Microsoft’s $69 billion acquisition of video game maker Activision Blizzard received a major boost in July, with a U.S. federal judge allowing the merger to proceed.

The judge ruled that the Federal Trade Commission (FTC) failed to demonstrate that Microsoft’s ownership of Activision games would harm competition in the console or cloud-gaming markets and would, in fact, increase consumer access to Activision content, such as the immensely popular “Call of Duty” series. While the FTC had sought an injunction to halt the merger, the ruling allows the companies to proceed with the deal before the agency initiates a separate process to challenge it.1

After a year and a half of wrangling, how did the Microsoft-Activision merger get to this point? And if it goes through, what are the implications for the gaming sector overall? The stakes are high, and industry stakeholders eagerly await the final resolution of this transformative merger.

Let’s take a deep dive into the case.

How we got here

The Microsoft-Activision merger has been an intricate 18-month-long global approval process, highlighting the challenges of regulatory clearance across multiple jurisdictions.

While the merger was announced in January 2022 and has received regulatory approval in the European Union, China, Japan, and 37 other countries representing a total market of two billion people,2 it was only in the last several months that the deal hit roadblocks.

In April, the U.K.’s Competition and Markets Authority (CMA) blocked the proposed merger on antitrust grounds. The CMA claimed the deal would make Microsoft (which already holds a 60%-70% global market share in cloud gaming) too dominant in the space, leading to “reduced innovation and less choice for U.K. gamers over the years to come.”3

To ease regulators’ concerns, Microsoft pledged to ensure continued competition by allowing Activision Blizzard games such as “Call of Duty” and “Overwatch” to appear on rival cloud gaming platforms like the Nintendo Switch (with whom Microsoft struck a 10-year agreement for same-day release and “full feature and content parity” for games)4 and Sony PlayStation. Microsoft CEO Satya Nadella and Activision CEO Bobby Kotick have offered to extend the same deal to Sony and pledged as much in court in June, reaffirming their companies’ commitment to “open platforms and consumer choice.”5 Such assurances were what gained E.U. and Chinese approval of the deal.6

With all eyes on a decision in the U.S., in mid-June, the FTC received a court injunction to temporarily block the acquisition and a U.S. District Court in San Francisco agreed to hold a hearing just days later.

During the weeklong hearing, the court heard testimony From the FTC arguing that the acquisition would give Microsoft an anti-competitive advantage in the emerging cloud gaming space.7 It was this case that the judge ruled on, finding that Microsoft’s ownership of Activision would not, in fact, harm competition.

The regulator has agreed to pause litigation and evaluate new proposals from Microsoft to address their concerns around competition and access to games across platforms.8

Microsoft has mobile gaming in mind

Microsoft’s motivation to acquire Activision-Blizzard is centred mainly around the company’s desire to strengthen its mobile and cloud gaming positions.

Mobile gaming, which represents the largest revenue-generating segment in the gaming industry, is an area where Microsoft has lagged its competitors.

With Activision-Blizzard’s ownership of the highly successful mobile game franchise, “Candy Crush,” Microsoft sees an opportunity to gain a significant foothold in this rapidly growing market, bolster its limited presence in the mobile gaming sector, and expand its offerings beyond the Xbox.9

Additionally, the acquisition aligns with Microsoft’s goal of enhancing its Game Pass subscription service. The inclusion of Activision Blizzard’s game titles in the Game Pass library will provide subscribers with access to a broader range of content, strengthening the value of its subscription service and attracting a broader user base.10

The ability to stream games through its Game Pass subscription service offers Microsoft an opportunity to reach a wider audience and capitalize on the growing demand for cloud-based gaming experiences.

The merger’s implications for the future of the gaming sector

The merger between Microsoft and Activision-Blizzard carries significant implications for the gaming sector, potentially reshaping the broader gaming ecosystem. The sector will be watching the deal’s implications for competition, consumer choice, and innovation in the industry.

Despite Microsoft’s assurances that it supports consumer choice (and the deal they struck with Nintendo), critics continue to raise concerns that Microsoft’s control of Activision Blizzard’s library of games could give the company an unfair advantage. Should Microsoft limit access to blockbuster titles like “Call of Duty” on rival consoles and subscription services, it could give Microsoft outsized control over the emerging cloud-gaming market and choke off competition, they say.

Additionally, the size and scope of this deal—the largest ever in the gaming industry—raises important questions about potential future mega-deals in the sector as well as antitrust enforcement in the gaming industry around the world.11

As for innovation, industry watchers will have their eye on the effects this deal may have on smaller developers who lack the backing of larger studios or publishers and how successful they are at developing and promoting innovative new titles and other small indie games.

Likewise, the potential dominance of services like Game Pass in the cloud gaming space will also be of interest to developers and indie designers who rely on customers buying individual games for their revenue rather than the Netflix-for-games model of a Game Pass subscription.12

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Sources

  1. Needleman, S. & Michaels, D., “Microsoft Can Close Its $75 Billion Buy of Activision Blizzard, Judge Rules,” July 11, 2023; https://www.wsj.com/articles/microsoft-activision-blizzard-deal-ftc-hearing-d42675f1
  2. Fineman, J., “Microsoft’s planned $69B Activision purchase gets China antitrust approval – report,” Seeking Alpha, May 19, 2023; https://seekingalpha.com/news/3973465-microsofts-planned-69b-activision-purchase-gets-china-antitrust-approval-report
  3. Ziady, H., “UK blocks Microsoft takeover of Activision Blizzard,” CNN Business, April 26, 2023; https://www.cnn.com/2023/04/26/tech/microsoft-activision-blizzard/index.html
  4. Porter, J., “Microsoft Signs Binding Call of Duty Deal With Nintendo Ahead Of EU Activision Hearing,” The Verge, February 21, 2023; https://www.theverge.com/2023/2/21/23608256/microsoft-nintendo-call-of-duty-agreement-legal-eu-hearing
  5. Browning, K., “Microsoft and Activision Chiefs Testify Merger Will Benefit Consumers,” The New York Times, June 28, 2023; https://www.nytimes.com/2023/06/28/business/microsoft-activision-ceo-testify.html
  6. Porter, J., “Microsoft Signs Binding Call of Duty Deal With Nintendo Ahead Of EU Activision Hearing,” The Verge, February 21, 2023; https://www.theverge.com/2023/2/21/23608256/microsoft-nintendo-call-of-duty-agreement-legal-eu-hearing
  7. Browning, K. & McCabe, D., “Microsoft Says It Could Abandon Activision Deal if Judge Delays It,” The New York Times, June 22, 2023; https://www.nytimes.com/2023/06/22/technology/microsoft-activision-federal-hearing.html
  8. Nylen, L., Ludlow, E. & Bass, D., “Microsoft, Activision Eye UK Rights Sale to Get Merger Done,” Bloomberg, July 13, 2023; https://www.bloomberg.com/news/articles/2023-07-13/microsoft-activision-weigh-sale-of-some-uk-cloud-gaming-rights
  9. Howley, D., “Microsoft’s gaming future depends on the US,” Yahoo News, May 24, 2023; https://ca.news.yahoo.com/microsofts-gaming-future-depends-on-the-us-153820460.html
  10. Needleman, S. & Michaels, D., “Microsoft Can Close Its $75 Billion Buy of Activision Blizzard, Judge Rules,” July 11, 2023; https://www.wsj.com/articles/microsoft-activision-blizzard-deal-ftc-hearing-d42675f1
  11. Ibid
  12. Lucas Austin, P., “Microsoft Buying Activision Blizzard Might Be Good For Gamers, But Bad for Developers,” Time, January 19, 2022; https://time.com/6140197/what-microsoft-buying-activision-blizzard-means/
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