Why has the EU approved the Microsoft Activision deal and will it now go ahead?
Microsoft in January 2022 announced it had plans to buy Activision Blizzard, one of the world’s largest games publishers, for $68.7 billion (£55 billion).
That’s a figure significantly higher than the $7.5 billion (£6 billion) it paid for Bethesda Gameworks two years earlier. The proposed Activision Blizzard takeover has proved considerably less straightforward, triggering scrutiny from competition watchdogs and from Microsoft’s console rival, Sony.
Things have moved quickly since then. On May 15, EU regulators gave the deal the all-clear just weeks after the UK blocked the acquisition. The European Commission was satisfied with Microsoft’s commitments to allow players to access Activision games on other cloud gaming platforms and consoles.
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.”
Its decision stands in stark contrast to the UK’s stance on the mega-deal. On April 26, monopolies watchdog the CMA (Competitions and Markets Authority) blocked the takeover over concerns that it would stifle competition in the UK’s cloud gaming market. Microsoft is appealing the decision, with Activision hiring a top lawyer who previously represented Boris Johnson to argue its case.
Meanwhile, regulators in smaller markets like Saudi Arabia, Brazil, Chile, Serbia, Japan, and South Africa have all approved the deal. Microsoft is now awaiting the decision from the Federal Trade Commission in its native US.
It seems the battle between the titans of the gaming world is far from over, and could rage on for months to come. The latest chapter in this ongoing, bitter saga is positive for Microsoft — but why is it so keen on buying Activision Blizzard, and why is it proving so difficult?
Read on to find out more information.
What games does Activision Blizzard make?
The biggy is Call of Duty or ‘CoD’. The military first-person shooter is one of the most popular games on the planet, and always elicits great excitement when a new entry is released.
But both Activision and Blizzard have been in the business for decades, and have plenty of beloved franchises beyond CoD. These include Warcraft, Overwatch, and even Candy Crush, after the 2016 acquisition of mobile game maker King.
Here are the main ones:
Call of Duty
Tony Hawk’s Pro Skater
Hero (Guitar Hero, DJ Hero, Band Hero)
These are just the main players, and there are plenty of long-forgotten IPs that could be revived: think King’s Quest, Blur, Gabriel Knight, True Crime, and Gun.
Why is Microsoft trying to buy Activision Blizzard?
While once known exclusively for home-computer software (Windows, Office, Outlook, Word, etc.) Microsoft now has fingers in many pies — and gaming is one of the biggest, thanks to the Xbox gaming division.
That would be reason enough to try to add one of the world’s biggest publishers into the fold, with exclusive games often helping to decide console wars and Microsoft fighting a losing battle against Sony’s PlayStation 5.
But having popular franchises such as Call of Duty, Overwatch, and Warcraft as part of the Microsoft stable is especially significant due to the company betting much on Game Pass. This is its ‘Netflix of games’, where you can play a rolling selection of titles for a low-cost monthly subscription.
Microsoft’s games — including Gears of War, Forza, Halo, and Minecraft — are already included. The company would love to add Activision’s titles to the platform to boost subscriber numbers.
What is the problem with Microsoft buying Activision Blizzard?
The problem concerns competition. By acquiring Activision Blizzard, critics argue, Microsoft’s gaming division would simply own too much of the industry, unfairly limiting its competitors and ultimately harming consumers.
In the US, the Federal Trade Commission (FTC) is attempting to block the deal, with it voting three to one to issue a complaint against the buyout. In the UK, the CMA has concluded that the move would ultimately result in higher prices, fewer choices, and less innovation for UK gamers.
It also found shortcomings in the regulatory remedies proposed by Microsoft in its bid to get the merger across the line. The tech giant signed cloud gaming deals with Boosteroid, Ubitus, and Nvidia to bring Xbox PC games to these services. It also signed a similar deal with Nintendo last December.
Much of the problem comes from exclusivity. To get the main benefit from an acquisition, many assume Microsoft would have to make future titles from Activision Blizzard exclusive to Xbox and PC, freezing out PlayStation gamers.
In terms of precedent for that, Microsoft has announced that Bethesda’s first game as a Microsoft studio — Starfield — won’t be appearing on PS5. It seems unlikely that a future Fallout of Elder Scrolls will either.
That said, Microsoft hasn’t pulled Minecraft from Sony or Nintendo platforms since purchasing the game back in 2014. And for its part, as part of the ongoing argument, Microsoft has offered to keep Call of Duty — the main prize of contention for rivals — on Sony and Nintendo platforms for a decade after the deal completes.
Microsoft president Brad Smith made the pledge in an opinion piece for the Wall Street Journal in December. He said that the deal was good for gamers because Microsoft was “third place in console gaming, stuck behind Sony’s dominant PlayStation and the Nintendo Switch”.
What would Microsoft buying Activision Blizzard mean for big games such as World of Warcraft?
Those reassurances aside, the concerns of Microsoft’s rivals are that big franchises will either be exclusive to Xbox and PC, or be otherwise hobbled on other formats with weaker performance or less DLC.
Even if Microsoft were to continue releasing its games on other formats, its rivals are concerned that they can’t compete with the Game Pass offering, where the £60 RRP is replaced with a flat monthly subscription.
Blizzard’s games such as World of Warcraft and Starcraft, which have never had a console version, might be pushed on to Xbox in time, too. Though, given Microsoft has a substantial interest in Windows PCs, this wouldn’t necessarily be an urgent priority.
Is Microsoft’s takeover of Activision likely to go ahead?
Back in September, Microsoft CEO Satya Nadella told Bloomberg that he was “very, very confident” that the Activision Blizzard buyout would go through. “Of course, any acquisition of this size will go through scrutiny but we feel very, very confident that we’ll come out,” he said.
But that was before the FTC moved to block the deal and the CMA ruled against it. This was despite the UK watchdog recently dropping many of its concerns about the upcoming takeover (especially around the fate of Activision’s biggest hitter, Call of Duty).
Martin Coleman, chair of the independent panel of experts conducting this investigation, said in a statement: “Microsoft already enjoys a powerful position and head start over other competitors in cloud gaming and this deal would strengthen that advantage, giving it the ability to undermine new and innovative competitors.”
He added: “Cloud gaming needs a free, competitive market to drive innovation and choice. That is best achieved by allowing the current competitive dynamics in cloud gaming to continue to do their job.”
Now, the path forward looks trickier. For its part, Microsoft is working with Activision to appeal against the UK’s decision in an effort to reverse it.
Vice chair and president Brad Smith said in a statement: “We remain fully committed to this acquisition and will appeal. The CMA’s decision rejects a pragmatic path to address competition concerns and discourages technology innovation and investment in the United Kingdom.
“We have already signed contracts to make Activision Blizzard’s popular games available on 150 million more devices, and we remain committed to reinforcing these agreements through regulatory remedies.”
He added: “We’re especially disappointed that, after lengthy deliberations, this decision appears to reflect a flawed understanding of this market and the way the relevant cloud technology actually works.”
On the other hand, the EU’s approval of the deal is a major victory for Microsoft. The European Commission in particular felt Microsoft’s pledges to bring games to competing platforms and consoles were “sufficiently comprehensive”.
As part of its identified remedies, the EC said Microsoft must provide a free license 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 license for. Cloud providers will also receive a free license to stream the games in EU markets.
What does this mean for gamers?
Gamers who feared Microsoft would renege on its promise to make Activision games widely available may have been rejoicing after the CMA blocked the deal.
PlayStation owners, in particular, may have been sceptical about Microsoft’s assurances to keep CoD on Sony’s consoles for 10 years. In fact, Microsoft had already indicated that it wasn’t interested in extending that commitment. It said that a decade was plenty of time for Sony to create a CoD rival, signalling that it was prepared to pull the rug out from underneath its competitor as soon as the deal timer ran out.
The UK also threw doubt over Microsoft’s plans to add Activision games to other gaming platforms, including Nintendo consoles.
In a bid to assuage regulators, the tech giant had struck high-profile deals to bring Xbox PC and Activision franchises, including CoD and Overwatch, to rival platforms. They included 10-year contracts with cloud-gaming services including NVIDIA Geforce Now, and smaller competitors such as Boosteroid and Ubitus. It also struck a similar deal with Nintendo in December.
If Microsoft loses its appeal, then it will essentially be up to Activision to secure similar licensing deals with these distributors. Seeing as the company removed its games from GeForce Now in 2020, and hasn’t restored them since, it clearly has some misgivings about cloud gaming.
Meanwhile, Microsoft’s Nintendo deal felt like lip service to regulators. The Japanese company is largely associated with family-friendly titles such as Mario, and already has access to Activision’s Overwatch games. CoD therefore felt like a mismatch for Nintendo. Nor does the Switch boast the computing power to run the latest CoD games.
All told, Activision will have little incentive to pursue a similar deal with Nintendo, should the merger fall apart.
Who owns Activision?
As of now, Activision Blizzard is still an independent, publicly traded company that is owned by its shareholders. A mixture of financial conglomerates and asset managers currently hold stakes in the gaming giant, including Warren Buffet’s Berkshire Hathaway, Vanguard Group, FMR LLC, and Blackrock.
The US-based video game firm was established in 2008 following the merger of Activision and Vivendi Games. The latter was the games division of French media conglomerate Vivendi, which owned Blizzard Entertainment and its blockbuster multiplayer game World of Warcraft.
Activision traces its roots back to 1979, when it was founded by a group of former Atari developers. Originally called Computer Arts, Inc., the team later changed the company’s name to a portmanteau of “active” and “television”. Thus, Activision was born.
Activision Blizzard CEO Bobby Kotick took the reins in 1991 after purchasing a company stake the previous year. Kotick orchestrated the merger with Vivendi Games in the 2000s, which led to the formation of Activision Blizzard, and made him the company’s first CEO.
Today, the company is composed of five business units: Activision Publishing; Blizzard Entertainment; King, which it acquired in 2016, Major League Gaming, and Activision Blizzard Studios.