Microsoft’s $69 billion megadeal to purchase video game powerhouse Activision Blizzard won final approval in October, finishing a regulatory odyssey that began more than eighteen months ago.

The largest consumer tech acquisition since the AOL-Time Warner deal in 2000, the Microsoft-Activision was subject to a painstaking global approval process before closing, underscoring the complexities of obtaining regulatory clearance across numerous jurisdictions.

But with final approval achieved in both the U.S. and U.K., the question now becomes what the implications of this acquisition will be for competition, innovation, and consolidation in the video game industry.

How we got here

Although the merger was first unveiled in January 2022 and secured regulatory nods in the European Union, China, Japan, and 37 other nations (encompassing a vast market of two billion people),1 it encountered significant hurdles in the US and UK beginning in the spring of 2023.

In April, the United Kingdom’s Competition and Markets Authority (CMA) froze the proposed merger, citing antitrust concerns. The CMA contended that the deal would grant Microsoft, a company already holding a 60%-70% global market share in cloud gaming, an excessively dominant position, resulting in diminished innovation and reduced choice for U.K. gamers in the years ahead.²

In response to these regulatory apprehensions, Microsoft made a commitment to allow Activision Blizzard games, such as “Call of Duty” and “Overwatch,” continued availability on rival cloud gaming platforms like the Nintendo Switch (with which Microsoft had struck a 10-year agreement for simultaneous releases and complete feature and content parity).³ Both Microsoft CEO Satya Nadella and Activision CEO Bobby Kotick assured a U.S. Federal court in June that they would extend a similar arrangement to Sony, reinforcing their companies’ dedication to open platforms and consumer choice.⁴ These reassurances facilitated the approval of the deal in the European Union and China.⁵

With intense scrutiny on the U.S. decision, in mid-June, the Federal Trade Commission (FTC) secured a court injunction to temporarily halt the acquisition, leading to a subsequent hearing in a U.S. District Court in San Francisco.

During the week-long hearing, the FTC contended that the acquisition would confer an anti-competitive edge upon Microsoft in the burgeoning cloud gaming sector. Ultimately, the judge presiding over the case ruled that Microsoft’s ownership of Activision would not, in actuality, harm competition.⁶

Come September, the CMA suspended its own litigation to evaluate a new proposal from Microsoft aimed at addressing the regulator’s concerns regarding competition and access to games across various platforms.⁷ These proposals from Microsoft restructured the agreement, transferring cloud gaming rights for both current and future Activision Blizzard games to competitor Ubisoft for the next 15 years.⁸

The CMA deemed that this revised deal addressed their earlier concerns and, in October, gave the deal final approval, with Microsoft and Activision formally closing the deal on October 13, 2023.⁹

What the merger means for the future of the gaming sector

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

To begin with, at $69 billion, the Activision Blizzard deal is the biggest acquisition in Microsoft’s history and brings the total number of gaming studios owned or acquired by Microsoft to twenty.¹⁰

By adding hit Activision Blizzard franchises like “Call of Duty,” “World of Warcraft,” “Diablo,” “Overwatch,” and mobile gaming powerhouse “Candy Crush” to its existing stable of hits, including “Halo,” “Minecraft,” and “Forza,” Microsoft has managed to vault past Nintendo to become the second-largest console maker (behind Sony) and the third-largest gaming company (after Tencent and Sony), both by revenue.¹¹

Industry observers believe this merger significantly shifts the balance of power in the industry in favour of Microsoft and Xbox, allowing the company to have a major say in the future direction of the video game industry.¹²

And while there remain critics who say that Microsoft’s control of Activision Blizzard’s library of games could give the company an unfair advantage,¹³ a more optimistic view held by some industry watchers is that this deal will kickstart competition within the industry, particularly at the triple-A level. As other leading platform and game publishers react to the Microsoft-Activision deal by bringing out bigger and better product to win over gamers, they argue, Microsoft and the Xbox will be forced to innovate and compete in ways they have never had to before.¹⁴

And, even if Microsoft should choose to limit access to its blockbuster titles on rival consoles and subscription services, gamers can rest easy because it will be at least 2038 before Microsoft can do so. The deal signed with Ubisoft to assuage regulator concerns gives that company cloud gaming rights for every Activision Blizzard game for the next fifteen years. Ubisoft plans to incorporate Activision Blizzard games into its Ubisoft Plus Multi Access subscription, meaning these games will be available on various platforms, including PC, Xbox, Amazon Luna, and PlayStation.¹⁵

The biggest unknown with this deal is how this acquisition could influence further consolidation or mega-deals across the gaming industry.

With this largest-ever deal in the sector now complete, who might be the target of the next blockbuster acquisition? What happens if another deep-pocketed tech company like Amazon or Apple or an entertainment juggernaut like Disney decides they want their own video game house? Would EA or Ubisoft be attractive M&A targets in such a case? What about Tencent?

Given the now-successful example of the Microsoft-Activision deal, it’s unlikely any such future acquisition would have to jump through the same kind of hoops in order to secure regulatory approval. What does this mean, then, for the potential of antitrust enforcement in the global gaming industry?¹⁶

While many such questions about the future remain, for now, Microsoft, Activision, and their shareholders can celebrate a hard-won victory and look forward to the fruits this acquisition will yield.

HERO ETF: Diversified Investing in Video Games

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Sources 

1. 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
2. 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
3. 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
4. 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
5. 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
6. 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
7. 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
8. Ricker, T., “Microsoft’s Activision Blizzard deal gets preliminary approval from UK regulator,” The Verge, September 22, 2023; https://www.theverge.com/2023/9/22/23885176/microsofts-activision-blizzard-uk-cma-preliminary-approval
9. Browning, K. & McCabe, D., “Microsoft Closes $69 Billion Activision Deal, Overcoming Regulators’ Objections,” The New York Times, October 13, 2023; https://www.nytimes.com/2023/10/13/technology/microsoft-activision-blizzard-deal-closes.html
10. Gerken, T., McMahon, L. & Rogers, A., “Microsoft Activision: What does deal mean for gamers?,” BBC News, October 14, 2023; https://www.bbc.com/news/technology-67066870
11. Howley, D., “How Microsoft’s Activision Blizzard win could dramatically alter the gaming industry,” Yahoo Finance, July 14, 2023; https://finance.yahoo.com/news/how-microsofts-activision-blizzard-win-could-dramatically-alter-the-gaming-industry-140240030.html
12. Dring, C., “Finally, the Microsoft/Activision Blizzard acquisition saga is over. Now the work begins,” GamesIndustry.biz, October 13, 2023; https://www.gamesindustry.biz/finally-the-microsoftactivision-blizzard-acquisition-saga-is-over-now-the-work-begins-opinion
13. 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
14. Dring, C., “Finally, the Microsoft/Activision Blizzard acquisition saga is over. Now the work begins,” GamesIndustry.biz, October 13, 2023; https://www.gamesindustry.biz/finally-the-microsoftactivision-blizzard-acquisition-saga-is-over-now-the-work-begins-opinion
15. Warren, T., “Microsoft to sell off Activision cloud gaming rights to Ubisoft in bid for UK approval,” The Verge, August 22, 2023; https://www.theverge.com/2023/8/22/23828302/microsoft-activision-blizzard-acquisition-ubisoft-cloud-gaming-rights-uk-cma
16. 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

 

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