Why Was the Microsoft-Activision Deal Initially Blocked?
The proposed acquisition of Activision Blizzard by Microsoft, a deal valued at approximately $69 billion, faced significant hurdles, primarily due to concerns about potential anti-competitive practices. The deal was not blocked entirely but faced strong opposition and delays, resulting in a complex regulatory battle. Initially, the main reasons for the blockage centered on worries that Microsoft would gain an unfair advantage in the cloud gaming market, and use Activision’s popular titles, like Call of Duty and World of Warcraft, to stifle competition. Several regulatory bodies across the globe raised objections, each with slightly different nuances in their reasoning, contributing to the deal’s rocky path.
The Key Concerns of Regulatory Bodies
The primary obstacles to the merger came from a few key regulatory bodies, each with its own focus:
The UK’s Competition and Markets Authority (CMA)
The CMA was the most vocal opponent of the deal initially. Their main concern was the nascent cloud gaming market. The CMA argued that Microsoft, by owning both the Xbox gaming platform and Activision’s game library, would have the power to control access to these popular titles on cloud gaming services. They believed that Microsoft could limit or deny access to competitors, effectively creating a monopoly in the cloud gaming space and hindering the growth and innovation of the sector. The CMA initially blocked the deal in April 2023, citing these specific concerns.
The US Federal Trade Commission (FTC)
The FTC also attempted to block the merger, albeit on slightly different grounds. While also concerned about cloud gaming, the FTC primarily argued that the deal would harm competition in the overall gaming industry. They worried that Microsoft would withhold Activision titles from rival consoles, specifically PlayStation, to force gamers to purchase Xbox consoles or use Microsoft’s platforms. This move, they argued, would ultimately reduce consumer choice and stifle innovation in the console and game development industries. The FTC filed an injunction to temporarily block the deal but were ultimately defeated in court.
The Overcoming of Regulatory Hurdles
Despite these significant roadblocks, Microsoft was eventually able to finalize the acquisition. Here’s how they navigated these challenges:
Addressing the CMA’s Concerns
Following the initial block, Microsoft and Activision didn’t give up. They restructured the deal and worked towards alleviating the CMA’s concerns. This involved the creation of a new agreement that would allow Ubisoft to offer Activision Blizzard games on cloud services that were not running Windows, thereby addressing the primary concern about cloud gaming dominance. The CMA agreed to review this modified version of the deal as if it was entirely new. The revised deal received approval from the CMA in October 2023, marking a crucial turning point.
Winning in US Court
The FTC’s attempt to block the acquisition was defeated by a federal judge, who ruled that the agency had failed to demonstrate that the deal would cause irreparable harm to consumers. This ruling removed the main obstacle in the US and cleared the path for the deal’s closure. While the FTC did launch an appeal, it did not ultimately prevent the merger.
The Finalization of the Deal
Ultimately, on October 13, 2023, Microsoft officially closed its $69 billion purchase of Activision Blizzard. This acquisition is considered to be the biggest ever in the gaming industry and significantly expands Microsoft’s presence in this sector. The deal was finalized 633 days after it was initially announced, illustrating the lengthy and complex regulatory process involved.
Frequently Asked Questions (FAQs)
1. What was the initial value of the Microsoft-Activision deal?
The deal was initially valued at $68.7 billion when it was announced in early 2022. However, with the cash purchase of shares valued at $95 each, the final cost is closer to $75 billion.
2. Which are the most popular game titles made by Activision Blizzard?
Activision Blizzard is known for making popular titles such as Call of Duty, World of Warcraft, Candy Crush, and Diablo.
3. Why was the deal considered a significant acquisition in the tech industry?
The deal is the biggest in Microsoft’s history and the largest ever in the gaming industry, catapulting Microsoft into a leading position in the $175 billion gaming market.
4. What is the cloud gaming market, and why was it a point of contention?
Cloud gaming allows users to stream games to devices like phones, tablets, and computers without needing a high-end console or gaming PC. The CMA was concerned that Microsoft’s acquisition of Activision would give them too much control over this nascent but growing market.
5. What were the main concerns of the FTC about this acquisition?
The FTC primarily worried that Microsoft would withhold Activision titles from rival platforms, thereby forcing users to buy Xbox or Microsoft gaming services to play certain popular games.
6. How did Microsoft address the CMA’s concerns about cloud gaming?
Microsoft offered to allow Ubisoft to offer Activision Blizzard’s games on cloud services that do not run on Windows, which helped alleviate CMA concerns.
7. Was there a fear that the Activision deal would lead to a monopoly in the gaming industry?
Yes, both the CMA and the FTC expressed concerns about the deal potentially leading to a monopolistic situation, particularly in the cloud gaming market and console gaming.
8. What was the outcome of the FTC’s legal challenge against the deal?
The FTC’s request to temporarily block the merger was rejected by a federal judge, which was a major win for Microsoft.
9. Why did the CMA eventually approve the revised Microsoft-Activision deal?
The CMA approved the deal after Microsoft agreed to allow Ubisoft to offer Activision Blizzard titles on cloud services not running Windows, thus reducing the potential for Microsoft to monopolize cloud gaming.
10. When was the deal officially closed?
The Microsoft-Activision deal was officially closed on October 13, 2023.
11. How long did the regulatory process take?
The regulatory process for the acquisition lasted for 633 days from the initial announcement to the final approval and deal closure.
12. Was Sony, a main rival of Microsoft, involved in the opposition to the deal?
Yes, Sony, the maker of PlayStation, expressed fear that the deal would limit PlayStation gamers’ access to popular Activision titles like Call of Duty, which contributed to regulatory scrutiny.
13. What is the debt status of Activision Blizzard?
As of June 2023, Activision Blizzard had a total debt of $3.61 billion.
14. What was the role of the 9th Circuit appeals court?
The FTC planned to bring its effort to stop the Microsoft deal to the 9th Circuit appeals court, however, this appeal did not prevent the closing of the deal.
15. What impact is this acquisition likely to have on the gaming industry?
The acquisition is expected to have a significant impact on the gaming industry, potentially leading to greater competition and innovation. This deal also marks the start of a shift in the gaming landscape, with Microsoft strengthening its position significantly through the integration of Activision Blizzard’s game portfolio. It’s likely to lead to a more competitive gaming market landscape.