Why Microsoft had to relinquish Activision’s cloud-gaming rights outside Europe

Microsoft has finally done it — nearly two years after the Xbox-maker first revealed plans to acquire gaming giant Activision Blizzard in a mammoth $68.7 billion deal, it has managed to secure UK regulatory clearance meaning that Activision will now be a fully-fledged subsidiary.

But the antitrust clearance comes with one notable caveat.

For the next 15 years, Microsoft is relinquishing cloud-streaming rights for all Activision games outside the European Economic Area (EEA), a region that constitutes the 27 European Union (EU) members plus Iceland, Liechtenstein and Norway. This means that French game publisher Ubisoft is also a big winner, as it will have exclusive global streaming rights outside the EEA, while inside the EEA it will share streaming rights with rivals, including Microsoft/Activision.

There is no escaping the fact that Microsoft has had to give UK regulators a sizeable concession to rubberstamp its Activision acquisition, one that impacts current and future Activision titles that Microsoft wants to make available through the cloud, including the Call of Duty, Overwatch, and World of Warcraft franchises.

Prologue to progress

The prologue to all this was written by the Competition and Markets Authority (CMA), a non-ministerial government department (NMGD) that oversees all-things antitrust in the U.K.

With the European Commission (EC) approving the Activision deal (albeit with conditions), and the U.S. Federal Trade Commission (FTC) failing to block the deal, this meant that the CMA ultimately faced the wrath of one of the world’s biggest companies alone, on its hypothesis that the combined Microsoft and Activision company would “substantially weaken competition” and create “…the most powerful operator” in the cloud-gaming market.

While there are arguments to support or decry its position, the CMA’s remit applies purely to the U.K. market — so how come Microsoft is giving up rights globally? The reality is, trying to oven-bake a U.K.-specific deal is impractical on a multitude of levels. If Microsoft wanted to gain approval from the CMA, it had to come back to the table with a restructured deal that didn’t make the U.K. appear like a second-class citizen.

“A U.K.-only remedy wouldn’t really be workable,” Tom Smith, a former CMA legal director who’s now partner at London-based law firm Geradin Partners, explained to TechCrunch. “U.K. consumers could miss out on developments that happen elsewhere — the CMA would be very sensitive about a perception that U.K. consumers are disadvantaged in the future.”

So Microsoft knew that any changes it made to its original deal had to apply globally to create a level playing field, so to speak. However, Microsoft had already reached a deal with the European Commission that would allow Activision games to be streamed via any other provider for the next 10 years.

“The CMA’s starting point would have been a worldwide deal because it’s a worldwide market, and it’s not obvious how you can slice it up geographically,” Smith continued. “However, they couldn’t do that because of the European Commission’s remedy, which covers the EEA and it wouldn’t be appropriate to somehow overrule it, so they’ve ended up with everything apart from the EEA.”

Additionally, there were various reasons why geo-restricting a deal to the U.K. just would not have worked. If Microsoft was to offload the cloud-streaming rights to a third-party, it would need to be commercially appealing.

And this all feeds into the bigger picture, vis-à-vis why Microsoft’s deal isn’t limited to the U.K. market. Besides any technical obstacles around geo-restricting content, if Microsoft was going to find a company to acquire the streaming rights, it had to make the deal attractive to them — and “rest of the world” is a lot more appealing than “U.K.”.

“Part of the reason the CMA wanted to do this was so that Microsoft didn’t have a monopolistic position,” Chris Early, Ubisoft’s senior VP of strategic partnerships and business development, told TechCrunch. “If you only took those rights away in the U.K., and Microsoft still had those rights everywhere else in the world, then it might be able to have a monopolistic position for the rest of the world, enough so that it would affect the U.K. And they also had to think about whatever they do for the partner [which turned out to be Ubisoft] has to be commercially interesting enough.”

“In perpetuity”

So for Ubisoft, this deal means it has full and exclusive cloud-streaming rights to all current commercially available Activision games, as well as those released in the next 15 years. But more than that, it has this license in perpetuity, meaning it will never expire so long a Microsoft / Activision continue to make those games commercially available. Once the 15 year period is up, all subsequent games released by Activision won’t fall under the existing licensing agreement.

In theory, this could mean that Microsoft gradually pulls the plugs on all the games it has previously launched to circumvent the agreement it has with Ubisoft, once the 15 years is up. But Ubisoft reckons that if it does a good job, then this agreement shouldn’t be seen as a hindrance for Microsoft.

Indeed, Ubisoft’s rights extend beyond its own Ubisoft+ subscription service, allowing it to relicense access to the Activision Blizzard catalog to any other company, which it is incentivized to do.

“The only way we’re going to be commercially successful is if we’re pleasing players,” Early said. “If we’re pleasing players, then maybe it won’t be bad for Microsoft. My impression is they’re just going to continue their normal development roadmap, because if we do our job well in distribution, then lots of people are gonna have access to these games in other ways, and it’s not going to impact them.”