One of the last major hurdles to Microsoft’s massive $69 billion acquisition of video game giant Activision Blizzard has been cleared: The European Union has approved the merger, with a few conditions. But that might not matter much, as both the United States and the United Kingdom are blocking it.
The decision shows that, though the three countries or regions have expressed similar views about the need to rein in Big Tech’s power, they aren’t in lockstep. Microsoft may have a green light to close the deal in the EU, but it can’t actually do it without getting the same from the UK and the US. The matter is currently winding its way through the court system in the US and the UK’s decision is being appealed. While Microsoft and Activision Blizzard are both major players in the gaming industry and shouldn’t have much trouble carrying on separately, not being able to merge does hurt their ambitions to get even bigger.
When the UK’s Competition and Markets Authority (CMA) rejected the Microsoft acquisition, it was because it believed it would make Microsoft too powerful in the nascent cloud gaming market, as Microsoft has the Xbox Cloud Gaming and PC Game Pass offerings, as well as the Azure cloud computing platform. The CMA cited fears that Microsoft would have to increase the price of its Game Pass subscriptions to account for the tens of billions of dollars it spent to acquire Activision, that it would make Activision’s titles exclusive to its own services, and that the games were not open to computers that didn’t have Windows operating systems.
Microsoft believed it had done everything necessary to get the okay, noting that it signed multiyear deals with several cloud gaming providers and platforms to make or continue to make Activision games available to their users. The CMA said it appreciated the effort, but it wasn’t enough.
“Cloud gaming needs a free, competitive market to drive innovation and choice. That is best achieved by allowing the current competitive dynamics in cloud gaming to continue to do their job,” Martin Coleman, who chaired the panel that investigated the deal, said in a statement.
But the EU’s antitrust division had a different view of things, despite being led by Margrethe Vestager, who has positioned herself as one of Big Tech’s biggest foes. She said that cloud gaming was still just a tiny slice of game distribution, and having more games available on it would actually help it grow. So Microsoft offered a 10-year agreement the EU believes will both assuage competition concerns and buoy the entire industry. The company said it would license Activision games to rival cloud game streaming services and allow consumers to play the Activision games they owned on any cloud game streaming service they wanted.
“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,” Vestager said in a statement.
Microsoft says its deal with the EU will apply globally. It can, of course, decide to stop licensing those games to rivals or letting consumers play them on non-Microsoft cloud platforms once that agreement expires. Assuming, of course, that it’s ultimately able to acquire Activision.
Closing this deal is still much more of an uphill battle than it once appeared to be. After the UK’s April decision to block the merger, Microsoft and Activision said they would appeal, so it’s not yet the final word. The US’s Federal Trade Commission (FTC) sued to block the merger last December, but US antitrust law says the decision on whether the merger will go through is made by a court, not the agency. There was no guarantee that the FTC would win that case, and the onus would be on the agency to prove that the merger will unfairly harm competition before courts that tend to rule in favor of businesses.
At the time the merger was announced, January 2022, Microsoft said the deal would make it the third-largest gaming company by revenue in the world, behind Tencent and Sony. But there were concerns from gamers (and Microsoft’s competition) that the company would make Activision’s titles exclusive to its own platforms now or in the future, locking them in Microsoft’s ecosystem or forcing them to switch to it if they wanted to keep playing their favorite Activision games.
While Microsoft may have expected some pushback from the US, where FTC chair Lina Khan has made her intentions to keep Big Tech from getting bigger through mergers and acquisitions quite clear, the UK authority’s decision was more of a surprise. At that point, several other regulators, sans the US, had approved it, while the Financial Times said just a few days before that the CMA was “expected to support it.”
Microsoft has spent years trying to build up its reputation as the good Big Tech company that plays well with others, including governments. But it audaciously made the largest acquisition in its history at a time when Big Tech companies are under more scrutiny than ever. The UK’s rebuke was the most significant sign yet that overseas regulators aren’t going for Microsoft’s big move, and if they can’t stop it in the US, they will elsewhere. And if they’re willing to hit Microsoft, they’ll go for just about anyone. But the EU’s acceptance shows that Big Tech can still get big wins even against the most supposedly hostile regimes.
Microsoft strongly criticized the UK’s decision when it came down, sending a signal to the EU. The tech company’s vice chair and president Brad Smith told the BBC that “this decision, I have to say, is probably the darkest day in our four decades in Britain,” and that “the European Union is a more attractive place to start a business than the United Kingdom.”
Activision Blizzard’s take was similar. In a statement, the company said, “The report’s conclusions are a disservice to UK citizens, who face increasingly dire economic prospects. We will reassess our growth plans for the UK. Global innovators large and small will take note that — despite all its rhetoric — the UK is clearly closed for business.”
The companies had much nicer things to say about the EU when it approved their deal. Activision said in a statement that it “plans to meaningfully expand our investment and workforce throughout the EU.”
As for gamers, if the merger ultimately doesn’t go through, nothing will really change. They won’t have to worry about being frozen out of their favorite Activision Blizzard games if they’re not Xbox or PC users, or Microsoft refusing to make new versions of those games for non-Microsoft systems and platforms. Microsoft had made deals to keep some of those titles platform-agnostic for a certain number of years to try get regulators’ approval, but rivals like Sony (which clearly has its own reasons for not wanting a major competitor to get any kind of advantage) contended that those concessions weren’t enough. For its part, the EU said it wasn’t concerned that Microsoft would remove Activision’s titles from Sony’s platform. And even if it did, it didn’t see that causing significant harm to the EU market, where some of Activision’s biggest franchises like Call of Duty aren’t as in demand.
“The shooter games are much more popular in the US,” Vestager said in a press briefing.
The CMA said it stands by its decision, saying that the remedies the EU accepted would “allow Microsoft to set the terms and conditions for [the cloud gaming] market for the next 10 years.”
“We recognize and respect that the European Commission is entitled to take a different view,” the authority added.
“The CMA was right to reject Microsoft’s efforts to settle the investigation with behavioral commitments, which are difficult to monitor and easily outpaced by developments in fast-moving markets,” the Open Markets Institute, an anti-monopoly advocacy group, said in a statement when the CMA’s decision was announced in April.
With the EU out of the way and the FTC’s chances of success in court iffy at best, it looks as though the UK will end up being Microsoft and Activision’s final boss battle. The CMA also blocked Meta’s $315 million acquisition of Giphy in 2021. That decision was upheld in late 2022, forcing Meta to divest the GIF database and search engine. It’s not necessarily smooth sailing for Microsoft from here on out in the EU, either. It’s currently investigating Microsoft for other antitrust issues, including a complaint that it unfairly bundles its Teams video chat with the Office productivity suit and a potential probe over Azure.
Update, May 15, 5 pm ET: The story, originally published on April 27, has been updated to include the EU’s approval of the merger.