Microsoft Corp.'s MSFT plans to acquire Activision Blizzard Inc ATVI have hit a snag due to concerns raised by the U.K. Competition and Market Authority (CMA).
A 400-page final report from the regulatory agency stated its main concern is that an increased library of video game content could lead to Microsoft making things more expensive for consumers.
Specifically, the CMA raised concerns about how adding Activision Blizzard's library of games, such as Call of Duty, to Microsoft's Xbox Game Pass service could lead to a potential price increase.
Even a small raise, according to the CMA's findings, could significantly reduce or eliminate any benefits to consumers.
The report highlighted that the post-merger expanded Game Pass would give Xbox a significant competitive advantage over rivals Sony Group Corp SONY and Nintendo ADR NTDOY, which don't have services as extensive as Microsoft's Game Pass.
"We recognize that having Activision's content available on Game Pass is an attractive prospect to some customers and something that, based on the comments we received from the public during this investigation, seems to explain much of the support for this Merger by those in favor of it," the CMA said.
"On balance, we found that having this new option to pay for content that is already available on a buy-to-play basis on Xbox would not outweigh the overall harm to competition (and, ultimately, consumers) arising from this Merger in the sizeable and rapidly expanding market for cloud gaming services."
The report by CMA also raised concerns regarding the ability of Nintendo's existing hardware to support playing current-generation Call of Duty games. While Activision Blizzard representatives claimed that it could, the CMA found no evidence to support this claim.
Microsoft Vice Chair and President Brad Smith announced the company's intention to appeal: "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 United Kingdom," Smith wrote.
Activision Blizzard CEO Bobby Kotick also expressed dissatisfaction with the CMA's resolution and announced the company's intention to continue with the merger. "We can and will contest this decision, and we've already begun the work to appeal to the U.K. Competition Appeals Tribunal," Kotick said.
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