In an interesting turn of events, the European Commission – the European Union’s regulatory agency – approved Microsoft’s $69 billion all-cash acquisition of game developer Activision Blizzard, reports CNN. The deal was first proposed by Microsoft in January 2022, but it has been met with regulatory hurdles imposed by the Federal Trade Commission and the UK’s Competition and Markets Authority due to market competition concerns, including how the deal would impact multi-game subscription services. The FTC voted to block the deal in December, and the CMA issued its final denial of the deal at the end of April.

The Commission conducted a preliminary investigation of the deal after which the Commission said that Microsoft could harm competition in the distribution of console and PC games, including multi-game subscription services and cloud game streaming services, and in the supply of PC operating systems.

Following an extensive market investigation, the European Commission said that Microsoft would not be able to harm rival consoles or rival multi-game subscription services. However, the Commission believes there is potential for harming the competition in the distribution of games through cloud streaming services and that the deal would strengthen Microsoft’s market position for PC operating systems.

The Commission’s findings

The Commission found that:

• Microsoft had no incentive to refuse to distribute Activision’s games to Sony, the leading distributor of console games worldwide.
• If Microsoft did withdraw Activision games from PlayStation, it would not significantly harm the consoles market.
• Without the deal, Activision would still not have made its games available for multi-game subscription services.
• The acquisition would harm competition in the distribution of PC and console games through cloud gaming streaming services. Market competition would be reduced if Microsoft made Activision’s games exclusive to their Game Pass Ultimate streaming subscription service and did not sell them to rival cloud game streaming providers.
• The deal would strengthen Microsoft’s market position of Windows in the market for PC operating systems.

Margrethe Vestager, executive vice president in charge of competition policy, commented on the reason for the Commission’s decision.

“Video games attract billions of users all over the world. In such a fast-growing and dynamic industry, it is crucial to protect competition and innovation. Our decision represents an important step in this direction, by bringing Activision’s popular games to many more devices and consumers than before, thanks to cloud game streaming. The commitments offered by Microsoft will enable for the first time the streaming of such games in any cloud game streaming services, enhancing competition and opportunities for growth,” Vestager said.

Ultimately, the Commission approved the deal with the caveat that Microsoft must be in full compliance with the commitments Microsoft has made to mitigate the Commission’s concerns. The Commission said those commitments “represent a significant improvement for cloud gaming.”

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Microsoft’s proposed remedies

To address their concerns, Microsoft offered the following remedies for a 10-year period:

• A free license to consumers in the European Economic Area (EEA) that would allow them to stream via any cloud game streaming services all current and future Activision Blizzard PC and console games for which they have a license
• A corresponding free license to cloud game streaming service providers to allow EEA-based gamers to stream any Activision Blizzard’s PC and console games

“These commitments fully address the competition concerns identified by the Commission and represent a significant improvement for cloud game streaming compared to the current situation. They will empower millions of EEA consumers to stream Activision’s games using any cloud gaming services operating in the EEA, provided they are purchased in an online store or included in an active multi-game subscription in the EEA. In addition, the availability of Activision’s popular games for streaming via all cloud game streaming services will boost the development of this dynamic technology in the EEA. Ultimately, the commitments will unlock significant benefits for competition and consumers, by bringing Activision’s games to new platforms, including smaller EU players, and to more devices than before,” the Commission said.

Insider Take

Whoa. We are a bit surprised by this. The FTC, which is admittedly more aggressive these days, is trying to block the deal, and the CMA went through a similar process as the Commission. They denied the deal based on a preliminary investigation and, after Microsoft proposed remedies to their concerns, the CMA eventually said, “No deal.” The FTC is still working its way through the case but, to date, no resolution has been agreed upon. So what happens if one regulatory agency says “yes” and the others say “no”? That’s anybody’s guess, but we think Microsoft will have a pretty strong opinion. Stay tuned for updates!

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