Microsoft’s proposed $70 billion acquisition of Activision Blizzard is currently under investigation by regulators around the world.
The lawsuit is starting to make headlines after Brazil’s regulator (CADE) made public the reactions it has received from the gaming industry about the deal and its potential impact.
The regulatory process is complicated and involves several agencies from different countries that have to review the deal before it can go through.
Here’s everything you need to know about what’s going on and where the main problems lie.
“This deal has the potential to affect everyone from the smallest indie developer to the big gaming giants”
Why does Microsoft need approval to buy Activision Blizzard?
This deal is — to use a professional business term — huge. It’s a potentially game-changing deal that could change things not just for Microsoft and Xbox, but for the entire gaming industry. It has the potential to influence everyone from the smallest indie developer to the biggest names in the business and of course consumers.
Regulators are there to ensure that such deals do not lead to antitrust issues, where a company could become overly dominant or harm competition in a way that could lead to less choice, higher prices and/or less innovation .
Given the scale and scope of the deal, Microsoft would need to obtain antitrust approval before taking ownership of Activision Blizzard.
Who are the supervisors?
There are regulatory bodies around the world, but there are three main bodies that Microsoft will seek approval from to complete the buyout. The first is the US regulator the Federal Trade Commission (FTC). This assessment process has started and has already entered a second phase.
The next regulator currently involved in this is the Competition and Markets Authority (CMA). This is the UK regulator and they are currently in the first assessment phase, which will end in early September.
The third most important regulator that Microsoft must overcome is the European Commission. This process has not yet started.
What are these ‘phases’?
The first phase is a relatively short period during which the regulators request information and send questionnaires to competitors. Most mergers and acquisitions are approved at this stage.
For anything more complex and where there is a risk to competition, regulators will request a second phase. A more in-depth analysis of the effects of the merger on the market will be analyzed here. This is usually a much more detailed investigative phase designed to ensure that the transaction does not restrict competition in regulators’ markets.
The FTC has entered a second phase of its investigation.
What if it gets US approval but no UK or EU approval?
The reason these three regulators are so important is that they all have the power to block the deal or impose conditions. In other words, if the CMA says no, that ruling can be applied globally.
What do you mean by ‘impose conditions’?
The regulators can approve the deal, reject the deal, or approve the deal under certain conditions designed to preserve competition.
The condition could be that Microsoft can complete the deal if, for example, Activision Blizzard games remain multiplatform. They could dictate that Activision Blizzard should remain its own independent organization (though analysts consider that unlikely). All kinds of conditions can be attached to the deal that make an unacceptable takeover acceptable.
However, conditions can be difficult to enforce and require teams to ensure that business is done fairly.
What specifically could regulators be concerned about?
As you may have seen in the press, the main concern surrounding the Activision Blizzard acquisition is centered on one franchise: Call of Duty.
Call of Duty is one of the largest and most popular games in the world, and regulators will have to decide whether Microsoft, which owns this franchise, has the potential to make the company dominant in video games, thereby creating an antitrust situation that negatively affect consumers.
Why is it a problem if Microsoft becomes dominant in games?
A company that is dominant in a particular space can stifle competition, limit growth and reduce innovation, potentially harming consumers. If there was one company that had the dominant console, or subscription service, or distribution channel, that would mean that all game developers – of all sizes – would be too dependent on that one company.
Competition is a good thing. It means there is more choice and can keep prices low. It forces companies to innovate and adapt. It means they have to be competitive and work harder to take care of their audience and partners.
Right now the gaming space is very competitive, with different companies pushing each other to try new things, improve their services and make better products.
Is Call of Duty likely to make Microsoft dominant in games?
This is the key question. As revealed in recent documents as part of Brazil’s regulatory investigation, PlayStation (unsurprisingly) thinks so. Call of Duty is an important IP with a large fan base. It is not only the biggest game on Xbox, but also the biggest game on PlayStation.
Microsoft (unsurprisingly, too) disagrees. It believes that Call of Duty is not particularly unique and in fact faces strong competition.
One of the main parts of the debate is whether Microsoft will not make Call of Duty available on Sony’s platforms. Microsoft insists it will continue to make Call of Duty games on all devices, but this promise doesn’t provide any details.
There are contrasting precedents that people use to indicate what Microsoft can do. Minecraft, another major acquisition of Microsoft gaming, is still supported equally on every platform.
However, with the acquisition of Bethesda by Microsoft, the company has taken a different approach. Some titles will still be supported on PlayStation (particularly live service games like Elder Scrolls Online), while future new games like the upcoming Starfield won’t.
So it’s all about game console space?
One of the most important parts of the conversation is not only the role Call of Duty could play in the game console market, but also in streaming and subscriptions. The former is a distribution model where games can be streamed and played on almost any device, while the latter is a business model where gamers pay a monthly fee to access a selection of games.
Microsoft is a major player in this area with its Game Pass subscription model and Xbox Cloud Gaming system. Microsoft’s subscription offering is unique in that it includes new AAA game releases on the day they come out, which its competitors (including Sony) say they can’t justify financially. Microsoft also has an advantage in cloud streaming as it owns Azure, one of the largest cloud computing businesses in the world. It should be noted that other competitors in this area, including Google and Amazon, have similar advantages to Microsoft when it comes to cloud technology and services.
So even if Call of Duty continues to appear on other platforms as it does now, the game – plus Activision Blizzard’s other titles – would definitely positively impact Xbox’s subscriptions and streaming business.
In other words, there are many factors that regulators need to consider. In the end, they don’t care about Sony or any other competitor – it’s all about the impact on the consumer.
If Disney can buy Star Wars, Marvel and Fox, can Xbox definitely buy Call of Duty?
There’s never been an acquisition like this in video games, so it’s tempting to look to our sister industries for insight. But the comparisons are not like-for-like. For example, you’re unlikely to find people who only watch Star Wars or Marvel movies, but it’s entirely possible you’ll find people who only (or mainly) play Call of Duty games.
“One of the most important parts of the conversation is not only the role Call of Duty could play on consoles, but also in terms of streaming and subscriptions.”
Clearly, Disney’s acquisition of these brands, plus Fox, has enabled it to become a major player in the TV streaming and subscription market. But regulators have concluded that these deals aren’t enough to hurt competition, especially given the size and capabilities of companies like Netflix, Amazon and Apple.
In games, the subscription business is still in its early stages (and streaming is even earlier), and it’s not certain how important they could become. Therefore, part of the discussion will be how likely it is that subs will become the main business model for games, whether streaming will become a major distribution method, and what that could mean for the competition in video games.
Who are the regulators going to talk to?
In addition to obvious players like PlayStation and Nintendo, regulators will likely speak to a wide spectrum of game companies, including smaller developers, major publishers, trade organizations, analysts, data companies, plus major conglomerates like Apple, Google, Amazon, and Meta, all of which remain. they invest in expanding their video game capabilities.
When do the regulators decide?
Assuming the top three regulators move into a second phase, this process could take a long time and well into 2023 (Microsoft estimates it will take until mid-next year). Expect to read a lot more about this acquisition in the coming months. For the foreseeable future, Call of Duty and the other Activision Blizzard features will continue to be fully supported across multiple platforms.
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