The European Commission has approved Microsoft's $68.7 billion acquisition of Activision, the video game colossus.
The development occurred at the same time as several weeks since the U.K. was the first jurisdiction to have blocked the multibillion deal, while the Federal Trade Commission in the U.S. is suing to stop the deal.
For some time now, Europe had been mulling on an in-depth probe, confirming back in November that it was concerned the combination of Microsoft and Activision could reduce competition in console and PC video game markets. It had set 25th April as the deadline to announce the decision but pushed that back after getting more remedies and commitment from Microsoft. It was widely expected that the deal would be rubberstamped today, and that's been confirmed, with the EC's final report noting that the approval is "conditional on full compliance with the commitments offered by Microsoft."
So far in our story
Microsoft first pitched its offer for Activision in January last year, a deal that aimed to combine the distribution might of Microsoft in the realm of console and PC with one of the largest third-party game publishers in the world - Activision is the owner of mega-franchises such as Call of Duty, Candy Crush, and World of Warcraft. With Activision now in its pocket, Microsoft will have effectively become the third-largest gaming company by revenue globally after Tencent and Sony.
At the heart of the concerns of antitrust legislators is that Microsoft would have too much clout and control over the distribution of games, vis-à-vis it would have the incentive to either withhold popular gaming titles from rival gaming platforms or otherwise create a lesser playing experience on alternatives to encourage people to switch to its ecosystem which includes Xbox and Windows.
While the U.K. While focusing up to this point on how the deal would affect the landscape in both console and cloud gaming, the CMA instead narrowed the case to the latter. The authority said while Microsoft could potentially withhold games from PlayStation, Sony's market share means that would likely remain a profitable and attractive conduit for it to continue to support with Activision games. With cloud gaming, though, it said the "vast growth of Windows" and its "substantial cloud infrastructure" would give Microsoft an advantage.
It’s worth noting that Microsoft has made numerous commitments to keep Activision games on rival platforms, including Sony, Nintendo and Nvidia, for a 10-year period. However, the CMA argued that Microsoft’s proposals couldn’t replace the existing “competitive dynamism,” and would be too reliant on Microsoft’s say-so and regulatory oversight.
Following the U.K.'s blockade, both companies reacted aggressively, with a spokesperson for Activision saying at the time that the U.K.'s conclusions "are a disservice to U.K. citizens, who face increasingly dire economic prospects," adding it would "reassess" its growth plans for the U.K. as it was being "closed for business."
Remedies
While Europe has, overall, been a pretty active party in holding the big tech cos. to account for anti-competitive malpractice, it has never really been a mover and shaker behind stonewalling mergers and acquisitions in the tech world outside of the telecoms industry. Today's findings are, therefore, pretty much in keeping with previous form.
Similar to the U.K., the EC said it was less concerned with console gaming than it is with cloud-based game streaming services, and that if Microsoft were to make Activision games exclusive to its own streaming service — Game Pass Ultimate — it could reduce competition in what is still effectively a nascent market. It also stated that by limiting access to its own streaming service, it might strengthen its existing market share on PC.
Apparently, these proposed remedies by Microsoft were enough-guaranteeing to allow all consumers in the European Economic Area to stream all current and future Activision games via any cloud-based game streaming service for the next 10 years- to give Microsoft the all-clear.
The EC's ruling comes several months after Japan approved the settlement, though Europe has made it clear that it intends to enforce checks in the future on how Microsoft's actions affect competition from rival gaming companies. It said that an "independent trustee" will be in charge of supervising Microsoft's implementation of its commitments.
With very different conclusions between the EU and the U.K., Activision CEO Bobby Kotick wasted little time in showering praise on the European Commission, saying it "conducted an extremely thorough" process. He also said that Activision intends to invest more in the EU going forward, pointing to the EU's "firm but pragmatic approach to gaming."
"We have deep roots in Europe — our company was founded in France," Kotick wrote in a statement issued to TechCrunch. "Candy Crush — one of our most successful franchises — was created in Sweden. And the senior leadership of our company comes from across the EU, including Austria, Germany, and Sweden.". We intend to meaningfully expand our investment and workforce throughout the EU, and we’re excited for the benefits our transaction brings to players in Europe and around the world.”
The U.K. competition regulator was going to come in for scrutiny if the EC decided something much more at odds with its own ruling. Within hours of the result being announced today, the CMA took to Twitter to confirm it would be standing by its own decision, stating that the EC has effectively allowed Microsoft to call all the shots in the cloud gaming market for the next decade.
The U.K., U.S. and European competition authorities are unanimous that this merger would harm competition in cloud gaming," the CMA wrote on Twitter. "The CMA concluded that cloud gaming needs to continue as a free, competitive market to drive innovation and choice in this rapidly evolving sector.". Accepted today by the European Commission, Microsoft's proposals would permit Microsoft to set the terms and conditions for this market for the next 10 years. They 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."
Now that European regulators are mostly out of the way, though, Microsoft and Activision will be channeling all their energies into overturning the U.K.'s decision through the official appeals process.