Bad for Britain, Bad for Microsoft (Premium)

In what can only be construed as a threat to the country, Microsoft president Brad Smith said that blocking his company's acquisition of Activision Blizzard would be "bad for Britain." It was an understandably aggressive statement, given the amount of time and effort Mr. Smith and Microsoft have put into satisfying the petty needs of regulators, not to mention the rollercoaster ride they've been on thanks to the UK Competition and Markets Authority (CMA).

Let's dissect it.

In January 2022, Microsoft announced that it intended to acquire game-making giant Activision Blizzard for $67.8 billion. At the time of the announcement, Microsoft noted that Activision Blizzard's "fantastic franchises" would "accelerate [its] plans for [Xbox] Cloud Gaming" and bring Xbox to "phones, tablets, laptops and other devices," and that it would continue to support Activision Blizzard games on the "variety of platforms" on which its games were made available, including those owned by competitors like Nintendo and Sony.

Microsoft also understood that this massive deal would be met with intense regulatory scrutiny. And so it publicly stated that it did not expect it to close until the end of its fiscal 2023, or June 30, 2023. In the ensuing 18 months, Brazil, Chile, Japan (tellingly, Sony's home country), Saudi Arabia, Serbia, South Africa, and Ukraine all approved the deal without qualification. But Microsoft met resistance from the two biggest regulatory bodies it faced, the U.S. Federal Trade Commission (FTC) and the European Union's European Commission (EC), plus the UK CMA, each of which has been heavily lobbied by market leader Sony, which desperately wants to squash this deal to maintain its dominance.

There is no rational reason for any regulatory body to oppose this deal. But in a misplaced bid to show that the Biden administration is serious about curbing the power of Big Tech, the FTC sued to block the acquisition in December 2022, with the United States government deciding to prevent an American firm from acquiring another American firm in order to protect a dominant Japanese tech giant. In March, we learned that the EC was likely to approve the deal after Microsoft made concessions. And later in March, we learned that the UK CMA was also likely to approve the deal for the same reasons.

Just kidding.

On Wednesday, the UK CMA surprised everyone---Microsoft, its competitors, videogame players, and other onlookers---by announcing that it would block the acquisition. The problem? Microsoft's concessions did address its concerns, but only for the videogame console market. What Microsoft did not address was the CMA's concerns about the game streaming market, a market so small that it almost doesn’t exist. In other words, the UK is concerned about "what ifs" or "future crimes." Which doesn't make sense since Microsoft's concessions could very easily be adapted to address this wannabe market too.

Mr. Smith's resulting commentary on this...