Yesterday, the company’s quarterly results steamed past analyst estimates on the basis of strong cloud and productivity software growth. Microsoft also slightly beat Wall Street’s predictions regarding growth in its A.I. sales, revealing it already had more than 2,500 customers for its Azure-OpenAI tie-in. Oh, and Bing is booming, again thanks to the search engine’s recent A.I.-ification. Microsoft shares soared over 8.3% in after-hours trading.

And then, today, Microsoft’s biggest-ever acquisition—heck, the U.S. tech industry’s biggest-ever acquisition—was dealt what may well be a mortal blow. The U.K.’s Competition and Markets Authority blocked the firm’s $69 billion purchase of Activision-Blizzard, mainly because of its potential negative effects on the cloud gaming market, which is starting to give gamers a real option that doesn’t require having to purchase a gaming console, like Microsoft’s Xbox, or hardcore PC processing power.

Microsoft and Activision say they will appeal the decision. “This decision appears to reflect a flawed understanding of this market and the way the relevant cloud technology actually works,” said Microsoft president Brad Smith in a statement. “We’re confident in our case because the facts are on our side: this deal is good for competition,” wrote Activision CEO Bobby Kotick in a staff email. 

Meanwhile, Activision corporate affairs chief Lulu Cheng Meservey tweeted somewhat hyperbolically that the CMA’s decision was “a disservice to U.K. citizens, who face increasingly dire economic prospects, and we will need to reassess our growth strategy in the U.K. Global innovators large and small will take note that—despite all its rhetoric—the U.K. is closed for business.” Along with Kotick saying in February that the agency was “confused” and “not really using independent thought,” I’m not sure Activision has figured out how to charm regulators.

Let’s have a quick glance at the CMA’s reasoning: 

– Microsoft already holds around two-thirds of the global cloud gaming market, which is starting to grow rapidly.

– Without the merger, Activision would start putting hit titles like Call of Duty onto cloud gaming services pretty soon.

– Buying Activision would give Microsoft such a strong position in this nascent market that it “would risk undermining” the opportunities that cloud gaming offers to consumers for freeing themselves from expensive consoles and PCs.

– Microsoft’s proposed solution—a series of 10-year deals to ensure Call of Duty’s availability on Nintendo and other non-Microsoft platforms—“did not sufficiently cover different cloud gaming service business models, including multigame subscription services,” and “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.”

– Also, the CMA would need to police whether Microsoft is sticking to the terms of those 10-year deals, which would constitute regulatory intervention that could affect the development of the cloud gaming market, so just blocking the merger is actually better for the market overall.

Activision’s Kotick is adamant that the CMA’s rejection is “far from the final word on this deal.” However, it’s pretty darn close. The companies now need to appeal to the U.K.’s Competition Appeal Tribunal, which won’t be interested in the merits of the CMA’s decision, nor in the companies’ evidence—and certainly not in their threats about the U.K. economy. Instead, they will have to demonstrate that the decision was irrational, illegal, or procedurally improper. This is difficult, which is why the CMA tends to win such appeals (though not always, as Apple recently demonstrated with a successful appeal—won on a point of law—against the CMA’s opening of an antitrust probe).

If Microsoft and Activision lose their appeal, they would only be able to appeal further on a point of law. And even if they manage to convince the tribunal that the CMA blew this call, the case would then go back to the CMA for reevaluation. So even in the best-case scenario, this is going to drag on for a long time yet.

Microsoft’s share price has actually taken only a minor dent from the CMA’s decision today, suggesting Wall Street sees this as a side-show to yesterday’s stellar results. However, Activision Blizzard’s share price dropped as much as 10%, reflecting the seriousness of the games publisher becoming stuck in lengthy legal limbo.

As for the biggest takeaway for the wider industry…well, I kinda wrote it yesterday: A few years after Brexit, the U.K.’s tech regulators are showing the world that they can be at least as tough as their EU counterparts—and just as influential, given how these decisions affect users around the world.

Want to send thoughts or suggestions to Data Sheet? Drop a line here.

David Meyer

Data Sheet’s daily news section was written and curated by Andrea Guzman. 

NEWSWORTHY

Netflix's password crackdown didn't go over well in Spain. Netflix installed a monthly fee for users in Spain who shared their login details with another household earlier this year, bringing a rise to subscription cancellations. In the first three months of 2023, the streaming platform lost more than one million users in Spain, according to market research group Kantar. Two-thirds of those users were using someone else’s password. And the spree of subscription cancellations may not end anytime soon. Of all remaining Netflix subscribers in Spain, one-tenth said they planned to unsubscribe in the second quarter, and Netflix plans to bring an end to password sharing in the U.S. in the current quarter. 

The FTC’s warning to A.I. developers. Top officials from U.S. civil rights and consumer protection agencies say they’re tracking behavior in A.I. development and will move swiftly to curb any wrongdoing, from deceptive uses of the technology, like deep fakes, to anticompetitive business practices. Federal Trade Commission Chair Lina Khan said Tuesday the agency would be on the lookout for any signs of Big Tech companies attempting to squash disruptive A.I. startups. No specific products or companies were named, but the message comes as Google, Microsoft, and others compete to sell more advanced A.I. tools. 

ispace’s possible crash. Engineers are investigating after Tokyo-based ispace lost communication with its lunar lander moments before it was expected to touch down on Tuesday. For now, the company thinks it’s likely that its Hakuto-R Mission 1 lander “went into freefall” and crashed on the lunar surface. But Japan isn’t discouraged after its mission to become the first private firm to accomplish a lunar landing was unsuccessful. The Guardian reports that its top government spokesperson, Hirokazu Matsuno, said the country wanted ispace to “keep trying.” 

SIGNIFICANT FIGURES

$31,445

—The difference between the average selling price for an EV in March ($58,940) and the affordably priced Chevy Bolt. General Motors plans to end production on the car hailed as an affordable EV later this year.

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BEFORE YOU GO

Tinder is beefing up its tools against scammers. To get verified on Tinder, users now have to take a video of themselves rather than just a photo. The feature was rolled out this week with a coming addition where people can restrict their chats to other verified users. The A.I.-powered update isn’t being done in-house, but Tinder has declined to name the third-party vendor it's working with, TechCrunch reports. The move to video verification comes months after another dating app, Hinge, added a video selfie as a requirement to get verified.