On 18 January 2022, tech giant Microsoft announced it had made a takeover bid for videogame studio Activision-Blizzard. This acquisition involves a record $68.7 billion US Dollar. The news caused unrest within the video game community. This is because the videogame studio is the publisher of a number of highly successful and well-known titles such as Call of Duty, Overwatch and World of Warcraft. They feared that the acquisition would threaten diversity and competition in the video game market.
Several competition authorities, including the European Commission (EC), the UK Competition and Markets Authority (CMA) and the US Federal Trade Commission (FTC), had questioned the takeover.
In this blog, I discuss the results of the competition authorities’ investigations.
Notification requirement in takeovers
An acquisition has to be notified to one or more competition authorities in some cases. This is subject to certain turnover and market share thresholds. Large parties with high turnover in (many) jurisdictions often have to report in multiple countries. Microsoft achieved worldwide sales of over $52.7 billion in the last quarter of 2022 and Activision-Blizzard achieved $7.5 billion. Therefore, the acquisition had to be reported to multiple competition authorities.
Competition law bottlenecks
If an acquisition leads to the creation or strengthening of a market position, it may create an impermissible distortion of competition. Microsoft is the developer of the Xbox videogame console and has a catalogue of game studios under which it releases several (very) successful titles. As a result, Microsoft already has a (very) solid market share. Acquiring game studio Activision-Blizzard, a studio with hugely large, successful catalogue of videogame titles, has the effect of further strengthening Microsoft’s market share.
Since 2008, Blizzard Entertainment has been part of Activision. That acquisition has already brought concentration to the videogame market. Activision makes many games that come out on classic game consoles such as the Playstation or Xbox, of which Call of Duty is the best known. On the other hand, Blizzard Entertainment has many successful computer games, the best known of which are World of Warcraft, Starcraft, Overwatch and Diablo. The coming together of these two developers makes Activision-Blizzard a big, important, and powerful player within the entire videogame industry.
If the proposed acquisition goes ahead, this is an example of vertical integration. Microsoft will then gain more control in the vertical chain, namely a videogame studio under which it can release games for its own console. The question then is if enough other competitors remain in the market to compete with Microsoft. Other developers that remain include Japanese developer ‘Nintendo’, US-based ‘Electronic Arts'(EA) and French game studio ‘Ubisoft’.
Fears at Microsoft takeover
It is now feared that Microsoft will no longer release titles released under Activision-Blizzard on other consoles and systems, such as on Sony’s Playstation or Apple’s Mac OS, but make them ‘Microsoft exclusives’. Or that Microsoft will only provide limited support for the titles, for example by not supporting computer games on Apple’s MacOs or offering video games at excessive prices. If the video games would only be ‘Microsoft-exclusive’, it means that the video games will only be developed for Microsoft’s own systems such as the Xbox and Windows OS. In addition, a key issue within the acquisition is cloud gaming (services). Through cloud gaming services, complex video games can be made accessible on remote servers and can be streamed directly to different consoles.
Competition authorities’ investigation
The European Commission and CMA both launched investigations after Microsoft reported the proposed acquisition. The FTC launched a lawsuit to stop the acquisition in the US.
The European authorities reach the same findings but draw different conclusions. The authorities looked at broadly the same harm theories. For instance, they assessed whether there is a distortion of competition compared to console gaming by making certain titles exclusively available on XBOX to the detriment of consumers. It also looked at whether Microsoft cloud gaming could harm competitors in the future by making titles exclusively available on their own cloud gaming services.
Both the EC and the UK CMA rule that they see no incentive for Microsoft to keep Activision-Blizzard titles off competing consoles such as the Playstation. The EC adds that for every XBOX bought by consumers, there are four Playstations. It is therefore not considered plausible (or profitable) that Microsoft would not continue to sell games on other consoles. With regard to cloud gaming, both authorities consider that the acquisition affects competition in this market. Microsoft has offered remedies (commitments) to both authorities to address these concerns.
The European Commission
The EC has published its decision. Microsoft is offering a free licence for a period of 10 years to consumers in the EU to stream current and future Activision-Blizzard games on any compatible platform of their choice if they are licensed to do so. In addition, Microsoft is offering a corresponding licence to cloud game streaming service providers, allowing consumers to stream Activision-Blizzard titles. The EC considers the remedies offered sufficient to address the identified concerns.
CMA – United Kingdom
To the UK competition authority, Microsoft initially offered less far-reaching remedies. These were deemed insufficient by the CMA.
Last August, however, Microsoft took further steps to still get approval for the acquisition in the UK. Now Microsoft is proposing to transfer the cloud streaming rights of all current and future Activision-Blizzard games to be released over the next 15 years to Ubisoft via a one-off transaction. Microsoft argues that this way it has no (unilateral) influence on licensing terms and on which console or operating system the games will be available. The rights will apply indefinitely. Ubisoft is thus enabled to commercialise the distribution of the video games on the cloud, through a revenue model of their choice. For now, the CMA has only confirmed having received the restructured deal from Microsoft and is going to review it, stressing that this is not consent (yet).
With this new proposal from Microsoft, the CMA’s initial objections seem to be largely addressed. The new deal ensures that Ubisoft can use its own revenue model to make games accessible that is not tied to Microsoft’s cloud game streaming services. In addition, it also ensures that titles can be made available for operating systems other than Microsoft’s, although this comes with an additional payment. October 18 2023 is the deadline for the first-phase decision, which looks at whether the acquisition results in a significant reduction in competition. If the answer is yes, another in-depth investigation will be launched. So, whether this deal will be allowed to go ahead will remain to be seen.
FTC – United States
The FTC covered two routes to halt the acquisition. Again, the key point is that competition will be distorted if Microsoft can shield titles from competitors such as Playstation. On the one hand, it has launched an “in-house” administrative case against the acquisition. On the other hand, it has started a federal case in which the FTC has sought injunctive relief to temporarily block the deal until a ruling is given in the administrative case. The hearing of the administrative case was scheduled for 2 August 2023. However, the FTC withdrew the administrative case on 20 July 2023 after this preliminary injunction was dismissed on 11 July 2023 both at first instance and on appeal. This appears to give the takeover a green light in the US.
For now, the score is 2-1. The CMA says ‘no’ but may go to yes, the European Commission says ‘yes’. Obstacles at the FTC are also shrinking now that the administration case is off the table for now. So, in the US, too, Microsoft can go ahead for now. The Activision-Blizzard takeover, if allowed to go ahead, is the largest acquisition in the history of the video game industry. Microsoft had already appealed to the CMA’s decision but has put that on hold now that it has come up with a restructured deal. Should this new proposal again fail to produce the desired result, it may well be game over for the takeover. Of course, an appeal against any decision by the CMA would then still be open. We will continue to monitor the outcomes at the UK and US competition authorities.