Microsoft and Activision Deal, All You Need to Know

Note: This article is ever-updating. Scroll down for the latest updates on the Microsoft-Activision deal.

Microsoft revealed that it had acquired Activision Blizzard at its Xbox Wire post, in what seems to be the largest transaction in the history of the gaming industry worth $68.7 billion. Activision Blizzard would report to Xbox CEO Phil Spencer after the transaction was finalized; however, the firm would continue to function autonomously in the meantime.

It is incredibly exciting to announce that Microsoft has agreed to acquire Activision Blizzard.

We are incredibly excited to have the chance to work with the amazing, talented, dedicated people across Activision Publishing, Blizzard Entertainment, Beenox, Demonware, Digital Legends, High Moon Studios, Infinity Ward, King, Major League Gaming, Radical Entertainment, Raven Software, Sledgehammer Games, Toys for Bob, Treyarch and every team across Activision Blizzard.”

-Phil Spencer 

According to the Xbox Wire article, once the agreement is finalized, Xbox will make as many Activision Blizzard games available on Game Pass as it can. Additionally, this would aid the company’s portfolio diversification and “provide building blocks for the metaverse.” Since this deal was as significant as Disney’s almost two-year-long acquisition of 20th Century Fox, it would needed to undergo a thorough antitrust review before being authorized. 

Microsoft-Activision Road Towards Getting Approval from Regulators and Obstacles Faced Within It

The Microsoft Activision Deal was the largest and most unique one in the gaming sector. Making its route to approval isn’t a simple undertaking to perform, and it undoubtedly faces several challenges. 

Brazilian Regulator (CADE)

Sony, one of the biggest competitors of Microsoft in the industry, expressed concern that Call of Duty may persuade players to switch to Xbox in the wake of Microsoft’s planned purchase of Activision Blizzard. This was consistent with the corporation’s official answer to questions from the regulatory body in Brazil, which, like many other areas, is now evaluating the proposed purchase for approval.

In its questionnaire comments, Sony calls Call of Duty “a significant game: a blockbuster, an AAA-type game that has no competition.” Sony also voiced worry that, should the agreement be approved, Xbox will be given the right to sway PlayStation’s audience owing to the latter’s advantage. Sony claimed that it expects Call of Duty games to continue to be cross-platform due to “contractual arrangements” revealed in January in its first reaction to Microsoft’s proposed purchase of Activision Blizzard.

Microsoft responded to the Brazilian Regulator refuting claims made by Sony stating: 

Only one-third party, Sony, presented materially different opinions than the Applicants and the other third parties consulted by the SG. Sony is isolated in this understanding and, curiously, even contradicts itself in its response to the letter, as will be detailed below.

  • Microsoft does not intend to take away gamers’ access to material, and COD will continue to be available on PlayStation as a paid game
  • The dynamic character of subscription services and the fact that Sony has its service are both ignored by Sony’s assertion.” 

Microsoft’s court records also asserted that the PS4 sold more than twice as many units as the Xbox One. Regarding its streaming service, Microsoft also dispelled worries that including Activision Blizzard titles in Game Pass would be unfair to its rivals. According to the document, Microsoft’s launch of Xbox Game Pass, a subscription gaming service, is the company’s strong response to Xbox losing the “console wars.”

Despite Sony’s previous assertions, the Brazilian competition regulator (CADE) finally approved the merger without any limitations or concessions. This was extremely fascinating, especially considering that the Brazilian authority is one of the most closely scrutinized authorities. The authority highlighted that, in addition to approving the deal, it is not their obligation to defend Sony’s or PlayStation’s position or interests in the market. 

With regard to the possibility of foreclosure in downstream markets, the analysis pointed out that, despite their relevance and popularity, Activision Blizzard’s games – and especially the Call of Duty series – would not be essential assets for the activities of Microsoft’s current and potential competitors in the console and digital game distribution markets (considering, in the latter, both digital shops and subscription services for multiple PC and console games).

Thus, even if Activision Blizzard’s game catalog were to become exclusive to Microsoft’s ecosystem after the Transaction, the SG/CADE considers that such exclusivity would not result in a substantial reduction in the levels of competition in the downstream markets, even if it could translate into a competitive advantage for Microsoft.” 

-CADE’s Decision

Since the Brazilian authorities are one of the key players in the agreement, their approval gave the deal new life and paved the way for hope for Microsoft.

Competition and Market Authority (CMA)

The Competition and Markets Authority (CMA), which “works to promote competition for the benefit of consumers”, announced that it has opened an investigation into the $68.7 billion deal, the game industry’s biggest ever by some distance, to determine whether it’s a fair one.

In a statement provided to CNBC, the CMA said its investigation would:

consider whether the deal could harm competition and lead to worse outcomes for consumers  for example, through higher prices, lower quality, or reduced choice.”

After the conclusion of the “Phase 1” investigation, the UK’s CMA had stated that it was “concerned that Microsoft’s anticipated purchase of Activision Blizzard could substantially lessen competition in gaming consoles, multi-game subscription services, and cloud gaming services” and that if Microsoft is unable to address its concerns within five working days, the CMA would move on to what it refers to as a “Phase 2 investigation.” 

Sorcha O’CarrollSenior Director of Mergers at the CMA, comments on the investigation, saying:

Following our Phase 1 investigation, we are concerned that Microsoft could use its control over popular games like Call of Duty and World of Warcraft post-merger to harm rivals, including recent and future competitors in multi-game subscription services and cloud gaming. If our current concerns are not addressed, we plan to explore this deal in an in-depth Phase 2 investigation to reach a decision that works in the interests of UK gamers and businesses.” 

Phase 2 would see a more thorough investigation of Microsoft’s deal and a decision on whether or not having control over games like Call of Duty and World of Warcraft would harm rivals. According to the CMA, Microsoft and Activision Blizzard now had until September 8 to propose ideas addressing their concerns, and the merger would be submitted for additional consideration if suitable alternatives are not obtained.

Sony had responded to the news that the UK regulatory body had been conducting a thorough examination of Microsoft’s deal. Sony stated its delight with the CMA’s decision to widen its inquiry in a statement sent to GamesIndustry.biz

By giving Microsoft control of Activision games like Call of Duty, this deal would have major negative implications for gamers and the future of the gaming industry.

We want to guarantee PlayStation gamers continue to have the highest quality gaming experience, and we appreciate the CMA’s focus on protecting gamers.” 

These Sony comments did generate several concerns about the company’s strategy for the transaction. Sony, which sets the standard for exclusive games, feared that the agreement will damage the company’s ability to maintain its exclusivity. However, Microsoft’s choice to offer the Modern Warfare 2 beta on the PlayStation first undercuts their argument. 

Microsoft Offers to Keep COD “Exclusive to Sony” for Ten Years

Microsoft had made Sony an offer that would keep the Call of Duty series only available on the PlayStation platform for the next 10 years. On November 11, Microsoft revealed to the New York Times that it has offered Sony a 10-year deal.

Microsoft said that on Nov. 11 it offered Sony a 10-year deal to keep Call of Duty on PlayStation. Sony declined to comment on the offer.

Last month, Mr. Spencer and other Microsoft executives brought an Xbox, a PlayStation, a Nintendo Switch, and other devices to a meeting with regulators in London, where they showed off Call of Duty and other games to illustrate a dynamic market, people familiar with the visit said.

Regulators are also worried what the deal might mean for the future, when cloud computing lets people stream sophisticated games to various devices, including mobile phones.” 

In a response to the CMA’s statement, Sony expressed confidence that the regulator would determine that the combination is likely to materially reduce competition and should, thus, be disallowed. The platform owner said in a 22-page statement that if Microsoft were to gain sole control of Activision’s content, independent developers would all suffer and that Microsoft could increase prices for games, hardware, and subscriptions.

SIE is confident that the CMA’s Phase two inquiry will confirm that the transaction is likely to substantially lessen competition and should be prohibited 

Microsoft would control irreplaceable content which drives user engagement. Post-transaction, Microsoft would control Activision content which drives [redacted] times as much user engagement on PlayStation than all of SIE’s best performing first-party titles put together.”

-Sony 

Sony said that during the CMA’s first investigation, it discovered data showing that 30–40% of console gaming time in the UK is spent on Activision and Microsoft games. Sony claims that if Microsoft were to gain sole control over Activision’s intellectual property, it would harm consumers, competitors, and independent developers alike.

In one section of its statement, Sony directly referred to Microsoft’s claims that other systems, such as the Nintendo Switch, had succeeded without Call of Duty. In their most recent rebuttal, Sony says that this allegation “ignores the facts.” Nintendo’s strategy, according to SIE, differs from those of PlayStation and Xbox since it does not rely on 18+ shooter franchises, which Microsoft would essentially own entirely if the Activision merger is authorized by foreign regulators.

CMA’s final decision is still awaited after it has completed its regulation process.

European Commission 

In a document, the European Competition Authority said that it had set a temporary deadline to either accept the $68.7 billion merger or decide to enter a second, more in-depth investigation phase.

Over the following weeks, the European Commission will evaluate the accord in “Phase I.” The goal is to ascertain if the merger will considerably reduce market competition, for example, by creating monopolistic corporations that are likely to increase consumer prices. If the Commission determines after its evaluation that it still has concerns about the merger, it will begin a phase II review, which is a more in-depth analysis of the transaction’s effects on competition. 

European Commission Adopted Strategy of Making Decisions Based on Surveys

Reuters obtained a leaked copy of a questionnaire that the EU antitrust inspectors allegedly sent to game developers, publishers, and distributors who would be affected by the merger if it were to be allowed. The survey had 100 questions.

The survey inquired as to whether Microsoft will be pressured to impose access restrictions on Activision Blizzard properties like Call of Duty, Diablo, and Overwatch to strengthen its position on consoles and PCs. It also asked what the Call of Duty franchise means for console game producers, as well as for businesses that provide game subscriptions and cloud streaming services. The agreement’s potential impact on contributors’ bargaining position about the sale of their Xbox console games and Microsoft’s Game Pass subscription service is also being investigated.

In an attempt to convince regulatory bodies that its planned purchase of Activision Blizzard is in the best interests of both the firm and the industry, Microsoft outlined the possible benefits that may result from the firm acquiring Activision Blizzard and its several successful games, including, but not limited to, Diablo and Call of Duty, among others. 

Since its first run-in with European authorities, Microsoft has tried to go the underdog route. This tactic aimed to undermine Sony’s justifications for the purchase. In response to the investigation that was publicly disclosed, Microsoft acknowledged that Sony is the industry pioneer.

A new Reuters story claimed that the European Commission sent a 91-page probe to Microsoft’s rivals. The receivers were questioned about what would happen to the software giant when the proposed $69 billion Activision deal is authorized. The article focused on several issues, including Call of Duty’s effect on the video game market and game exclusivity. 

The players were questioned by the European Commission on whether Microsoft would limit Activision’s access by making its games and services solely accessible on Xbox. Additionally, it questioned if the company would just provide Xbox Activision game updates rather than lowering the quality of Activision games on other platforms.

The procedure will continue when the EU has evaluated the poll respondents’ replies, which it is currently awaiting.

Federal Trade Commission (FTC)

According to a source speaking to the agency anonymously, the FTC would look into the transaction to see whether the acquisition of the publishing behemoth amounts to unfair competition, as reported by Bloomberg.

According to a Politico article that is said to be based on statements of three people with knowledge of the issue, the US Federal Trade Commission was “expected” to file an antitrust complaint to stop Microsoft’s purchase of Activision Blizzard. According to reports, this was a component of the FTC’s larger strategy to reduce the influence of significant technical businesses.

Lulu Cheng Meservey, Executive Vice President for Corporate Affairs and Chief Communication Officer of Activision-Blizzard, had responded to the antitrust lawsuit by saying:

Seeing a lot of speculation about Microsoft’s acquisition of Activision Blizzard

Any suggestion that the transaction could have anticompetitive effects is absurd. This merger will benefit gamers and the US gaming industry — especially as we face stiffer competition from abroad.

We’re committed to continuing to work cooperatively with regulators around the globe to allow the transaction to proceed, but won’t hesitate to fight to defend the transaction if that’s needed.” 

Microsoft was prepared to bring a lawsuit if the US Federal Trade Commission tries to stop the big Activision-Blizzard merger according to Bloomberg:

In the event the FTC tries to block the case, Microsoft is gearing up to contest that decision in court, said the person, who asked not to be identified speaking about internal strategy.

Bloomberg Intelligence antitrust analyst Jennifer Rie said it wouldn’t surprise her if the FTC files a lawsuit seeking to block the deal, but noted that a court fight would be hard for enforcers to win and Microsoft could prevail — though a legal battle could stretch beyond the deal’s end date. Microsoft has said it expects to close the transaction by June 30.”

The Federal Trade Commission subsequently launched a lawsuit to block Microsoft’s $69 billion bid to buy Activision Blizzard, claiming that the deal would enable the computer giant to suppress gaming competition.

The Federal Trade Commission is seeking to block technology giant Microsoft Corp. from acquiring leading video game developer Activision Blizzard, Inc. and its blockbuster gaming franchises such as Call of Duty, alleging that the $69 billion deal, Microsoft’s largest ever and the largest ever in the video gaming industry, would enable Microsoft to suppress competitors to its Xbox gaming consoles and its rapidly growing subscription content and cloud-gaming business.”

The FTC accused Microsoft of exploiting its “record of acquiring and using valuable gaming content” to stave off competition from other systems in the case. The agency backs its claims by giving the example of the $7.5 billion purchase of ZeniMax, the parent firm of Bethesda Softworks, a video game producer. In that instance, despite reassurances it had provided to European antitrust regulators that it had no motive to withhold games from competing systems, Microsoft “decided to make many of Bethesda’s titles, including ‘Starfield’ and ‘Redfall’ Microsoft exclusives.”

Following the filing of the lawsuit, Microsoft has said that it is prepared to debate its position in a court of law. In a formal response to the revelation, Microsoft President Brad Smith said that the company was confident in its stance and would make an effort to demonstrate that the deal was not anti-competitive. 

We continue to believe that this deal will expand competition and create more opportunities for gamers and game developers. We have been committed since Day One to addressing competition concerns, including by offering earlier this week proposed concessions to the FTC.

While we believed in giving peace a chance, we have complete confidence in our case and welcome the opportunity to present our case in court.” 

In a statement sent to staff employees, Activision Blizzard CEO Bobby Kotick recognized the FTC’s decision to file a complaint and echoed Smith’s comments: 

This sounds alarming, so I want to reinforce my confidence that this deal will close. The allegation that this deal is anti-competitive doesn’t align with the facts, and we believe we’ll win this challenge.

Thanks to the hard work of all of you every day, we’re on a strong path, bringing epic joy to players around the world with what I believe are the greatest games in the industry.” 

Microsoft had reacted to FTC’s complaint arguing for the approval of the $68.7 billion merger in the 37-page paper. It explains why it bought ZeniMax, the company that owns Bethesda, and admits that three planned titles from the studio will be Xbox and PC exclusives.

In its response to the FTC, Microsoft attempts to minimize the significance of Xbox, referring to it as the “third-place manufacturer of gaming consoles” after Sony and Nintendo and one of many publishers of well-known video games with “next to no presence in mobile gaming,” where it is attempting to gain ground. 

The acquisition of a single game by a third-place console manufacturer cannot upend a highly competitive industry.

That is particularly so when the manufacturer has made clear it will not withhold the game. The fact that Xbox’s dominant competitor has thus far refused to accept Xbox’s proposal does not justify blocking a transaction that will benefit consumers.” 

-Microsoft  

Conclusion

Microsoft’s journey to getting its Activision deal approved by regulators all around the world was a lengthy and challenging one. To have it accepted, it still has to go quite far and undergo further work.

[UPDATE 18/1/2023]: 

Microsoft’s purchase of Activision Blizzard has received the official backing of the European Games Developer Federation. On January 16, earlier this week, the EGDF released its formal statement on the possible purchase, outlining its position.

EGDF supports Microsoft’s Activision Blizzard acquisition,as its potential positive impacts on the competition in game markets, in general, outweigh the limited console and subscription market-specific competition concerns.

Furthermore, in the console game markets, Sony is a clear market leader with its PlayStation platform, and Microsoft is still in a challenger position.”

The EGDF is a trade association that speaks for game development companies in 21 different European nations. The United Kingdom’s decision to exit the European Union has not changed its standing as a member of the trade federation, therefore it is included on the list along with developers from France, Germany, Italy, Portugal, Romania, Serbia, and Spain.

ABOUT THE AUTHOR

Muhammad Zuhair


Passionate about technology and gaming content, Zuhair focuses on analysing information and then presenting it to the audience.
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