation is that Microsoft asserts that they attempted to understand and address all of the CMA's concerns. And even asked if the CMA had remaining concerns and wanted additional remedies, but that the CMA went silent. So the CMA denied Microsoft the opportunity to move towards approval. If so, that's a problem and the CMA needs to solve that (or have that solved for them), because that kind of behaviour isn't acceptable.
If there's no path for a company to get approval, tell them that. If there's a path for them to get approval, provide it to them. Just going silent? Utterly unacceptable.
So quickly they move from ¨this is flawed decision and we will win on appeal¨ to ¨we hate this evil regulatory framework¨. Such a childish attitude with no respect for differing perspectives or laws, and of course silence on their own arrogant and negligent ignorance, failing to understand this was indeed a possible outcome under this system. During this process it seemed MS was at least somewhat cognizant of value in maintaining respectful stance, or at least outsourcing that trash talk to Kotick the schizo who simultaneously blamed Sony and the evil politicized regulators. Corporations are not natural people, every single one exists by government fiat establishing the framework by which they exist (and shield investors from unlimited liability), so acting in full embrace of framework established by law and regulators should be core essence of all their actions, but entitlement deludes them to think the law is the problem and not themselves.
If Microsoft's executive board had any ability to do some self-reflection, they'd realize that their arrogance and ignorance are big reasons why Xbox is failing everywhere outside of the English-speaking world.
I don't see xbox doing that great in the english speaking world, their strongest market is latin america specially mexico(xbox one beated ps4)
I dunno if Series oversells PS5 in Brazil, but in ranking of their main markets it is like for Xbox brazil is 5 and for PS it is 12 or something like that.
"There's a clear message here: The European Union is a more attractive place to start a business if you want someday to sell it, than in the United Kingdom,"
So much for their statements on 'innovation' and 'investment' earlier in this, kinda ruined their point when in the end it's all about selling up and making money.
This is the "POINT" of businesses: Make money.
Innovation and investment is a path to that; as well as many other thing, nothing is ruining that point. That's business 101.
Yes and selling it according to him, can't keep that innovation and investment, time to sell up.
Selling is one of the main exit strategies lol that’s definitely one of the main reason why people starts businesses… why do you seem to be so offended by that idea?
Some businesses can grow and become huge corporations like Microsoft, Sony, Google, Apple, etc. But the majority of businesses are not and the exit strategy is to be acquired. Simple as that, like it or not.
Yes because a failed business selling out would be blocked similar wise to a very healthy corporation is being denied a big paycheck to sell out.
lol yes, only failed businesses sells out, this is well known :)
As an exit strategy yes. And sure the biggest takeout in tech history not being approved signify that john doe can't sell his startup.
Actually, in my experience in Canada at least, regulators are way more likely to allow a failing business to be acquired than a healthy one.
As they should and that is my point. CMA blocking a 69B deal between two healthy companies doesn't in any way show they would block a chapter 11 company of being bought (even in cases were they do those awkward maneuvers where all the bad parts are separated and the buyout is only of the good portion and all the debts go to the garbage).
I agree with you.
That said, blocking a (largely) vertical merger, even a big one, is pretty unprecedented. Most regulators, and almost all courts of law, allow companies to own their own supply chains. Since the overwhelming majority of ABK's revenue comes from PlayStation, Steam, Google Play, and the App Store, and very little from the Microsoft Store, the courts are highly likely to see this for what it is (mostly a vertical merger).
Heck, to the degree it's Microsoft getting into mobile, it's neither vertical nor horizontal, it's Microsoft getting into a whole new distribution business.
If Microsoft had a major mobile business, or if they owned Steam, then this would be seen more as a horizontal merger.
And that is likely the reason CMA gone on the streaming portion of the deal where MS already have a business and is the major player and on their belief the merger could foreclose competition on that emerging portion (and we know that one of the pilars of the long term plan of MS is the streaming portion because that would be the only real way to go from a possible pool of 100M customers to several billion potential customer, mobile front there would be no reason to block MS as Apple and Google are giant and MS doesn't really exist at the moment).
Is Microsoft the major player in streaming now, when PlayStation Plus has something like twice as many subscribers as Xbox Game Pass? Or do not all PS Plus subscribers have access to streaming?
Only the highest tier have access to streaming (and only in some countries), I don't think the number have increased much from the time it was PSNow or Gaikai, if I'm not wrong it was something like 2M total and right now I wouldn't put it above 5M. Even the mid tier that have the "rental" model without streaming isn't likely much higher. The bulk of the subs are most likely still the pay for online high profit portion of it.
Well, in the case of Game Pass only Game Pass Ultimate subscribers have streaming (regular Xbox Game Pass and PC Game Pass don't), so it's pretty muddy as to who has more subscribers with access to streaming. Interesting.
Yep. I don't know the breakdown for GP, but for Sony I think the streaming portion is a small percentage of the total and probably Sony had to give that info to CMA.
That's a really good point! They probably did divulge that to regulators, either because they had to or because they opted to do so if they felt the numbers supported their case.
Actually, the number of people playing streamed games might be largest on the Switch, as many games are only available that way.
Isn't most of the relevant streaming numbers exclusively on Japan?
I genuinely don't know. I don't even own a Switch. I just keep reading comments from people complaining about increasing numbers of AAA Switch games that are streaming-only. shrug
This I believe is true, but not sure if those games are available in the west, I also don't play on Switch my family does.
He's already big. If he is going to invest for innovation, do it for innovation's sake. But don't cry about UK's lack of innovation and how you won't invest because the UK government stopped you from buying a video game company.
"innovate for innovation sake" :) This is the real world you know... Businesses innovate to make more money... That's all. Nothing else.
Well, potentially losing $3bi and getting a "block" on market domination ambitons is indeed hard. A bad day for MS, i think.
Cough - bollocks - cough.
This is the Darkest Day in "his or the game divisions" 4 Decades in Britain. Microsoft love it here as they fleece us, take the money and run. He should be careful with what he says.
If they really committed to the UK they would have put more than 3% of their staff here.
If the CMA really went silent and/or gave signals that they may approve, and rebuffed their requests for guidance on whether the CMA wanted further concessions in exchange for approval, then it truly is a dark day IMO.
The only surprise in this for me is that Microsoft made the statement, rather than Activision. Up until now, Microsoft has been playing "Good Cop" while Activision has been playing "Bad Cop". Microsoft taking on the Bad Cop role for this statement caught me off guard.
But if the CMA truly misrepresented their intent, or denied Microsoft the understanding that they needed to make additional concessions, then I'd be just as choked as Brad Smith TBH.
USA is also suing to block this deal, so why doesn't this Microsoft President comment on that? Start dissing USA, why doesnt he? lol.
FTC is suing only for the giggles right?
They are suing for the political points. Their current lawsuit cannot prevent the deal from closing. So they're not even really trying to stop it.
The FTC is not suing in federal court. They're suing in the FTC's private court. So the FTC is suing in an FTC court, with an FTC official presiding as the judge. That's been taken as a sign that the FTC understands that their case is too weak to take to a regular court.
But the FTC court doesn't have the full force of law behind it, and the FTC court doesn't have the power to block the deal.
Federal courts in the US have a history of looking favourably towards mergers that are mostly vertical (as this one is). It's all but certain that Microsoft would beat the FTC is regular court.
What I wanted to point was if FTC was all right to approve the deal they wouldn't go and make a lawsuit nor would we get those rumors that MS was going to move along with the merger after CMA and EU approved even if FTC denied them.
It is not possible for the FTC to stop the deal from closing with their current lawsuit. They are not trying to stop the deal. The actions they are taking have absolutely no possible way to do that.
ok then.
@VAMatt is correct here, from what I understand. For the FTC to actually stop the deal, they'd have to sue (and win) in regular court, not in the FTC's private court. The FTC's court is easier for the FTC to win in, but is largely toothless. The FTC has not signalled it will sue in regular court.
And Microsoft has the option to "close over" the deal, where they complete the purchase despite it still being contested. That's risky... if they ultimately lose, then they'll have to either un-do the deal, or at least radically change how they operate the ABK side of the business in ways they probably wouldn't prefer to.
Closing over a deal is so risky that hardly any company ever does it, but Microsoft has already explicitly said that they're willingness to do so. It wasn't in a media statement either, it was in a legal filing with a regulator, so it wasn't some hot-headed executive speaking out of turn. That could just be brinksmanship from Microsoft's lawyers, but it could also be exactly what Microsoft intends to do.
That wasn't a rumour, actually. Microsoft's lawyers said Microsoft was willing to "close over" the deal if the FTC was the main/only hold-out. That is risky for a tonne of reasons, and they may or may not have meant it. It may have been brinksmanship. But it's not a rumour, it was in a legal filing with the regulator.
So he is basically threatening Britain, such a good work.
There is a big difference between a threat and a warning :)
You may argue that his warning is baseless, but this has nothing to do with a threat.
I don't take it that way at all. I think he's being honest about the situation. If the UK is going to work against them regulatorily, then why put more investment under their regulation? Seems like a perfect reasonable response to me.
Actually it doesn't. The other way to look is, you either make your laws the way I want or I won't play ball.
They're the same thing. If the UK's laws aren't suitable for Microsoft, then they'll invest instead in Ireland, or continental Europe. That's still not a threat, that's them being honest with the UK government and its regulator about the reasons for their business decisions.
These statements are a bad look. Microsoft is borderline making threats against the UK that they’ll change their business dealings with them if they hold their decision. They’re acting simultaneously like a bully and victim.
How is it a threat? Sounds to me like a simple statement of fact. They are unhappy with the regulatory environment in the UK, so they're now disinclined to put more investment under their regulation. I would be too. Especially if their allegations are correct that the CMA denied them the info that they needed to do more work to get approval. Either tell them there is no path to approval, or tell them what the path to approval is. But to just lead them along, and then go silent at the end? Utterly unacceptable, if true.
Its MS's property and they can do what they want with it. The CMA are the ones blocking MS so they are the ones stepping in for the consumers so MS will see how much the CMA are helping the public. Makes sense to me. Lets see how beneficial blocking this deal helps.
Shut the fuck up already and stop this pathetic behaviour. This trump style messaging from this corporate douche is so stupid .
You want him to comport himself better, but then you call him a douche. Pot, kettle, black?
One is a CEO speaking in public representing his company image and attacking a country the other is an user on a forum with zero impact. Yes totally the same thing.
I try to practice what I preach, regardless of the power dynamic between me and the person I'm giving (unsolicited) advice to. :)
I try to do the same to myself, but I certainly wouldn't hold a company and anonymous individuals on the same requirements.
Can't they just go on with the aquisition in other countries and still make money off it?
They can. They can probably even go on with the acquisition in the UK, by creating a UK subsidiary of Activision that operates in a more restricted way than it does in other countries.
Would love to see MS block their products in the UK. CMA protecting the people
That would certainly show good faith.
Why do they need to show good faith? CMA just denied them their future
The process appeal if won will go to CMA. And if MS after losing a case and doing threats go and leave the country that will show all governments what type of company they are and do you think any other regulator would be happy? Because in the end it shows MS only respects regulators that bend over themselves for them.
The governments need to also look after those companies that supply their communities with products they want to use. In the end, it's those blocking the deals hurting their community. The last thing the gov needs is riots and mob crowds in the streets.
Its MS's products not the Govs so it's not a threat, it's MS property. Did you not see what Blizzard did to China with WoW when a deal didn't take place, Blizzard just pulled their product from the country. It happens.
I don't take their statement that way. I think Microsoft is butthurt because the CMA didn't signal that there was a problem. So Microsoft feels lied to. And understandably so.
To see if MS was truly lied to we would need more data to show, but even if they are pissed going public this way is a big no imho.
Yeah, I think this was an emotional response by the executive in question, as I think he personally felt lied to by the CMA, but it wasn't helpful.
We are all prone to emotions, but when our jobs depend on it we sometimes have to hold it and not answer right away, it is quite hard I know. And who knows, that may have been a calculated move by MS that considered this would give them the best result even if some may be "offended" by it.
I fully agree. If that really was an executive that was responding off-the-cuff at 2am without vetting everything through lawyers and PR people! But as you say, maybe it was more calculated than it looked like.
A child’s stance.
It would be absolutely hilarious.
Why?
Those that pretend to protect actually make it worse.
Why would that be hilarious?
It would be ironic. Those supporting the CMAs decision to, oh crap wheres our products. Id laugh.
That’s pretty telling of the kind of person you are. 👌
He is a specialist business owner.
I believe in Karma. Don't be sad.
So you believe that the reason MS have been last every generation is due to their bad behaviour?
What?
You said that you believe in Karma with regards to MS just going and "we will move all our business from UK" as cosmic retribution for CMA doing something you think is wrong. So I asked if Karma is a thing and to explain Xbox never being a major success is it because of the bad actions from MS/Xbox.
You make zero sense.
It’s simple. Is MS constantly in third place and struggling because of karma hitting them? Or is karma hitting only those you don’t like?
Karma has nothing to do with (Ill assume you are referring to Console sales) with under selling hardware.
Ahh. It’s the latter. Figured as much.
Literally has nothing to do with Karma. Poor effort from you both.
This is karma is like that "everyone I don't like is hittler", I didn't know.
Wtf
It seems to me that they don't need to block their products in the UK, just deny cloud streaming to them since that's the CMA's only concern.
Just create an Activision Blizzard King subsidiary in the UK that sells ABK games only as boxed retail games and through digital distribution. But no cloud streaming of ABK games there. That would presumably satisfy the regulator. Or the UK courts, if not the regulator.
His points here are all correct. He's going pretty damn hard on the hyperbole though.
Probably should have let the PR people do a little more work on this statement.
I said from day 1 that the UK and the US were the most corrupt, & I’m proven 100% right again. In terms of financial/commercial industry and market regulations, the US & the UK are easily the most corrupt in terms of scale, across the whole world.
I see that most people are completely ignoring how small game streaming is in the UK, and to use that tiny “market” to block a whole other side of the deal is outrageous and corrupt.
CMA also completely lied by separating cloud gaming from the rest of the gaming industry, which is a fraudulent way to block the deal.
Anyone claiming that this isn’t corrupt has been discredited and is on the side of corruption.
For all the bad things Don said (that matched his behavior) he was much stronger competition than Phil Spencer biforked tongue. I would welcome Don back, well maybe not with Phil Sony have a much easier way even when Phil buys the market.
Given Microsoft brought us backwards compatibility and other pro-consumer things under Phil Spencer, I strenuously disagree. :)
Things that don't really made Xbox competitive, brought better games or anything really important (and even BC got side tracked little after release) =p
A little after release? We got back-compat updates for over 6 years.
OG Xbox and Xbox 360 backward compatibility on Xbox One began in 2015, and the last new batch of back-compat titles dropped in November 2021.
But that was also around the times that things started happening behind the scenes with a big purchase (of which ABK was only one option being considered).
The back-compat team was also involved in Xbox One titles running on Xbox Series consoles, and has also been kept busy adding FPS boost to Xbox One titles on Xbox Series consoles.
Microsoft has said they want as many ABK games running on Game Pass "as possible". I bet the back-compat team has been busy working on getting older Activision titles running on Xbox Series consoles. If the ABK purchase doesn't go through, I suspect a lot of that work will sadly just disappear. If that doesn't happen and some other purchase does, I expect we'll get more of their games running in back-compat. A lot of the issues with adding games to the back-compat list aren't technical, they're rights issues. A company may refuse to add it, perhaps to keep their options open for a re-release/remaster/whatever. But if Microsoft purchases that publisher, then they can finally add them to the back-compat list.
After release of Xbox Series I mean not the service/concept itself. But sure I can see for people that like legacy title this was a very good move (for me it didn't move the needle as usually I only go to older titles if they launched a good remake/remaster).
Fair enough. One of the reasons that I love back-compat titles is that they usually run great, as they're running on hardware much more powerful than they were designed for. Unlike new titles that often have performance issues. And running games under back-compat is much more affordable than buying a remake/remaster. :)
Yep it was a cool implementation that MS gave and the improvements were quite visible and much easier to implement than what Sony have for PS1/PS2 titles, and I do understand MS doesn't have infinite manpower to keep working on the BC while focusing on the needed 1st party gap they had. It is just that for me BC isn't much important.
Yeah, back-compat engineering is a very different skill set than game development, so one doesn't take away from the other. So it all comes down to Microsoft's willingness to invest in each. But fair enough that it's nonetheless a niche activity.
One of the things that makes it particularly worth it for Microsoft is that they have one store to rule them all (the Microsoft Store). Whether you're buying PC games, Xbox Series games, Xbox One Games, Xbox 360 games, or OG Xbox games from Microsoft, you're buying them all from the same online store. So once something is back-compat, Microsoft has the option to keep selling it digitally for newer systems. I continue to buy old 360 and OG Xbox games, when they go on sale, from time to time, and play them on my Series console.
This is in contrast to Sony and Nintendo that, for whatever reason, keep different stores for each system. Which leads to annoying things like the PS3 store is closing, or the 3DS store is closing, or what have you.
Yes I think it is time for Sony and Nintendo to unify their store even if only on console.
Yeah, if Microsoft can unify their stores for their consoles and the PC, surely the competition should at least be able to unify their stores on console?
