The United Kingdom's Competition and Markets Authority (CMA) decided to block Microsoft's $68.7 billion acquisition of Activision Blizzard. Yesterday's news was unexpected because it only focused on the dangers that Microsoft would dominate the cloud gaming market, which is just now getting off in a meaningful capacity, whereas the CMA had admitted earlier this month the much bigger console market would not be endangered by the merger.

　　Microsoft had tried to pre-emptively assure regulators like the CMA by signing 10-year contracts with cloud gaming providers like NVIDIA (for GeForce NOW), Boosteroid, Ubitus, and EE, which would be getting all of Microsoft's games, including Activision Blizzard's if the deal was approved. However, the CMA considered the impact of these deals to be 'highly uncertain' for UK consumers, and as such, they didn't qualify as relevant customer benefits.

　　In a chat with BBC's Wake Up to Money podcast, Microsoft president Brad Smith hit hard against the CMA's ruling, beginning by painting a bleak outlook on future tech investments in the United Kingdom following this decision. He also said that the cloud gaming market in the UK is so small that Microsoft doesn't even stream games to more than 5K consumers at once.

　　Unfortunately, I think it's bad for Britain. The business community, the investment community, and the technology sector around the world have been following this case, and the strong message the CMA has sent is not just to surprise everyone who fully expected this acquisition to be approved but to send a message that I think will discourage innovation and investment in the United Kingdom. In that sense, the impact of this decision is far broader than on Microsoft or this acquisition alone.

　　The impact on the UK, unfortunately, is to shake the confidence among the business community in the UK and the CMA as a regulatory agency. When we study the decision, in part it's based on what we feel is such a flawed or just faulty understanding of the market. It's all about a potential concern about what can become the cloud streaming of games, 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. And so for regulators to step in and seek to torpedo a 68 billion dollar global transaction out of a concern about a part of the business that is so small and to reject so many proposals to try to address their concerns, I think it leaves people worried.

　　That was just the opening salvo from the Microsoft president, anyway, who went on to praise the regulatory process of the European Union (which is expected to render its own verdict next month) compared to that of the UK, stating that the English Channel has never seemed wider. The EU's regulators, who are accountable to their elected leaders, were willing to discuss remedies, whereas the CMA has unelected, unaccountable regulators now also making unwise decisions. On that note, Smith said:

　　Almost every aspect of the numerical factual analysis from the market share estimate to the size of the market, to just an understanding of how the cloud technology works is in our view, fundamentally flawed and incorrect. But second, the whole basis for this concern is the possibility that Microsoft would buy a gaming studio and not make the games that it's buying available on alternative cloud streaming services. And yet we have already signed contracts to make these games available on alternative services. They're not available today. We offered to commit to a 10-year binding undertaking to the CMA as we have in Brussels that we would commit and provide these games for a decade on alternative services.

　　What Microsoft offered to the CMA was a commitment that these very games we are acquiring would be available from services that are not run by Microsoft, they're not sold by Microsoft. They would be available on other computer operating systems and other devices. Not those from Microsoft. We think that's good business because that's how the games would be distributed as broadly as possible. That's good for gamers. I don't think the consumers of Britain benefit by stopping access to more games on more platforms through more services. And that is exactly what we have offered to do.

　　The harshest attack on the CMA came last, though, when the Microsoft president directed a message to UK PM Rishi Sunak that the government should take a hard look at the role of the Competition and Markets Authority.

　　For its part, the CMA responded through Chief Executive Sarah Cardell:

　　This decision shows how important it is to support competition in the UK, and the UK is absolutely open for business. We conducted a lengthy in-depth investigation that took a full six months and Microsoft had ample opportunity to put their case to us. We reached the decision on the basis of a huge amount of engagement. We looked at more than a million documents to reach our final decision.

　　There's no doubt that the CMA ruling has put a significant dent in Microsoft's plans to acquire Activision Blizzard. However, both companies announced their willingness to appeal to the Competition Appeal Tribunal (CAT), which can order a reconsideration of the case by the CMA if they find that the regulatory body acted improperly or irrationally in reaching its decision. It could even overturn it outright, issuing its own decision.

　　Of course, there's always the possibility of a settlement, even at this point in the process. According to Wedbush Securities analyst Michael Pachter (via Axios' Stephen Totilo), Microsoft could agree with the CMA to keep Activision Blizzard games permanently off the UK version of Game Pass. The process would likely be lengthy, Pachter said, though the analyst predicts Microsoft would win in the end because the CMA has ruled on a flawed assumption, such as that the cloud games market is more likely to succeed than Call of Duty is likely to fail.

　　Either way, it looks like we're all in for many more months - if not years - of news and lawsuits and appeals on this deal. Stay tuned.