Microsoft makes revised Activision bid
August 22, 2023
By Colin Mann
Microsoft has submitted a new deal for review by the UK’s Competition and Markets Authority (CMA) following confirmation that its original deal to acquire Activision had been blocked to protect innovation and choice in cloud gaming.
In an unusual step, Microsoft had sought to revisit the CMA’s original prohibition decision, arguing that blocking the original deal was no longer appropriate in light of developments since the CMA issued its Final Report in April 2023, including the acceptance of binding commitments by the European Commission and a licensing deal agreed between Sony and Microsoft.
The independent group which took the original decision reviewed these submissions and decided that they did not provide any basis for a change to the original prohibition decision. To give final legal effect to that decision, the CMA has imposed a Final Order which prohibits the original deal on a worldwide basis.
Separately, Microsoft and Activision have agreed a new, restructured deal, which has been submitted to the CMA to review in a new investigation.
This new investigation will be carried out in line with the CMA’s usual Phase 1 processes and the statutory deadline for a decision is October 18th 2023.
Under the restructured deal, Microsoft will not acquire cloud rights for existing Activision PC and console games, or for new games released by Activision during the next 15 years (this excludes the European Economic Area). Instead, these rights will be divested to Ubisoft Entertainment SA (Ubisoft) prior to Microsoft’s acquisition of Activision.
Microsoft has stated that the restructured deal is intended to address the concerns set out in the CMA’s Final Report in April. In particular, the transaction is intended to provide an independent third-party content supplier, Ubisoft, with the ability to supply Activision’s gaming content to all cloud gaming service providers (including to Microsoft itself). Ubisoft will be able to license out Activision’s content under different business models, including subscription services. The deal also proposes that Ubisoft would have the ability to require Microsoft to provide versions of games on operating systems other than Windows.
“The CMA has today confirmed that Microsoft’s acquisition of Activision, as originally proposed, cannot proceed,” stated Sarah Cardell, Chief Executive of the CMA. “Separately, Microsoft has notified a new and restructured deal, which is substantially different from what was put on the table previously. As part of this new deal, Activision’s cloud streaming rights outside of the EEA will be sold to a rival, Ubisoft, who will be able to license out Activision’s content to any cloud gaming provider. This will allow gamers to access Activision’s games in different ways, including through cloud-based multigame subscription services. We will now consider this deal under a new Phase 1 investigation.”
“This is not a green light,” she asserted. “We will carefully and objectively assess the details of the restructured deal and its impact on competition, including in light of third-party comments. Our goal has not changed – any future decision on this new deal will ensure that the growing cloud gaming market continues to benefit from open and effective competition driving innovation and choice.”
The CMA is inviting comments from any interested party on the impact that the newly structured merger could have on competition in the UK.
In a blog post, Brad Smith – Microsoft Vice Chair & President, said the company was taking another important step regarding this transaction.
“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,” he said. “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.”
He added that under the restructured transaction, Microsoft would not be in a position either to release Activision Blizzard games exclusively on its own cloud streaming service – Xbox Cloud Gaming – or to control exclusively the licensing terms of Activision Blizzard games for rival services.
“Of importance, Microsoft’s obligations to provide cloud streaming rights in the European Economic Area remain in place, in full compliance with Microsoft’s commitments to the European Commission, he noted. “The agreement with Ubisoft has been structured so that Microsoft will still acquire the rights needed to honor fully its legal obligations under its commitments to the European Commission, as well as its existing contractual obligations to other cloud game streaming providers, including Nvidia, Boosteroid, Ubitus, and Nware. Microsoft is engaging closely with the European Commission to support the EC’s assessment of the agreement and confirmation that the commitments remain undisturbed.”
“Since our initial announcement with Activision Blizzard in January last year, we have endeavoured to earn regulatory approval for the transaction, addressing concerns when raised, including by entering into binding legal commitments to bring Call of Duty to rival consoles and Activision Blizzard games to rival cloud streaming platforms. As a result, the transaction is now in a position to move forward in more than 40 countries,” he declared.
We believe that this development is positive for players, the progression of the cloud game streaming market, and for the growth of our industry. And, as we continue to navigate the review process with the CMA, we remain as committed as ever to bringing the incredible benefits of the acquisition to players, developers, and the industry. Today’s development brings us one step closer to bringing the joy of gaming to players everywhere,” he concluded.