GBM Insights

• Microsoft’s $68.7 billion deal to acquire Activision Blizzard has been approved by EU regulators.
• The EU found that Microsoft would have no incentive to refuse to distribute Activision’s games to Sony and that even if Microsoft did decide to withdraw Activision’s games from the PlayStation, this would not significantly harm competition in the consoles market.
• However, the EU did find that the acquisition could harm competition around the distribution of PC and console games through cloud gaming services.
• To address these concerns, Microsoft has offered to license Activision Blizzard games to cloud gaming providers for free.
• The EU has approved the deal subject to these commitments from Microsoft.

Possibly the Biggest Gaming Deal

Microsoft’s $68.7bn deal to acquire Activision Blizzard has been approved by European Union regulators, just weeks after UK regulators blocked the acquisition.

The European Commission (EC) has concluded that the deal can go ahead thanks to commitments from Microsoft related to cloud gaming.

The EC found that Microsoft “would have no incentive to refuse to distribute Activision’s games to Sony” and that “even if Microsoft did decide to withdraw Activision’s games from the PlayStation, this would not significantly harm competition in the consoles market.”

However, the EC, like the UK, did find that the acquisition could harm competition around the distribution of PC and console games through cloud gaming services.

The EC has identified remedies to allow for the deal to go ahead through 10-year licensing deals that Microsoft has offered to competitors. These include a free licence to consumers in EU countries that would allow them to stream via “any cloud game streaming services of their choice” all current and future Activision Blizzard PC and console games that they have a licence for. Cloud providers will also be offered a free licence to stream these games in EU markets.

These licences are automatic and mean that consumers will have a right to stream Activision Blizzard games they’ve purchased or subscribed to on “any cloud game streaming service of their choice and play them on any device using any operating system.” It appears that the EC requested Microsoft offer this automatic licence, and the Xbox maker will now apply this globally.

“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,” said Margrethe Vestager, executive vice-president in charge of competition policy at the EC. “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.”

The EC’s decision to approve this giant deal comes less than a month after UK regulators blocked Microsoft’s plans. The UK’s Competition and Markets Authority (CMA) blocked the deal over cloud gaming market concerns, stating that the acquisition could lead to “reduced innovation and less choice for UK gamers over the years to come.” Microsoft is appealing the decision.

Microsoft has spent the past few months trying to address regulators’ concerns around cloud gaming, with the deals convincing the EC but not the UK. The software giant signed cloud gaming deals with Boosteroid, Ubitus, and Nvidia to allow Xbox PC games to run on these rival cloud gaming services. A similar deal with Nintendo was announced in December. All of these 10-year deals also include access to Call of Duty and other Activision Blizzard games if the deal is approved by regulators.

The CMA fears that Microsoft controlling Call of Duty, Overwatch, and World of Warcraft would give it a big advantage over competitors in the cloud gaming market — which the regulator estimates Microsoft has around 60 to 70% of global cloud gaming services share.

Microsoft’s appeal in the UK will likely take months before the process is complete. Today’s EC decision may help boost Microsoft’s chances of getting this giant deal over the line, but the company still faces battles in the US and UK. Regulators in Saudi Arabia, Brazil, Chile, Serbia, Japan, and South Africa have also all approved the deal. China, South Korea, New Zealand, and Australia are all still reviewing the deal.

Microsoft’s next big hurdle is regulatory scrutiny closer to home. The Federal Trade Commission sued to block Microsoft and Activision Blizzard’s deal late last year, and the case is still at the document discovery stage. An evidentiary hearing is now scheduled for August 2nd, so we’re still months away from knowing the outcome of the case.

While Activision Blizzard CEO Bobby Kotick welcomed the EC approval and says the company intends “to meaningfully expand our investment and workforce throughout the EU,” the CMA defended its own position.

“The UK, US and European competition authorities are unanimous that this merger would harm competition in cloud gaming,” said the CMA in a statement. “Microsoft’s proposals, accepted by the European Commission today, would allow Microsoft to set the terms and conditions for this market for the next 10 years. They would replace a free, open and competitive market with one subject to ongoing regulation of the games Microsoft sells, the platforms to which it sells them, and the conditions of sale. This is one of the reasons the CMA’s independent panel group rejected Microsoft’s proposals and prevented this deal. While we recognize and respect that the European Commission is entitled to take a different view, the CMA stands by its decision.”