The purchase of Activision Blizzard by Microsoft is a key and recurring theme in the video game sector for a year and a half. And is not for less. In January 2022, the Xbox company announced its intention to acquire Activision Blizzard for $68.7 billion in what would be the largest purchase in entertainment history. With this move, those from Redmond would take over big franchises like Call of Duty, World of Warcraft and Candy Crush. But, if all this happened at the beginning of 2022, why are we still talking about it in June 2023?
An operation of this caliber is extremely complex and cannot be solved simply with a check or taking out your wallet. If Microsoft ends up acquiring Activision Blizzard - along with all its franchises, studios and staff - it will be in a very advantageous position compared to other companies in the sector. And this raises serious questions about how it could affect competition and whether it could even be considered a monopoly. So different regulatory bodies around the world are studying whether or not to allow the operation and what effects it could have.
All this comes two years after Microsoft bought the Zenimax Media conglomerate, owner of the Bethesda publisher, along with major video game franchises such as The Elder Scrolls and Fallout. Along the same lines, Xbox and Bethesda have recently confirmed that Starfield – one of the most anticipated titles of the year – will be exclusive to Microsoft platforms. This is an example of what could happen with the Activision Blizzard franchises in the event that the acquisition is closed positively, although the different regulatory bodies around the world put forward more arguments in this regard.
We begin by reviewing the situation in the United States. Last week, specifically on June 22, a trial began in which the Federal Trade Commission (Federal Trade Commission in English or FTC) confronts Microsoft with the aim of imposing a preliminary injunction to freeze the purchase operation. This legal battle began last December, when the FTC announced its intentions to block Microsoft's acquisition of Activision Blizzard.
The protagonist of the second day of trial has been the CEO of Xbox, Phil Spencer, who has gone to court as testimony. His main argument – and that of Microsoft – to defend the purchase is that Xbox is the third largest player in the world of video games, behind PlayStation and Nintendo. “If you look at our market share over the last 20 years, we're in third place. We are behind Sony and Nintendo in terms of console distribution," said Phil Spencer.
But there are more important dates to take into account to understand the context. Microsoft's operation is against the clock because it only has until July 18 to close the purchase without having to renegotiate the agreement. If on the 18th Microsoft has not definitively bought Activision Blizzard, the operation could continue to drag on because both companies would have to renegotiate the conditions of the purchase.
Despite this, the evidentiary hearing in which the Federal Trade Commission will decide whether to approve the operation is scheduled for August 2. Almost two weeks after the deadline set by Microsoft and Activision Blizzard. But, then, what is this trial that is now underway for?
Easy: The FTC wants to impose a preliminary injunction to prevent Microsoft and Activison Blizzard from closing before the evidentiary hearing on August 2. If the FTC emerges victorious from the trial – this one, the one now – both companies must pause all their negotiations until the trial scheduled for August 2 ends. And on the rebound they would miss the deadline of July 18 and would have to renegotiate the purchase.
But the problems are not limited to the United States, now we go to the United Kingdom.
At the end of April, the United Kingdom's competition regulator – the Competition and Markets Authority or CMA in English – blocked the purchase against all odds, since a few weeks before the CMA presented a report in which it was favorable to the operation. In addition, unlike the situation in the United States, in the United Kingdom the denial is outright, although Microsoft and Activision Blizzard can appeal.
The most curious thing about the CMA case is the arguments it has used to defend its veto. In his refusal, he focuses on the risks that the purchase could entail in the specific cloud gaming market, a way of playing in which users do not have the video game itself or a console, but instead play streaming on a process that would be more comparable to the consumption of a series on Netflix for example.
"Microsoft already represents approximately 60-70% of global cloud gaming services," says the CMA. In addition, the company responsible for Xbox also has a large cloud computing infrastructure such as Azure and Xbox Cloud Gaming. These arguments contrast with what someone who regularly follows the latest news in the world of videogames might expect; this someone might be more concerned about what the acquisition of big franchises like Call of Duty, World of Warcraft and Candy Crush would mean.
With that said, Microsoft and Activision Blizzard will be appealing the CMA's decision. But this is not a straightforward procedure and since 2010 the UK regulator has won 67% of the appeal cases it has been involved in. It should also be taken into account that losing in the United Kingdom is not the end of the world, since, if the rest of the countries approve the operation, Microsoft could close and remodel some business lines in the Anglo-Saxon country to adapt to the regulations and also continue with the purchase process.
The process in the European Union has not been easy either, although it has ended with a resolution in favor of Microsoft and Activision Blizzard. In late February, a delegation of Microsoft executives, including company president Brad Smith, met in Brussels with the aim of convincing antitrust officials. And it seems they did well. As in the case of the United Kingdom, in the European Union they were also concerned about cloud gaming and for this reason Microsoft decided to make some concessions.
Basically, the Redmond company has agreed to give 10-year licenses to any cloud service that wants to have Activision Blizzard titles in its catalog for users in the European Economic Area. In addition, it has also offered companies such as Nintendo, Nvidia and Sony 10-year agreements to continue distributing new Call of Duty installments on their platforms.
The news confirming this “yes” from the European Commission came in mid-May and Microsoft President Brad Smith reacted quickly via Twitter: “The European Commission has required Microsoft to automatically license popular Activision Blizzard games to competing cloud gaming services. This will apply globally and will allow millions of consumers around the world to play these games on whatever device they choose.”
In fact, in its official statement, the European Commission points out that "the commitments [offered by Microsoft] fully respond to the competition concerns identified by the Commission and represent a significant improvement for cloud gaming compared to the current situation" . So not only do they welcome the purchase, but from Brussels they believe that it will even be beneficial for users. How opinions change on one side and the other of the English Channel.
Saudi Arabia did not hesitate at any time and immediately authorized the purchase. In fact, they were so quick that the Arab country's regulatory body was the first in the world to take a position. In general, it is worth paying attention to any move that Saudi Arabia makes in relation to video games, since the Arab country continues with the objective of becoming the new reference enclave for the sector in the Middle East.
China has also opted for yes, although it has taken more time than Saudi Arabia. The decision of the Asian giant was published at the end of last May and thus joined other regulatory bodies such as Japan or the European Union. In total, 37 countries – totaling more than two billion people – have already approved the operation. Among these are Brazil, Serbia, South Africa, Chile and Ukraine.
Finally, it is time to review the situation in Oceania. Regulatory bodies in Australia have not yet ruled on the matter and it seems that they are keeping an eye on what is happening in the rest of the world while they assess the situation. The case of New Zealand is similar to that of Australia, although the island does have a deadline set to issue its verdict: they have to do so before July 17.
And this is the summary of the situation. If carried out, Microsoft's $68.7 billion purchase of Activision Blizzard will be the largest deal in entertainment history. It is the merger of two video game giants and it is normal that the different regulatory bodies around the world are concerned about how all this could affect the market and competition. For now, we have to wait for the United States to rule and we must also see how the appeal in the United Kingdom ends. But, in the meantime, a key date: July 18 is the deadline to close the purchase without having to renegotiate.
