Both companies had strong words regarding the same and said they would appeal the decision. However, the European Commission further stunned the world by recently approving the acquisition, citing Microsoft’s commitment to “fully address the competition concerns identified by the Commission and represent a significant improvement for cloud gaming as compared to the current situation.”

The CMA has addressed this on Twitter. “The UK, US and European competition authorities are unanimous that this merger would harm competition in cloud gaming. The CMA concluded that cloud gaming needs to continue as a free, competitive market to drive innovation and choice in this rapidly evolving sector.

“Microsoft’s proposals, accepted by the European Commission today, would allow Microsoft to set the terms and conditions for this market for the next ten years. They would replace a free, open and competitive market with one subject to ongoing regulation of the games Microsoft sells, the platforms to which it sells them, and the conditions of sale.

“This is one of the reasons the CMA’s independent panel group rejected Microsoft’s proposals and prevented this deal.” While it recognizes and respects the “different view” that the European Commission holds, the CMA “stands by its decision.”

Why doesn’t Microsoft “leave” the UK market over the decision (after paying a $3 billion breakup fee to Activision Blizzard)? Because as noted by the CMA, the company has 60 to 70 percent of the current market share in cloud gaming. After the United States, the UK is an important region for the company, especially given its struggle to establish a foothold in Japan since the OG Xbox days.

As always, time will tell, but even if the CMA reverses its stance, Microsoft and Activision Blizzard still have to contend with the Federal Trade Commission in the United States. After blocking the deal, the FTC made clear in January that there were no “substantive” settlement talks. Stay tuned for more updates in the meantime.

Our response to the European Commission's announcement today on Microsoft/Activision ⬇

[1/5]

— Competition & Markets Authority (@CMAgovUK) May 15, 2023

The UK, US and European competition authorities are unanimous that this merger would harm competition in cloud gaming.

The CMA concluded that cloud gaming needs to continue as a free, competitive market to drive innovation and choice in this rapidly evolving sector.

[2/5]

— Competition & Markets Authority (@CMAgovUK) May 15, 2023

Microsoft’s proposals, accepted by the European Commission today, would allow Microsoft to set the terms and conditions for this market for the next 10 years.

[3/5]

— Competition & Markets Authority (@CMAgovUK) May 15, 2023

They would replace a free, open and competitive market with one subject to ongoing regulation of the games Microsoft sells, the platforms to which it sells them, and the conditions of sale.

[4/5]

— Competition & Markets Authority (@CMAgovUK) May 15, 2023

This is one of the reasons the CMA’s independent panel group rejected Microsoft’s proposals and prevented this deal.

While we recognise and respect that the European Commission is entitled to take a different view, the CMA stands by its decision.

[5/5]

— Competition & Markets Authority (@CMAgovUK) May 15, 2023

Interestingly, the Commission said the acquisition is approved due to full compliance by Microsoft on commitments that “fully address the competition concerns identified by the Commission and represent a significant improvement for cloud gaming as compared to the current situation.”

Its investigation initially found that the acquisition could “harm competition (i) in the distribution of console and PC video games, including multi-game subscription services and cloud game streaming services; and (ii) in the supply of PC operating systems.” While an in-depth investigation revealed that Microsoft wouldn’t harm other competing consoles and multi-game subscription services, it did confirm that it could “harm competition in the distribution of games via cloud game streaming services,” while “its position in the market for PC operating systems would be strengthened.”

However, it ultimately noted the following:

• Microsoft would have no incentive to refuse to distribute Activision’s games to Sony, the leading distributor of console games worldwide, including in the European Economic Area (“EEA”) where there are four Sony PlayStation consoles for every Microsoft Xbox console bought by gamers. Indeed, Microsoft would have strong incentives to continue distributing Activision’s games via a device as popular as Sony’s PlayStation.
• Even if Microsoft did decide to withdraw Activision’s games from the PlayStation, this would not significantly harm competition in the console market. Even if Call of Duty is largely played on consoles, it is less popular in the EEA than in other regions of the world and is less popular in the EEA within its genre compared to other markets. Therefore, even without being able to offer this specific game, Sony could leverage its size, extensive games catalogue and market position to fend off any attempt to weaken its competitive position.
• Even without this transaction, Activision would not have made its games available for multi-game subscription services, as this would cannibalize sales of individual games. Therefore, the situation for third-party providers of multi-game subscription services would not change after the acquisition of Activision by Microsoft.
• The acquisition would harm competition in the distribution of PC and console games via cloud game streaming services, an innovative market segment that could transform the way many gamers play video games. Despite its potential, cloud game streaming is very limited today. The Commission found that the popularity of Activision’s games could promote its growth. Instead, if Microsoft made Activision’s games exclusive to its own cloud game streaming service, Game Pass Ultimate, and withheld them from rival cloud game streaming providers, it would reduce competition in the distribution of games via cloud game streaming.
• If Microsoft made Activision’s games exclusive to its own cloud game streaming service, Microsoft could also strengthen the position of Windows in the market for PC operating systems. This could be the case, should Microsoft hinder or degrade the streaming of Activision’s games on PCs using operating systems other than Windows.

Microsoft ultimately offered two commitments for a ten-year duration – a free license in the EEA that would allow players to stream via any service of their choice “all current and future Activision Blizzard PC and console games for which they have a license.” It would also provide a free license to cloud game streaming services for the streaming of the company’s PC and console games to players based in the EEA.

“Today, Activision Blizzard does not license its games to cloud game streaming services, nor stream the games itself. These licenses will ensure that gamers that have purchased one or more Activision games on a PC or console store, or that have subscribed to a multi-game subscription service that includes Activision games, have the right to stream those games with any cloud game streaming service of their choice and play them on any device using any operating system. The remedies also ensure that Activision’s games available for streaming will have the same quality and content as games available for traditional download.”

As per the European Commission, these commitments not only “fully address” competition concerns but present a “significant improvement for cloud game streaming compared to the current situation. They will empower millions of EEA consumers to stream Activision’s games using any cloud gaming services operating in the EEA, provided they are purchased in an online store or included in an active multi-game subscription in the EEA.

“In addition, the availability of Activision’s popular games for streaming via all cloud game streaming services will boost the development of this dynamic technology in the EEA. Ultimately, the commitments will unlock significant benefits for competition and consumers, by bringing Activision’s games to new platforms, including smaller EU players, and to more devices than before.”

While investigating remedies, the Commission collected information from stakeholders, “market participants” and cloud game streaming service providers (who provided “positive feedback” and “interest” in licenses).

“Taking into consideration the feedback of the market, the Commission concluded that the proposed acquisition, as modified by the commitments, would no longer raise competition concerns and would ultimately unlock significant benefits for competition and consumers. The Commission’s decision is conditional upon full compliance with the commitments. Under the supervision of the Commission, an independent trustee will be in charge of monitoring their implementation.”

While this is good news for Microsoft, it still has a ways to go with approving the acquisition in the UK. It’s looking to appeal the CMA’s decision but could pay $3 billion as breakup fees if the deal doesn’t go through. There’s also the fact that it hasn’t been approved in the United States due to the Federal Trade Commission. Stay tuned for more updates in the meantime.

“We remain fully committed to this acquisition and will appeal. The CMA’s decision rejects a pragmatic path to address competition concerns and discourages technology innovation and investment in the UK.”

A spokesperson for Activision added, “The CMA’s report contradicts the ambitions of the UK to become an attractive country to build technology businesses. We will work aggressively with Microsoft to reverse this on appeal.”

According to the CMA’s report, the final decision came down to Microsoft’s failure to provide a solution for the concerns with cloud gaming. Due to owning a dominant market share of cloud gaming services, on top of the Azure and Xbox Cloud Gaming infrastructure, the authority felt that Microsoft having more advantages would “risk undermining the innovation crucial to the development of these opportunities.”

Though Microsoft provided a proposal to address some of the concerns, the CMA felt it didn’t cover “different cloud gaming service business models, including multigame subscription services,” and wasn’t “sufficiently open to providers who might wish to offer versions of games on PC operating systems other than Windows.” Of course, standardizing the “terms and conditions on which games are available, as opposed to them being determined by the dynamism and creativity of competition in the market” didn’t help.

Time will tell how the appeal goes, so stay tuned. Microsoft and Activision also have the US Federal Trade Commission’s lawsuit to deal with, especially since the latter is in no mood to settle.

The final decision fell on Microsoft’s failure to provide a solution for cloud gaming concerns, which the CMA outlined last February. Microsoft already makes up about 60 to 70 percent of cloud gaming services worldwide, and other strengths like commanding the largest PC OS market share with Windows. The CMA felt that having Actvision’s titles exclusive to its cloud service would benefit it immensely, not to mention the advantage of control over franchises like Call of Duty, Overwatch and World of Warcraft.

Without the merger, Activision’s games could be available on other cloud platforms, providing more choices. “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 said.

Microsoft did provide a proposal addressing some concerns, but the CMA said this had a “number of significant shortcomings connected with the growing and fast-moving nature of cloud gaming services.” They are as follows:

• It did not sufficiently cover different cloud gaming service business models, including multigame subscription services.
• It was not sufficiently open to providers who might wish to offer versions of games on PC operating systems other than Windows.
• It would standardize the terms and conditions on which games are available, as opposed to them being determined by the dynamism and creativity of competition in the market, as would be expected in the absence of the merger.

“Given the remedy applies only to a defined set of Activision games, which can be streamed only in a defined set of cloud gaming services, provided they are purchased in a defined set of online stores, there are significant risks of disagreement and conflict between Microsoft and cloud gaming service providers, particularly over ten years in a rapidly changing market.

“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.”

While the CMA did consider the benefits of the merger, especially with Activision content on Game Pass, it felt the merger would cause more harm to competition and players in the UK. It may even provide an “incentive for Microsoft to increase the cost of a Game Pass subscription post-merger to reflect the addition of Activision’s valuable games.”

Martin Coleman, chair of an independent panel of experts on the investigation, said, “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.

“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. Microsoft engaged constructively with us to try to address these issues, and we are grateful for that, but their proposals were not effective to remedy our concerns and would have replaced competition with ineffective regulation in a new and dynamic market.

“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.”

With the Federal Trade Commission filing a lawsuit to prevent the merger in the United States, it’s not looking good for Microsoft. Stay tuned for further updates in the meantime.

As reported by GamesIndustry, the regulator said, “There is a realistic prospect of a substantial lessening of competition in gaming consoles, multi-game subscription services, and cloud gaming services.” The “network effect” of the market, which causes a console with more gamers to attract more content and thus more gamers, was cited as a concern with any potential exclusivity.

“The CMA is concerned that having full control over this powerful catalogue, especially in light of Microsoft’s already strong position in gaming consoles, operating systems, and cloud infrastructure, could result in Microsoft harming consumers by impairing Sony’s – Microsoft’s closest gaming rival – ability to compete as well as that of other existing rivals and potential new entrants who could otherwise bring healthy competition through innovative multi-game subscriptions and cloud gaming services.”

The CMA also feels that Activision-Blizzard titles could have eventually arrived on other subscription services if this deal didn’t go through. “The CMA recognises that ABK’s newest games are not currently available on any subscription service on the day of release but considers that this may change as subscription services continue to grow. After the Merger, Microsoft would gain control of this important input, and could use it to harm the competitiveness of its rivals.” Microsoft’s Azure cloud service, not to mention its dominance with PC operating systems, could result in an “unparalleled advantage” if its acquisition of Activision-Blizzard goes through.

Of course, Microsoft has responded in kind. It noted, “These unsupported theories of harm are not sufficient to justify a reference to Phase 2.” It also said there were numerous reasons why the CMA’s concerns over the deal’s impact on PlayStation were “misplaced.” Some of these include PlayStation having a market-leading position with an install base of 150 million consoles versus Xbox’s 63.7 million consoles. There’s also the fact that Sony’s market leadership allows for raising the PS5’s price “without fear of losing market share.”

Microsoft told GamesIndustry, “The suggestion that the incumbent market leader, with clear and enduring market power, could be foreclosed by the third largest provider as a result of losing access to one title is not credible.” It also added that if every Call of Duty player shifted to Xbox, “the PlayStation gamer base would remain significantly larger than Xbox.” It didn’t provide any figures to back this assumption up, however.

It further noted Sony’s acquisitions and the fact that it saw more than 280 first and third-party exclusives on PlayStation in 2021, five times that of Xbox’s offerings. “In short, Sony is not vulnerable to a hypothetical foreclosure strategy, and the Referral Decision incorrectly relies on self-serving statements by Sony, which significantly exaggerate the importance of Call of Duty to it and neglect to account for Sony’s clear ability to competitively respond.

“While Sony may not welcome increased competition, it can adapt and compete. Gamers will ultimately benefit from this increased competition and choice.” Microsoft reiterated that it would keep Call of Duty on PlayStation and that taking it away would “alienate” the console’s fanbase and “tarnish both the Call of Duty and Xbox brands.”

As for the decision to bring Activision-Blizzard titles to Game Pass, Microsoft believes this would offer more choices for gamers. While it didn’t indicate whether it would allow Call of Duty to release on other subscription services, Microsoft noted that Game Pass wasn’t on PlayStation. Thus any concerns from the CMA of it “tipping” subscription services in favor of Xbox were inaccurate. It also pointed to the popularity of “buy to play” and free-to-play models that continue provide ample competition for Game Pass.

In the end, Microsoft says, “Should any consumers decide to switch from a gaming platform that does not give them a choice as to how to pay for new games (PlayStation) to one that does (Xbox), then that is the sort of consumer switching behavior that the CMA should consider welfare enhancing and indeed encouraged. It is not something that the CMA should be trying to prevent.”

Regarding streaming, Microsoft feels the regulator’s concerns are somewhat flawed. It noted that Xbox Cloud Gaming doesn’t use Azure, and also doesn’t stream titles from PC hardware. As a result, Xbox would be facing “significant disadvantages compared to rival providers of infrastructure for game streaming.”

“There is no advantage. Indeed, Xbox considers that it faces many significant disadvantages as compared to rival providers of infrastructure for game streaming.” While the CMA feels that acquiring Activision-Blizzard and using it in conjunction with other services could “foreclose” on cloud gaming rivals, Microsoft said this is counter to its objective.

“Consumer adoption of cloud gaming remains low. Harming or degrading rival services would significantly set back the adoption of this technology – protecting market-leading incumbents (i.e., Sony on console, Apple and Google on mobile, as well as Steam on PC).

“Xbox as a platform which is in last place in console, seventh place in PC and nowhere in mobile game distribution globally, has no incentive to do this. Instead, its incentive is to encourage the widespread adoption of cloud gaming technologies by as many providers as possible to encourage the major shift in consumer behavior required for cloud gaming to succeed.”

Preliminary findings for the investigation’s second phase will be revealed in January 2023, followed by a final report on March 1st, 2023. Stay tuned for more details in the meantime.

“But even as we build for the future, we’re focused on extending the Xbox experience to more devices today so we can reach more people.” Hamren further noted that despite expansions into PC and mobile gaming, “Console remains our flagship experience. We want to deliver the most powerful, capable consoles in the world, devices that empower our players to enjoy amazing games for years to come, including gameplay we can’t even imagine yet.”

Xbox boss Phil Spencer also spoke about the potential of cloud gaming in the briefing. “More recently, if you couldn’t spend the hundreds of dollars on a console or potentially the thousands of dollars on a high-end gaming PC, you simply couldn’t participate in the global gaming community in a significant way.

“The cloud will allow us to completely remove these barriers to play, worldwide. Of course, there’s still a place for consoles and PCs. And frankly, there always will be. But through the cloud, we will be able to deliver a robust gaming experience to anyone connected to the internet, even on the least powerful, least expensive devices, even on devices people already own. And with cloud gaming, players can participate fully in the same Xbox experience as people on local hardware. And we couldn’t do that if we weren’t part of Microsoft.”

Microsoft has made significant efforts with cloud gaming with xCloud allowing for streaming games from one’s console onto mobile devices. Numerous titles are available on Xbox Game Pass with more added each month that support cloud gaming. In an Xbox Wire post, the company revealed that it was also working with TV manufacturers to “embed the Xbox experience directly into internet-connected televisions with no extra hardware required except a controller.” New subscription offerings for Xbox Game Pass along with new purchasing models for Xbox All Access are also planned.

There’s still plenty to look forward to on the Xbox Series X/S like Starfield, Halo Infinite, Psychonauts 2 and much more. Expect more details and Game Pass announcements the upcoming Xbox and Bethesda Games Showcase on June 13th.

Remember the “power of the cloud” that Microsoft promised for years with the Xbox One? It eventually amounted to nothing, and Microsoft, thankfully, pivoted to not relying on smoke and mirrors to sell their fare (although Crackdown 3, as a remnant of that era, came out and… widely disappointed).

Microsoft may have understood that nothing can replace local, native gaming, but it seems that others in the industry have caught the “cloud gaming” bug. We’ve already had Google promise cloud-assisted computation for their controversial streaming-only Stadia platform (and some developers already seem to be leveraging that extra CPU pizazz in their games, to be fair). And now, it seems like EA is all wide-eyed about the possibilities that cloud-assisted gaming could offer, pointing specifically to DICE’s vaunted destruction tech as something that could benefit greatly from something like that.

“I’m super excited about [streaming], but it’s actually one step on a journey. The main difference in cloud is not really that the CPU is sitting in a big building versus being in your living room; the main difference is now you can have dozens or hundreds or thousands or millions of computers that can do stuff to help power the game,” Electronic Arts Chief Technology Officer Ken Moss told GamesIndustry.

“If you apply that to an actual game like Battlefield… DICE prides itself on amazing destruction. They blow stuff up better than anyone. But the simulations they do for destruction are very limited compared to what they would really like to do, because they have a certain amount of GPU and a certain amount of CPU and they have to do it in real time. If they could have a pool of servers up there that can be running our physics engine in Frostbite and be calculating better destruction, it can be like real life.

“And you can apply that not just to blowing things up. You can apply that to really every part of the game.”

The theory, to be fair, checks out (and while I am very down on Crackdown 3, its Cloud-Powered destruction in that one specific mode it was limited to was a bit impressive). The issue is that thus far there is no reason to believe there is ever going to be any actual execution on this concept that doesn’t end up being inherently inconvenient for the customer—remember how EA and Maxis claimed that SimCity was always online because it needed the extra cloud-compute assist to run its simulations? And how that was false, and just an excuse for always-online DRM?

Right now, that kind of thing forms the bulk of our experience with cloud-assisted gaming. It will take a while for the stench of that stigma to wash away.

This generation of console gaming hasn’t been the kind of step forward, the paradigm shift in game design, that has been associated with new console cycles in the past. All three systems this generation seem to be just more powerful versions of their predecessors.

A lot of this has to do with the fact that what was expected to create a generational shift with this console cycle was roundly rejected by gamers- Microsoft’s vision for cloud gaming. But cloud gaming definitely has potential for the future of gaming- and we are already seeing Microsoft invest in it, with the upcoming Crackdown 3, and Sony with PlayStation Now. Even Nintendo have started to discuss the potential of eventually expanding their upcoming My Nintendo service into the cloud.

But no matter how much promise cloud gaming has for the future, in general, it appears as though in the here and now, the proposition it offers is entirely unfeasible. This is a thought shared by game creators, too- we sat down to talk with Coldwood Interactive’s Martin Sahlin, who worked on the just released and the brilliant Unravel, and he, too, believes that cloud gaming and cloud assisted gaming are a ways off into the future.

“We’re not there yet- that’s as much as I can basically say,” Sahlin said. “At some point- I mean, I don’t know, I wouldn’t know how far into the future that is. It might be pretty far. But we’re definitely not there yet.”

Of course, we may get individual cloud games, like Crackdown 3– but it seems unlikely that mainstream, widespread cloud gaming is going to become a thing just yet.

Stay tuned to GamingBolt for our full interview with Martin Sahlin.

This summer, Microsoft and Reagent Games will be offering our first look at what could be the future of cloud tech-powered games with Crackdown 3‘s multiplayer. Based on the demo we saw at Gamescom 2015, we’re excited but it’s still a little odd to see this technology being consolidated into huge AAA titles like this.

GamingBolt spoke to The Park game director Joel Bylos of Funcom about his opinion on the same and where he thinks it will lead gaming in general. He stated that, “Hmmm, technology is a wonderful thing but it is the impact on gameplay that really matters. I haven’t looked into exactly what Crackdown 3 is doing, but using cloud computing to do physics calculations on the server side and then passing that information back to a client… sure I guess.

“It’s a cool idea that probably doesn’t alter your immediate experience (the moment to moment) of playing the game that much. And seeing it is a multiplayer only feature, my assumption is that the developers would not be hanging their hat on that particular feature either.

“I do think cloud computing can have a huge impact on indirect activities, but since it will always be heavily tied to connection speeds, I’d be wary of using it for any core mechanics. With that said, imagine an RPG like The Witcher with an AI driven Game Master who lives in the cloud and creates adventures for your player (like a world building version of the AI director from Left 4 Dead). This sort of technology makes these sort of possibilities available. I like new technology because it always throws a new tool in the toolbox.”

At the end of the day, it will ultimately come down to the kinds of games that cloud tech can power and whether they’ll be fun. What are your thoughts on it? Let us know in the comments.

Shinra Technologies, a cloud gaming platform by Square Enix, has recently been shut down. The service suffered an “extraordinary loss” according to the publisher of roughly 2 billion yen or $16.8 million. Lack of investors also hurt its prospects.

Square Enix stated that, “STI, as a cloud platform operator, has been trying to raise funds necessary for further business operations from third party investors. However, STI has found no prospective investors at this point, and therefore has to discontinue its business.”

Shinra was started by former president Yoichi Wada during TGS 2014 and seemed to differentiate itself by offering multiple servers for improved physics and graphics capability. Its home office in New York has been shut down along with its office in Japan.

What are your thoughts on the closure of Shinra Technologies and its influence on the future of cloud gaming? Let us know in the comments below and stay tuned for more updates.