The UK Competition and Markets Authority (CMA) went all Gandalf on Microsoft as it sought to push through with its $70 billion purchase of Activision Blizzard. But, the reason for the denial isn't what you think.

According to the CMA, it's blocking the proposed potentially industry-altering acquisition due to concerns regarding the competition and market dominance, specifically, in cloud gaming.

The CMA, the foremost regulatory body responsible for ensuring fair competition in the UK market, has spent several of the past few months deliberating the planned buyout by Microsoft.

According to a statement from the CMA, letting Microsoft own Activision Blizzard "would lead to a substantial lessening of competition in the video game market in the UK, with potential negative impacts on both consumers and other businesses operating in the market."

Industry analysts, and of course, competitors, welcome CMA's decision after many had already expressed their sentiments about the unfair advantage Microsoft would have in the gaming market if it owned Activision Blizzard. The multi-billion-dollar gaming company owns several of the most popular franchises in the world, including Call of Duty, Warcraft, Diablo, StarCraft, and Overwatch, among many others.

But, the reason why the CMA said no is confusing, to say the least.

We’ve prevented @Microsoft from purchasing @Activision over concerns the deal would damage competition in the #CloudGaming market, leading to less innovation and choice for UK #gamers. ☁️https://t.co/SdXt1rYAkZ pic.twitter.com/prWcDI7Evt

— Competition & Markets Authority (@CMAgovUK) April 26, 2023

High-profile cloud gaming services are close to nonexistent. Google Stadia tried and ultimately failed and it wouldn't be a huge surprise if Amazon Luna followed suit. The CMA claims that Microsoft owns as much as 70% of the current market share, but it's a huge chunk of a little next to nothing. The entire video game industry isn't affected by the comings and goings of cloud gaming. Although many companies are still bullish on cloud gaming, it doesn't make sense to use it as the main reason for blocking the deal. This would've made more sense if Microsoft planned to make Activision Blizzard games exclusive to Microsoft's cloud gaming services, which Microsoft has claimed several times wouldn't happen - at least until its deals with Nintendo and other companies are still intact.

If this deal falls apart, we reckon Microsoft and Activision Blizzard will feel the brunt of the criticism and the financial hit. It has already had an effect on the latter after its stock price dropped by a substantial amount after the news and things could only get worse from here. We'll have to see what happens following the appeal but this turnout makes what many felt was a sure thing into the first step of the worst-case scenario.

Despite the setback, Microsoft is likely to continue investing in the gaming space. However, the denial should put planned high-profile acquisitions in the gaming space on notice. The CMA's decision suggests that regulators will start monitoring and scrutinizing such deals more closely in the future, with an intensified focus on ensuring fair market competition for the purpose of protecting the consumer.