Microsoft announced Monday they have restructured their $69 billion acquisition deal with Activision Blizzard to get regulatory approval from the UK’s Competition and Markets Authority. The European Commission has already approved the deal, and the Federal Trade Commission’s attempts to block the deal failed. The CMA rejected the proposed concessions by Microsoft when issuing its decision in April.
CMA’s objections
“The deal would reinforce Microsoft’s advantage in the market by giving it control over important gaming content such as Call of Duty, Overwatch, and World of Warcraft. The evidence available to the CMA indicates that, absent the merger, Activision would start providing games via cloud platforms in the foreseeable future,” the CMA wrote in their April 26, 2023 decision.
“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,” added the CMA.
Microsoft’s proposed remedy
In an August 21 blog post, Microsoft vice chair and president Brad Smith said the company wants to bring more creative and innovative games to players around the world on any device. To facilitate that and address the CMA’s concerns, upon the closing of the deal, Microsoft agrees to sign a deal that transfers the cloud streaming rights for all current and new Activision Blizzard PC and console games released over the next 15 years to competitor Ubisoft Entertainment SA in perpetuity.
In exchange, Ubisoft will pay Microsoft for the cloud streaming rights through a “one-off payment and through a market-based wholesale pricing mechanism” that includes an option to price based on usage. Terms of the one-off payment were not disclosed. Ubisoft will be able to offer Activision Blizzard games to cloud gaming services that run non-Windows operating systems.
Through this agreement, Microsoft will not be allowed to release Activision Blizzard games exclusively on its cloud streaming service – Xbox Cloud Gaming – or to exclusively control the licensing terms of Activision Blizzard games for rival services, Smith said.
“As a result of the agreement with Ubisoft, Microsoft believes its proposed acquisition of Activision Blizzard presents a substantially different transaction under UK law than the transaction Microsoft submitted for the CMA’s consideration in 2022,” said Smith.
Microsoft has submitted details of the restructured deal to the CMA and hope they will be able to complete a new review of the proposed acquisition before the acquisition deal expires on October 18. The company also said this restructured deal is in compliance with commitments Microsoft made to the European Commission to gain their approval.
“We believe that this development is positive for players, the progression of the cloud game streaming market, and for the growth of our industry. And, as we continue to navigate the review process with the CMA, we remain as committed as ever to bringing the incredible benefits of the acquisition to players, developers, and the industry. Today’s development brings us one step closer to bringing the joy of gaming to players everywhere,” Smith said.
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CMA’s response
Yesterday, the CMA issued a summary of its final decision that included a review of a possible material change of circumstances or special reason to reopen the review. The CMA noted that, on July 25, Microsoft submitted additional materials that outline four developments since the CMA reached its conclusion in April:
- The European Commission’s approval of the deal based on Microsoft’s commitments, including cloud agreements the company made with NVIDIA, Boosteroid and Ubitus
- An agreement between Microsoft and Sony on access to Call of Duty
- New evidence from litigation in the US
- New information from Microsoft through UK court proceedings related to Microsoft’s appeal
The CMA said they also received comments from the public and other interested parties. None of this information, together or individually, results in a material change in circumstances (MCC) or special reason (SR) that would warrant further review, said the CMA. They also noted that the decisions by other regulatory agencies had no effect on their decision.
“Having already reached our own conclusion based on the evidence before us, we consider that the subsequent adoption of substantially the same remedy shortly after the CMA’s decision by one or more overseas competition authorities is unlikely to have a material impact on the CMA’s decision in the final report,” the agency said.
“We find that considering all of the developments submitted by Microsoft cumulatively does not change the assessment,” said the CMA. “As we have found no MCC or SR under section 41(3) of the Act, we will now take remedial action that is consistent with the remedies decision in the Report (ie action to effect prohibition of the Merger). We will therefore proceed to implement a final order to effect the prohibition of the Merger,” the CMA concluded.
The final order prohibiting the merger was made yesterday.
According to The Guardian, the CMA said it would review the new proposals, but this is far from a sure thing.
“The CMA has today confirmed that Microsoft’s acquisition of Activision, as originally proposed, cannot proceed,” said Sarah Cardell, chief executive of the CMA.
However, she said the restructured deal is significantly different than the original deal, and the regulatory agency would “carefully and objectively” review the revised deal and its potential impact on competition.
Insider Take
Microsoft originally proposed the $69 billion all-cash deal in January 2022, and they have faced regulatory hurdles every step of the way. This seems like an eleventh-hour attempt to get the CMA’s approval before all avenues of compromise have been explored and the deal expires, but Microsoft and the companies Microsoft has made deals with have a lot riding on it. The CMA’s response will carry a lot of weight and has the potential to influence the future of cloud gaming.
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