After a laborious 21-month journey, Microsoft’s ambitious endeavor to acquire the gaming juggernaut, Activision, has finally been given the nod by the United Kingdom’s Competition and Markets Authority (CMA). This milestone arrives hand-in-hand with a restructured agreement designed to allay concerns about Microsoft’s potential dominance in the burgeoning realm of cloud gaming.
At the heart of Microsoft’s perseverance is a concession, namely, the relinquishment of Activision’s cloud-streaming rights. Rather than retaining these rights, Microsoft has struck a deal with Ubisoft, the renowned French video game publisher.
Ubisoft will assume control over Activision’s cloud-streaming rights for all PC and console games for the next 15 years, but this arrangement is applicable only outside the European Economic Area (EEA). Within the EEA, Ubisoft secures a “non-exclusive license to sell, distribute, and sublicense entitlements to play cloud streaming versions of Activision’s games.” This intriguing development ensures that Microsoft, too, can access cloud-streaming rights for Activision games within Europe.
Regulatory Stance
Sarah Cardell, the CEO of the CMA, expressed her satisfaction with this solution, emphasizing that “the sale of Activision’s cloud streaming rights to Ubisoft” safeguards against Microsoft’s potential stranglehold on this rapidly evolving market.
She goes on to assert that as cloud gaming continues to expand, this intervention will yield more competitive prices, improved services, and expanded choices for consumers. Notably, CMA’s approach stands out on the global stage, being the only competition agency to deliver such an outcome.
We’ve cleared the new deal for Microsoft to buy Activision without cloud gaming rights.
In August, Microsoft made a concession that would see Ubisoft, instead of Microsoft, buy Activision’s cloud gaming rights.
Read more: https://t.co/Z4scLEJFy0
1/2 pic.twitter.com/gmqwZsOOFi
— Competition & Markets Authority (@CMAgovUK) October 13, 2023
The Journey So Far
Microsoft first unveiled its audacious plans to acquire Activision back in January 2022 in a colossal $68.7 billion deal. This move would catapult Microsoft into the position of the world’s third-largest gaming company by revenue, trailing only Tencent and Sony.
The acquisition would empower Microsoft with control over iconic gaming franchises such as World of Warcraft and Call of Duty.
In the preceding stages, the European Commission (EC) ultimately greenlit the deal, albeit with certain conditions, while the U.S. Federal Trade Commission (FTC) struggled to halt it.
The UK remained the lone regulatory stronghold, steadfastly resisting the acquisition’s completion. In April, the CMA had concluded that this deal would “substantially weaken competition” and create a dominant player in the cloud gaming market.
CMA argued that Microsoft’s pre-existing dominance in cloud gaming was due to the ubiquity of Windows and its substantial cloud infrastructure business, which would further extend its already sizable market share of 60-70%.
Despite Microsoft’s efforts to strike deals to maintain Activision games on rival platforms like Nintendo, Sony, and Steam for a decade, CMA remained unconvinced that these proposals could replicate the current competitive dynamism in the market.
Microsoft’s Concessions and CMA’s Take
In August, Microsoft took steps to appease regulators, offering to divest the cloud streaming rights for all existing and future Activision games to Ubisoft, a direct competitor. In the following month, the UK signaled a positive shift by acknowledging that these steps significantly addressed prior concerns and paved the way for approval.
Now, the CMA appears to be wholeheartedly endorsing the deal, even characterizing Microsoft’s concessions as a “gamechanger that will promote competition.” However, CMA’s celebration of these developments is accompanied by criticism of Microsoft’s tactics throughout this 21-month acquisition saga.
We’re grateful for the CMA’s thorough review and decision today. We have now crossed the final regulatory hurdle to close this acquisition, which we believe will benefit players and the gaming industry worldwide.
— Brad Smith (@BradSmi) October 13, 2023
The bottom line
Microsoft’s triumph in acquiring Activision is a watershed moment for the gaming industry. With its concession, Microsoft is set to become a major player in the gaming sector, benefiting both the company and gamers worldwide.
While the UK and the CMA celebrate their role in shaping this outcome, they do not shy away from scrutinizing Microsoft’s approach during this protracted process.
Cardell emphasizes that businesses and their advisors should take heed, as the tactics employed by Microsoft were not conducive to constructive engagement with the CMA, urging for a more streamlined and efficient process in future dealings.