Europe greenlights Microsoft’s $68.7B Activision acquisition

The European Commission (EC) has given the go-ahead to Microsoft’s proposed $68.7 billion bid for gaming giant Activision.

The news comes a few weeks after the U.K. emerged as the first jurisdiction to block the megabucks deal, though the Federal Trade Commission (FTC) in the U.S. is suing to thwart the deal too.

Europe had been mulling an in-depth probe for some time, confirming back in November that it was concerned that the coming together of Microsoft and Activision could reduce competition in both the console and PC video game market. The EC had set a deadline of 25th April to announce a decision, but it pushed its decision back after receiving further remedies and commitments from Microsoft. It was widely expected that the deal would be rubberstamped today, and that has now been confirmed, with the EC’s final report noting that the approval is “conditional on full compliance with the commitments offered by Microsoft.”

The story so far

Microsoft first tabled its bid for Activision in January last year, a deal that sought to combine Microsoft’s distribution might in the console and PC realm with one of the largest third-party game publishers in the world — Activision is responsible for mega-franchises such as Call of Duty, Candy Crush, and World of Warcraft. With Activision under its wing, Microsoft would effectively become the third-biggest gaming company in the world by revenue, behind Tencent and Sony.

At the heart of antitrust legislators’ concerns 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. had previously focused on the deal’s impact in both console and cloud gaming, the Competition and Markets Authority (CMA) narrowed its case to the latter only. It said that while Microsoft could conceivably withhold games from PlayStation, Sony’s console had sufficient market share that meant this would likely remain a profitable and attractive conduit for Microsoft to continue supporting with Activision games. With cloud gaming, though, it said that the proliferation of Windows and its “significant cloud infrastructure” could give Microsoft an unfair 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.

In the wake of the U.K.’s blockade, both companies came out aggressively, with an Activision spokesperson saying at the time that the U.K.’s conclusions “are a disservice to U.K. citizens, who face increasingly dire economic prospects,” adding that it would “reassess” its growth plans for the U.K. due to it being “closed for business.”

Remedies

While Europe has been a fairly active party in holding big tech companies’ to account for anti-competitive malpractice, it has never been a major proponent of stonewalling mergers and acquisitions in the tech world outside of the telecoms industry. So today’s findings are pretty much in keeping with previous form.

Similar to the U.K., the EC said that it was less concerned with console gaming than it was 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. Moreover, limiting access to its own streaming service could also strengthen its existing PC market share.

Microsoft’s proposed remedies, which included the promise to allow all consumers in the European Economic Area (EEA) to stream all current and future Activision games via any cloud-based game streaming service for the next 10 years, were apparently sufficient to garner Microsoft the greenlight.

The EC’s decision follows a couple of months after Japan approved the deal, though Europe has made it clear that it intends to implement checks on how Microsoft’s actions impact rival gaming companies in the future. It said that an “independent trustee” will be in charge of monitoring Microsoft’s implementation of its commitments.

Moreover, with very different outcomes between the EU and the U.K., Activision CEO Bobby Kotick was quick to heap praise on the European Commission, saying that it “conducted an extremely thorough” process. He also said that Activision intends to invest more in the EU moving 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.’s anti-competition body was always going to be in the spotlight if the EC’s decision differed too greatly from its own, and shortly after the outcome was revealed today, the CMA took to Twitter to confirm that it would be standing by its decision, and all the EC has done is allow 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. 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.”

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.