Microsoft-Activision: UK looks poised to clear restructured deal

The U.K.’s competition watchdog has signalled it’s preparing to greenlight a restructured proposal for Microsoft to acquire Activision. In an update on its ongoing assessment today it said the deal “makes important changes that substantially address the concerns it set out in relation to the original transaction earlier this year”.

The Competition and Markets Authority (CMA) blocked the $68.7 billion gaming mega-merger back in April — on the grounds that it would substantially weaken competition in the cloud gaming market — but last month opened a fresh investigation into a restructured deal proposal Microsoft had submitted for review, while also simultaneously confirming its April decision to block the original merger proposal.

The restructured deal proposes the sale of Activision’s cloud gaming rights to a rival games maker, Ubisoft — which the CMA has now suggested “substantially addresses previous concerns and opens the door to the deal being cleared”.

“In particular, the sale of Activision’s cloud streaming rights to Ubisoft will prevent this important content — including games such as Call of Duty, Overwatch, and World of Warcraft — from coming under the control of Microsoft in relation to cloud gaming,” it wrote. “The CMA originally found that Microsoft already has a strong position in cloud gaming services and could have used its control over Activision content to stifle competition and reinforce this position. The new deal instead results in the cloud streaming rights for Activision’s games being transferred to an independent player, Ubisoft, maintaining open competition as the market for cloud gaming develops over the coming years.”

The regulator does still have “limited residual concerns” — related to whether certain provisions in the sale of Activision’s cloud streaming rights to Ubisoft “could be circumvented, terminated, or not enforced”. But it said Microsoft has offered remedies aimed at ensuring the terms of the sale of Activision’s rights to Ubisoft are enforceable by the regulator — and the CMA has provisionally concluded these should resolve its residual concerns.

This is still not the last step, though. It has now opened a consultation, until October 6, on Microsoft’s proposed remedies.

Commenting in a statement, Colin Raftery, senior director of mergers and Phase 1 decision maker at the CMA, said:

This is a new and substantially different deal, which keeps the cloud distribution of these important games in the hands of a strong independent supplier, Ubisoft, rather than under the control of Microsoft.

With additional protections to make sure that the deal is properly implemented, this will maintain the structure of the market, enabling open competition to continue to shape the development of cloud gaming in the years to come, and giving UK gamers the opportunity to access Activision’s games in many different ways, including through cloud-based multigame subscription services.

Microsoft and Activision have given themselves until mid next month to complete the acquisition, following an extension to their deadline which was agreed in July. So the timeline is tight.

The CMA has also given itself a deadline of October 18 to complete its investigation of the restructured proposal. Albeit, today’s announcement suggests the stars are finally aligning for Microsoft-Activision.

This dance to find a new way to clear the mega-merger is unusual but has also felt increasingly inevitable after the U.K. regulator found itself isolated among major global regulators in blocking the mega-merger.

European Union authorities cleared the acquisition with some conditions back in May. And then, later this summer, U.S. courts blocked an earlier attempt by the FTC to sue to stop the deal — leaving the CMA’s block the only big hurdle standing in Microsoft and Activision’s way. The U.K. regulator has thus been in the full firing line of Microsoft, Activision and other supporters of the deal.

Sarah Cardell, the CMA’s CEO, once again defended its approach.

“The CMA’s position has been consistent throughout — this merger could only go ahead if competition, innovation, and choice in cloud gaming was preserved,” she said in a statement. “In response to our original prohibition, Microsoft has now substantially restructured the deal, taking the necessary steps to address our original concerns. It would have been far better, though, if Microsoft had put forward this restructure during our original investigation. This case illustrates the costs, uncertainty and delay that parties can incur if a credible and effective remedy option exists but is not put on the table at the right time.”

A Reuters report earlier this month suggested the concessions Microsoft has offered in a bid to clear the deal with the CMA have triggered renewed attention from EU competition regulators — which it reported as seeking views from Microsoft rivals and customers on Microsoft’s U.K. proposals.

The bloc’s clearance of the deal had entailed Microsoft agreeing to license key Activision games such as Call of Duty to rival game-streaming platforms, whereas the restructured U.K. proposal would see the tech giant not acquiring the cloud streaming rights to all current and future Activision games released during the next 15 years everywhere else in the world, i.e. except the European Economic Area — where, instead, those rights would be divested to Ubisoft prior to the acquisition.