EU approves Microsoft's multi-billion-dollar Activision Blizzard acquisition despite UK and US opposition

Just last month, the UK's Competition and Markets Authority (CMA) blocked the proposed acquisition of Activision Blizzard by Microsoft because of concerns about the impact on competition in the cloud gaming arena. In the US, the Federal Trade Commission is also seeking to block the deal

But now EU regulators have cleared the acquisition, subject to conditions. The European Commission will hold Microsoft to commitments it has made to ensure gamers in Europe will have  the ability to stream all Activision Blizzard games for which they have a licence via any cloud game streaming services, as well as a corresponding free license to cloud game streaming service providers to allow EEA-based gamers to stream any Activision Blizzard's PC and console games.

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The European Commission's decision comes after a lengthy investigation into the two companies and the potential impact of the deal. While initial findings suggested that Microsoft could harm competition in the supply of PC operating systems as well as the distribution of console and PC video games, multi-game subscription services and cloud game streaming services, a more in-depth investigation came to a different conclusion.

Announcing its approval, the Commission says: "The European Commission has approved, under the EU Merger Regulation, the proposed acquisition of Activision Blizzard ('Activision') by Microsoft. The approval is conditional on full compliance with the commitments offered by Microsoft. The commitments fully address the competition concerns identified by the Commission and represent a significant improvement for cloud gaming as compared to the current situation'.

The EC adds:

The Commission's in-depth market investigation indicated thatMicrosoft would not be able to harm rival consoles and rival multi-game subscription services. At the same time, it confirmed that Microsoft could harm competition in the distribution of games via cloud game streaming services and that its position in the market for PC operating systems would be strengthened.

Although the Commission makes a couple of demands of Microsoft before the deal could go ahead, it shares details of the findings that led to its decisions to support the acquisition:

• Microsoft would have no incentive to refuse to distribute Activision's games to Sony, which is the leading distributor of console games worldwide, including in the European Economic Area (‘EEA') where there are four Sony PlayStation consoles for every Microsoft Xbox console bought by gamers. Indeed, Microsoft would have strong incentives to continue distributing Activision's games via a device as popular as Sony's PlayStation.
• Even if Microsoft did decide to withdraw Activision's games from the PlayStation, this would not significantly harm competition in the consoles market. Even if Call of Duty is largely played on console, it is less popular in the EEA than in other regions of the world, and is less popular in the EEA within its genre compared to other markets. Therefore, even without being able to offer this specific game, Sony could leverage its size, extensive games catalogue and market position to fend off any attempt to weaken its competitive position.
• Even without this transaction, Activision would not have made its games available for multi-game subscription services, as this would cannibalize sales of individual games. Therefore, the situation for third-party providers of multi-game subscription services would not change after the acquisition of Activision by Microsoft.
• The acquisition would harm competition in the distribution of PC and console games via cloud game streaming services, an innovative market segment that could transform the way many gamers play video games. Despite its potential, cloud game streaming is very limited today. The Commission found that the popularity of Activision's games could promote its growth. Instead, if Microsoft made Activision's games exclusive to its own cloud game streaming service, Game Pass Ultimate, and withheld them from rival cloud game streaming providers, it would reduce competition in the distribution of games via cloud game streaming.
• If Microsoft made Activision's games exclusive to its own cloud game streaming service,Microsoft could also strengthen the position of Windows in the market for PC operating systems. This could be the case, should Microsoft hinder or degrade the streaming of Activision's games on PCs using operating systems other than Windows.

The European decision is good news for Microsoft, but it is far from being the end of the story. Approval from the UK and US is still needed, and this could be something of an uphill battle.

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