Microsoft’s $68.7 Billion Takeover of Activision Cleared by European Commission, With Conditions

Weeks after the U.K.’s Competition & Markets Authority blocked Microsoft’s proposed $68.7 billion deal to buy video games giant Activision Blizzard, the European Commission (EC) has granted approval under the EU Merger Regulation.

However, the approval, which arrived after an EC investigation, comes with conditions that require Microsoft to fully comply with specific commitments that address the competition concerns raised.

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The preliminary investigation conducted by the EC revealed that Microsoft’s acquisition could potentially harm competition in two key areas: the distribution of console and PC video games, including multi-game subscription services and cloud game streaming services, as well as the supply of PC operating systems. It determined that Microsoft would not have the ability to harm rival consoles or multi-game subscription services. However, it concluded that Microsoft’s position in the distribution of games through cloud game streaming services would likely lead to a reduction in competition. Additionally, the acquisition would strengthen Microsoft’s position in the market for PC operating systems.

The EC’s findings include:

Microsoft would have no incentive to withhold the distribution of Activision’s games from Sony, the leading global distributor of console games, including within the European Economic Area (EEA). Given the popularity of Sony’s PlayStation consoles, Microsoft would be motivated to continue distributing Activision’s games through this widely embraced platform. Even if Microsoft were to withdraw Activision’s games from the PlayStation, it would not significantly harm competition in the console market.

Activision, even without the acquisition, would not make its games available for multi-game subscription services as it would cannibalize sales of individual games. Thus, the transaction would not alter the situation for third-party providers of such services.

However, the acquisition would indeed negatively impact competition in the distribution of PC and console games through cloud game streaming services, which have the potential to revolutionize the gaming experience. The EC found that Activision’s popular games could drive the growth of cloud game streaming. If Microsoft were to make Activision’s games exclusive to its own cloud game streaming service, Game Pass Ultimate, and withhold them from rival streaming providers, it would impede competition in the distribution of games via cloud streaming. Moreover, Microsoft could potentially strengthen the position of its Windows operating system in the market by hindering or degrading the streaming of Activision’s games on PCs using other operating systems.

To address these competition concerns, Microsoft offered licensing commitments with a duration of 10 years. The commitments include:

Granting consumers in the EEA a free license to stream all current and future Activision Blizzard PC and console games through any cloud game streaming service of their choice, provided they possess a license for the respective games.

Extending a corresponding free license to EEA-based cloud game streaming service providers, enabling gamers to stream any of Activision Blizzard’s PC and console games.

These licenses ensure that gamers who have purchased Activision games on PC or console stores or have subscribed to multi-game subscription services featuring Activision games can stream those games through any cloud game streaming service on any device using any operating system.

“Video games attract billions of users all over the world. In such a fast-growing and dynamic industry, it is crucial to protect competition and innovation. Our decision represents an important step in this direction, by bringing Activision’s popular games to many more devices and consumers than before thanks to cloud game streaming. 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,” said Margrethe Vestager, executive VP in charge of competition policy at the EC.

Activision CEO Bobby Kotick said in a statement: “The EC conducted an extremely thorough, deliberate process to gain a comprehensive understanding of gaming. As a result, they approved our merger with Microsoft, although they required stringent remedies to ensure robust competition in our rapidly growing industry.”

“We have deep roots in Europe. Our company was founded in France. ‘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 majority of the world’s gamers play on mobile phones. Europe has played a pivotal role in the development of gaming, especially mobile gaming, and we expect European game developers will continue to drive growth and innovation. Our talented teams in Sweden, Spain, Germany, Romania, Poland and many other European countries have the skills, ambition, and government support needed to compete effectively on a global scale. We expect these teams to grow and prosper given their governments’ firm but pragmatic approach to gaming,” Kotick said.

Microsoft vice chair and president Brad Smith, commenting on the decision, said, “The European Commission has required Microsoft to license popular Activision Blizzard games automatically to competing cloud gaming services. This will apply globally and will empower millions of consumers worldwide to play these games on any device they choose.”

Meanwhile, Microsoft has said that it will appeal the U.K. decision. The deal needs to be cleared by authorities in the U.S., China, South Korea, New Zealand and Australia. Saudi Arabia, Brazil, Chile, Serbia, Japan and South Africa have approved the deal.

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