Is the UK closed for business?

Microsoft-Activision fall-out

The business story of this week has been the furious reaction from Microsoft and Activision Blizzard after the Competition and Markets Authority blocked their $68.7 billion video-game deal.

Below is what Activision said after the CMA announced it would prevent Microsoft from buying the company. Lulu Cheng Meservey is the executive vice-president for corporate affairs and the chief communications officer at Activision:

Bobby Kotick, chief executive of Activision Blizzard, also wrote an email to staff in which he said this:

“The UK hopes to grow its leadership position in technology, and a combined Microsoft-Activision would accomplish exactly that. At a time when the fields of machine learning and artificial intelligence are thriving, we know the UK market would benefit from Microsoft’s bench strength in both domains, as well as our ability to put those technologies to use immediately. By contrast, if the CMA’s decision holds, it would stifle investment, competition, and job creation throughout the UK gaming industry.”

You can read his full message to staff via the company’s Substack page, which is here:

We'll keep pressing our case for a Microsoft deal

Microsoft didn’t hold back either. Brad Smith, the president of Microsoft, and a lawyer, told the BBC:

"People are shocked, people are disappointed, and people's confidence in technology in the UK has been severely shaken.

"There's a clear message here - the European Union is a more attractive place to start a business than the United Kingdom."

You see his interview here.

This is unusually strong stuff from two big global companies, albeit two companies with a vested interest in getting a deal done. It was evocative, passionate, and clearly designed to strike a nerve with the government. It is not coincidental that Rishi Sunak posted a long message about the video game industry on LinkedIn on Thursday:

Activision Blizzard owns some of the biggest video game brands in the world, including Call of Duty, World of Warcraft and Candy Crush. Microsoft announced it had agreed to buy Activision in January 2022. The deal would be Microsoft’s biggest-ever takeover if it went ahead. It would allow Microsoft to expand further into the fast-growing video-game sector, building on its Xbox console and Game Pass subscription service. It would also allow Microsoft to bolster its work on virtual reality technology.

However, there has been opposition to the deal from the start. Rivals such as Sony, whose PS5 console competes with the Xbox, claimed it would distort competition and reduce access to certain games because Microsoft could make them exclusive to its own platforms.

This opposition was to be expected. However, the Federal Trade Commission in the US and the European Commission are also investigating the deal and have expressed concerns. Despite the criticism of the UK, there is a strong chance that the US and Europe block the deal too. The US, Europe and the UK are the key regulators in the tech market right now.

The CMA said in its statement that it was blocking the deal due to concerns it would “alter the future of the fast-growing cloud gaming market, leading to reduced innovation and less choice for UK gamers over the years to come”. It said Microsoft already had 60 per cent to 70 per cent of this market, adding:

“The cloud allows UK gamers to avoid buying expensive gaming consoles and PCs and gives them much more flexibility and choice as to how they play. 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.”

You can read the full statement from the CMA here

The CMA looks at a takeover deal in two phases. The first phase involves determining whether a deal could lead to a substantial lessening of competition. If it concludes that it could lead to a reduction in competition then the CMA launch a phase-two investigation. This phase-two probe involves the CMA appointing a panel to conduct an in-depth study of the deal. Remedies are then proposed, which can include blocking the deal entirely or proposing that parts of the business are sold. The companies involved are allowed to propose their own remedies.

Sarah Cardell, the chief executive of the CMA, has defended its ruling on the Microsoft-Activision deal. Cardell was only appointed as the boss of the CMA in December. In her role she oversees the CMA’s investigations, rather than being at the centre of them. She told the Today programme on BBC Radio 4:

“I think this decision shows how important it is to support competition in the UK and that the UK is absolutely open for business. We want to create an environment where a whole host of different companies can compete effectively, can grow and innovate. That’s the best thing for UK consumers and the best thing for UK businesses…

“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 are many in the business world that I have spoken to this week who feel similar to this - that blocking the deal actually encourages innovation and investment from other businesses. However, others feel it is a bad look for the UK. Either way, there is a sense that this was not a straightforward decision for the CMA, and that it was not as surprising as the ferocious criticism from Microsoft and Activision suggests, especially when the US and Europe could deliver the same verdict.

But there is less sympathy for the CMA when it comes to process. Brad Smith at Microsoft claimed that the CMA “went silent” after the company offered to address its concerns about the deal. He added:

“The English Channel has never seemed wider in terms of Europe as a continent being attractive for investment, Brussels as a place where one can sit down and actually have a conversation with the regulators who are accountable to the elected leaders, and the difference we now confront in London, where we have regulators who are not only unelected, but unaccountable”

The criticism of the CMA and its processes will be familiar to those of you who have already listened to our latest Business Studies episode with Will Shu, the co-founder and chief executive of Deliveroo. The episode focuses on how he built Deliveroo over the last decade into one of the UK’s most successful tech companies. However, he also speaks about the CMA investigation that Deliveroo faced after it announced Amazon would buy a stake in the business:

“They ran an investigation for 18 months that took up most of my time, withheld the money from us and we had to fire 30 per cent of our team during that process because we almost ran out of cash. For me, total bullshit…

“I was treated like a criminal. I’d get letters like: ‘Mr Shu, this email from 2014, can you explain yourself?’ I'm like: ‘2014?! There was like three people at the company then. I had to go testify in front of panels. Everything started from: ‘I want to remind you of your criminal liability’.

I mean that is the opposite of trying to build companies and trying to take risks. It's trying to kill companies. So I've got no time for that.”

You can listen to that episode in full on Substack here, Apple here or Spotify here.

The Deliveroo investigation, the Microsoft-Activision investigation and others have taken months to resolve. Surely these investigations need to be faster. Surely, in 2023, the CMA and the companies involved have the technology and resources to resolve them faster? Surely they can at least make speed more of a priority?

The UK can make itself more attractive as a place to do business just by pledging to decide about deals like this faster, whether it approves them or not. Companies would then have the confidence to make an investment or takeover bid knowing that if was opposed they could at least move on quickly. Instead, uncertainty hangs over deals and investments for months…

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Other stories that matter…

A fascinating piece from Ed Conway, the economics editor of Sky News, on AMTE Power in Thurso, northern Scotland, which operates the longest-running battery factory in the UK. The piece looks at the history of the plant, the niche technology for the future it is working on and the impact of the Inflation Reduction Act in the US (Material World)

Bamburgh in Northumberland is the best seaside town in the UK according to a survey of more than 3,000 people by consumer group Which? (Which?)

EDF is looking for 30,000 trainees to help finish construction of the Hinkley Point C nuclear power station in Somerset (Business Live)

Stripe has published interesting data on the growth of online-focused businesses across the UK. The company, which processes online payments, has looked at the geographical spread of businesses using its services, which include tech start-ups and retailers. Dumfries, Southend-on-Sea and Wigan have seen the fastest growth in online transactions over the last three years, it found. There are more than 90 towns and cities in the UK where local businesses are processing at least £100 million-a-year in online transactions through Stripe. (Stripe)

I have recommended this podcast series already, but the episodes that Michael Lewis is doing about the research for his book on Sam Bankman-Fried and FTX are excellent. The latest episode looks at the history of bankruptcy law in the US. Lewis reveals how he was with Bankman-Fried when he signed the bankruptcy papers for FTX and how he immediately regretted it, even asking to change his mind and reverse it. It is clear from Lewis’s questions that he is either sympathetic to Bankman-Fried or is doing his utmost to ensure that the FTX founder, who has been charged with fraud, at least gets a fair hearing (Against the Rules)

A video clip of basketball star Giannis Antetokounmpo answering a question about failure in a press conference has gone viral in the US. It’s a glimpse into the mind of an elite sportsman (BBC)

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And finally…

As the Premier League season enters the final stretch this is a reminder that you can find help and advice for your Fantasy Premier League at Fantasy Gameweek, which I write with my old friend and AJ Bell pensions expert Tom Selby. We use data from Impect, an innovative German data company, and our expertise from the world of finance and business to analyse the players to watch. Impect has developed its own key performance indicators that are taking how we use data to analyse football to the next level. You can sign-up for Fantasy Gameweek here.

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Graham