Date: 08/23/2023
Author: Mr. X
The Competition and Markets Authority (CMA) in the United Kingdom is beginning a new investigation to decide whether to approve the blockbuster Microsoft/Activision merger that would completely dominate the world gaming market. Regulatarory agencies covering about forty countries have already approved the deal, but the United Kingdom remains a holdout. The Federal Trade Commission in the United States trade to stop it, but lost a major court battle.
The British objection lay in the possible damage to competition in the cloud gaming market. Microsoft could potentially use its strong position in both hardware and brands (after the deal with ATVI) to box out competitors. However, Microsoft has offered a significant concession.
According to a blog post from Microsoft’s Brad Smith:
As a result of the agreement with Ubisoft, Microsoft believes its proposed acquisition of Activision Blizzard presents a substantially different transaction under UK law than the transaction Microsoft submitted for the CMA’s consideration in 2022. As such, Microsoft today has notified the restructured transaction to the CMA and anticipates that the CMA review processes can be completed before the 90-day extension in its acquisition agreement with Activision Blizzard expires on October 18.
Under the restructured transaction, Microsoft will not be in a position either to release Activision Blizzard games exclusively on its own cloud streaming service – Xbox Cloud Gaming – or to exclusively control the licensing terms of Activision Blizzard games for rival services.
The agreement provides Ubisoft with a unique opportunity to commercialize the distribution of games via cloud streaming. The agreement will enable Ubisoft to innovate and encourage different business models in the licensing and pricing of these games on cloud streaming services worldwide. Ubisoft will compensate Microsoft for the cloud streaming rights to Activision Blizzard’s games through a one-off payment and through a market-based wholesale pricing mechanism, including an option that supports pricing based on usage. It will also give Ubisoft the opportunity to offer Activision Blizzard’s games to cloud gaming services running non-Windows operating systems.
Microsoft will not get exclusive rights to games until after a 15 deadline has passed. Until then, Ubisoft has the exclusive cloud streaming rights outside the European Union for existing games, and those made in the next 15 years.
Sarah Cardell of the regulatory agency conceded that Microsoft is offering a substantially different deal, but said this is “not a green light.” “We will carefully and objectively assess the details of the restructured deal and its impact on competition, including in light of third-party comments,” she said.
Microsoft is looking to break customers away from the model of buying individual games and instead offering subscription access to different games across a whole field of devices. Think as Netflix for games. Actually, don’t assume that those will remain two different things – Netflix just started testing its own subscription games service.
Of course, Microsoft has the experience, the device, and now potentially a prominent list of titles no other company can match. It comes down to the United Kingdom to approve the deal – otherwise, it is difficult how to see Microsoft can move forward with its ambitious strategy of all-spectrum gaming dominance.
Mr. X is an investment analyst working in the Washington DC area who specializes in the intersection of business and public policy. After fifteen years working in politics, he writes on a classified basis for RogueInvesting.com to bring you news on what those with power are debating, planning, and doing
