The new proposal submitted by Microsoft “appears to address” the concerns of the UK competition watchdog.
Microsoft’s $68.7bn (£55bn) acquisition of Activision Blizzard is one step closer to being finalised in the UK after the Competition and Markets Authority (CMA) gave preliminary approval to the amended deal.
The UK watchdog had blocked the acquisition over worries it would “alter the future of the fast-growing cloud gaming market”, leading to reduced innovation and fewer choices for UK gamers.
In response, the company reworked the agreement, offering to sell Activision’s non-European streaming rights to Ubisoft Entertainment as a way to assuage the regulator’s concerns. Microsoft said its new proposal was a “substantially different transaction” to the one proposed in 2022.
The revised transaction would allow Ubisoft to commercialise these rights to other cloud gaming services providers, including Microsoft itself. It would also prevent Microsoft from releasing Activision Blizzard games exclusively on its own cloud streaming service, Xbox Cloud Gaming.
The changes seem to have satisfied the regulator, who is on track to approve the acquisition before 18 October 2023.
“The CMA considers that the restructured deal makes important changes that substantially address the concerns it set out in relation to the original transaction earlier this year,” the CMA said, adding that the new proposal “opens the door to the deal being cleared”.
Microsoft has welcomed the CMA’s decision. The company had called the blocking of the original deal “the darkest day in its four decades operating in the UK”.
“We presented solutions that we believe fully address the CMA’s remaining concerns related to cloud game streaming, and we will continue to work toward earning approval to close prior to the October 18 deadline,” said Brad Smith, Microsoft vice-chair and president.
Activision Blizzard also celebrated the CMA’s response, calling it “a significant milestone for the merger and a testament to our solutions-oriented work with regulators”.
The CMA has said that it still holds “limited residual concerns”, related to whether certain aspects of the sale of Activision’s cloud streaming rights could be “circumvented, terminated or not enforced”.
The watchdog plans to consult on these issues over the following weeks before making a final decision. However, Microsoft has said that the CMA address these concerns when regulating the terms of the sale of the rights.
“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,” said Colin Raftery, senior director of mergers at the CMA.
“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.”
The regulator has also criticised Microsoft for taking so long to propose terms that did not threaten competitors in the sector.
“It would have been far better, though, if Microsoft had put forward this restructure during our original investigation,” said Sarah Cardell, CMA chief executive. “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.”
The CMA has estimated that Microsoft controls around 60 to 70 per cent of the global cloud gaming services, which are forecast to be worth up to £11bn globally and £1bn in the UK by 2026.
Earlier this summer, Microsoft won a case against the US Federal Trade Commission after a federal judge in California refused to block the multibillion deal, which would see the company acquire hit titles such as Call of Duty and Candy Crush.
The acquisition has been hailed as the “biggest takeover in tech history”.
