EU Approves Microsoft’s Acquisition Of Activision Blizzard

EU regulators have given their approval to Microsoft’s $68.7 billion acquisition of Activision Blizzard, just weeks after UK regulators rejected the deal. The acquisition can be approved, according to the European Commission, because of Microsoft’s cloud gaming commitments.

According to the EU, Microsoft “would have no incentive to refuse to distribute Activision’s games to Sony” and “even if Microsoft did decide to withdraw Activision’s games from the PlayStation, this would not significantly harm competition in the consoles market.” However, EU regulators, like those in the UK, concluded that the acquisition might hurt competition in the market for PC and console game distribution via cloud gaming services.

Through 10-year licensing agreements that Microsoft has made available to rivals, the European Commission has rolled out remedies to enable the deal to move forward. These include a free license that would permit customers in EU nations to stream any current and upcoming Activision Blizzard PC and console games that they have a license for using “any cloud game streaming services of their choice.” Additionally, a free license to stream these games in EU markets will be provided to cloud service providers.

These licenses are automatic, and they grant users the permission to stream Activision Blizzard games they purchased or subscribed to on “any cloud game streaming service of their choice and play them on any device using any operating system.” It appears that Microsoft will now apply for this automatic license globally after the European Commission requested it.

Margrethe Vestager, executive VP in charge of competition policy at the European Commission in a comment disclosed that “Our decision represents an important step in this direction, by bringing Activision’s popular games to many more devices and consumers than before thanks to cloud game streaming.” Vestager, added, “The commitments offered by Microsoft will enable for the first time the streaming of such games in any cloud game streaming services, enhancing competition and opportunities for growth.”

This massive transaction was approved by the EU less than a month after Microsoft’s desire was stopped by UK regulators. The purchase was stopped by the UK’s Competition and Markets Authority (CMA) due to worries about the cloud gaming market, which could result in “reduced innovation and less choice for UK gamers over the years to come.” Microsoft is appealing this decision.

Microsoft has been working over the past six months to ease regulators’ worries about cloud gaming, with some success in the EU but failure in the UK. To enable Xbox PC titles to operate on these competing cloud gaming platforms, the software giant secured cloud gaming agreements with Boosteroid, Ubitus, and Nvidia. In December, a comparable agreement with Nintendo was made public. If the agreement is authorized by regulators, all of these 10-year contracts also include access to Call of Duty and other Activision Blizzard titles.

The CMA worries that Microsoft’s control over Call of Duty, Overwatch, and World of Warcraft will give them a significant competitive advantage over rivals in the cloud gaming business, where the agency thinks Microsoft holds a 60–70% market share.

It could take months for Microsoft’s appeal in the UK to be resolved. The EU’s decision today may increase Microsoft’s chances of completing this significant purchase, but the company still has to contend with obstacles in the US and UK. The agreement has also received approval from regulators in Saudi Arabia, Brazil, Chile, Serbia, Japan, and South Africa. Australia, New Zealand, South Korea, and China are all still evaluating the deal.

The next significant challenge for Microsoft is regulatory scrutiny closer to home. Late last year, the Federal Trade Commission filed a lawsuit to stop the partnership between Microsoft and Activision Blizzard; the case is currently in the document discovery phase. The fate of the case won’t be known until at least August 2nd, as an evidentiary hearing has been set for that date.

While Bobby Kotick, CEO of Activision Blizzard, expressed the company’s gratitude for the EU’s permission and stated that it plans “to meaningfully expand our investment and workforce throughout the EU,” the CMA maintained its own position.

“The UK, US and European competition authorities are unanimous that this merger would harm competition in cloud gaming,” says the CMA in a statement. “Microsoft’s proposals, accepted by the European Commission today, would allow Microsoft to set the terms and conditions for this market for the next 10 years. They would 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. While we recognize and respect that the European Commission is entitled to take a different view, the CMA stands by its decision.”

Even if Microsoft was able to reach an arrangement with the EU to get the merger approved in Europe today, the software giant still faces a difficult battle in its appeal against the CMA.