EU green lights Microsoft-Activision Blizzard merger. What’s next?

After more than a year of hiccups, Microsoft is seeing some light at the end of the tunnel for its US$69 billion bid to buy the video game company Activision Blizzard. On May 15, regulators from the European Union approved what could be the largest consumer tech deal in recent times.

After the deal faced a potentially fatal blow from British antitrust regulators last month, Microsoft managed to persuade the European Commission to greenlight its attempt to purchase Call of Duty publisher, Activision Blizzard. 

According to the European Commission (EC), Microsoft had addressed its concerns on competition issues, three weeks after the UK blocked the deal over worries it would hurt competition in the emerging cloud gaming business.

But a green light from the EU is not concrete enough for the Microsoft-Activision deal – which is poised to be the largest consumer tech acquisition in recent history. In fact, in order for the deal to go through, Microsoft and Activision need approval from regulatory bodies in the UK, the EU and the US. As of now, only the EU has been relieved of its concerns.

In hindsight, the approval by the EC, the bloc’s executive arm, will perhaps revive Microsoft’s hopes for the deal as it prepares to appeal against the UK’s Competition and Markets Authority (CMA). On the other hand, in the US, the Federal Trade Commission (FTC) which is also against the takeover, is suing to block it.

How did Microsoft-Activision reach this point?

It all started in January 2022, when Microsoft and Activision announced the largest-ever deal for the software maker and the largest deal within the video game industry. The deal would give the Xbox maker control of one of the biggest video game companies in the world, including popular gaming franchises like Call of Duty, Overwatch, and World of Warcraft. 

In short, Microsoft will become the world’s third-largest gaming company by revenue, behind Tencent and Sony, when – or if – the deal closes. Microsoft has set a goal since January, 2022 to have the deal finalized and completed this year. 

What was the EC’s issue with the Microsoft-Activision merger deal?

Both companies develop and publish games for PCs, consoles, and mobile devices, and distribute games for PCs. Microsoft also distributes games for consoles and offers the Xbox console along with a wide range of products and services, including the PC operating system, “Windows.”

Activision’s games portfolio includes famous franchises including Call of Duty, World of Warcraft, Overwatch and Diablo. That said, the Commission’s preliminary investigation found that Microsoft could harm competition (i) in the distribution of console and PC video games, including multi-game subscription services and cloud game streaming services, and (ii) in the supply of PC operating systems.

On Monday this week, the Commission announced that it had accepted Microsoft’s proposed remedies. The compromise involves Microsoft offering free licenses over a 10-year period, allowing European consumers who purchase Activision PC and console games to stream them on other cloud gaming services.

The EU’s competition commissioner, Margrethe Vestager, said the decision would bring Activision’s games to “many more devices and consumers than before, thanks to cloud game streaming.”

She added that “The commitments offered by Microsoft will enable for the first time the streaming of such games in any cloud game streaming services, enhancing competition and opportunities for growth.”

What do the US and UK say about the EU’s decision?

In an official statement on social media, the CMA said that it recognized and respected the verdict by the EC, but that it stood by its original decision. “Microsoft’s proposals, accepted by the European Commission today, would allow Microsoft to set the terms and conditions for this market for the next 10 years,” said Sarah Cardell, the CMA’s chief executive.

She added that both companies would replace a free, open and competitive market with one subject to ongoing regulation of the games Microsoft sells, the platforms to which it sells them, and the conditions of sale. “This is one of the reasons the CMA’s independent panel group rejected Microsoft’s proposals and prevented this deal,” said Cardell.

Experts believe it makes a difference if Microsoft manages to get the decision overturned in the UK competition appeal tribunal, but if it loses in the UK, it’s still game over. “That is unless Microsoft decides to withdraw from the UK market,” Anne Witt, a professor of antitrust law at the EDHEC business school in France told The Guardian.

As for the US, the case between the FTC and Microsoft is still ongoing. A senior commission official said the EU has exchanged views with the FTC on several occasions and has had close cooperation regarding the case.