The decision underscores Europe’s reputation as the global leader in efforts to rein in the power of Big Tech companies. A day earlier, the UK government unveiled draft legislation that would give regulators more power to protect consumers from online scams and fake reviews and boost digital competition.

The UK decision further dashes Microsoft’s hopes that a favourable outcome could help it resolve a lawsuit brought by the US Federal Trade Commission. A trial before the FTC’s in-house judge is set to begin on August 2. The European Union’s decision, meanwhile, is due on May 22.

Activision lashed out, portraying the watchdog’s decision as a bad signal to international investors in the United Kingdom at a time when the British economy faces severe challenges.

The California-based game maker said it would “work aggressively” with Microsoft to appeal, asserting that the move “contradicts the ambitions of the UK” to be an attractive place for tech companies.

“We will reassess our growth plans for the UK global innovators large and small will take note that — despite all its rhetoric — the UK is clearly closed for business,” Activision said.

Microsoft also signalled it wasn’t ready to give up.

“We remain fully committed to this acquisition and will appeal,” President Brad Smith said in a statement. The decision “rejects a pragmatic path to address competition concerns” and discourages tech innovation and investment in Britain, he said.

“We’re especially disappointed that after lengthy deliberations, this decision appears to reflect a flawed understanding of this market and the way the relevant cloud technology actually works,” Smith said.

Activision chief executive officer Bobby Kotick said in a blog post that both companies have begun working on an appeal to the UK’s Competition Appeal Tribunal.

It’s not the first time British regulators have flexed their antitrust muscles on a Big Tech deal. They previously blocked Facebook parent Meta’s purchase of Giphy over fears it would limit innovation and competition. The social media giant appealed the decision to the tribunal but lost and was forced to sell off the GIF sharing platform.

Microsoft already has a strong position in the overall cloud computing market, and regulators concluded that if the deal went through, it would reinforce the company’s advantage by giving it control of key game titles.

In an attempt to ease concerns, Microsoft struck deals with Nintendo and some cloud gaming providers to license Activision titles like Call of Duty for 10 years — offering the same to Sony.

Sony’s European press office did not respond to a request for comment.

The watchdog said it reviewed Microsoft’s remedies “in considerable depth” but found they would require its oversight, whereas preventing the merger would allow cloud gaming to develop without intervention.

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Cloud gaming is a small piece of Britain’s £5 billion ($9.4 billion) video game market. But an expert forecast suggested it will see explosive growth over the coming years, with user numbers tripling from the start of 2021 to the end of 2022 and the cloud game market expected to grow to a value of 1 billion pounds by 2026, regulators said.

They dropped concerns last month that the deal would hurt console gaming, saying it wouldn’t benefit Microsoft to make Call of Duty exclusive to its Xbox console.

AP