Microsoft rethink puts big tech M&A back on table

Activision Blizzard

22/08/2023 18:52

(The authors are Reuters Breakingviews columnists.  The
opinions expressed are their own.)
    By Robert Cyran and George Hay
       NEW YORK/LONDON, Aug 22 (Reuters Breakingviews) -
M icrosoft’s  MSFT.O  extended shoot-out with global trustbusters
may nearly be over. On Tuesday, the technology giant inched
forward in its quest to seal its $69 billion acquisition of
Activision Blizzard  ATVI.O  with a deal to sell most of the
video-game publisher’s global streaming rights to French rival
Ubisoft Entertainment  UBIP.PA . Hurdles remain, but if the move
satisfies objections from British regulators, it points to a
path for assuaging global concerns about big-tech dealmaking
choking off nascent markets.
    The 19-month merger odyssey still isn’t over. The UK’s
Competition and Markets Authority, which blocked the tie-up in
April, must now restart its investigation. The United States
Federal Trade Commission, which lost an attempt to block the
deal, is still fighting in court. And while the European Union
previously gave the green light, it is weighing whether the
changed terms require re-opening its probe.
    But the fact that Microsoft has a path to approval at all is
a huge turnaround. Earlier this year, deals by tech giants
seemed totally off the table, as regulators worried that
prospective buyers could use their scale to crush would-be
future competition in fledgling markets. Video games fit the
bill: while most gamers buy titles up-front to play on distinct
platforms, streaming promises to allow Netflix-like  NFLX.O 
subscription access anywhere. It is still very early days,
though: only $2 billion of the gaming industry’s $183 billion in
2022 revenue came from cloud services, according to Newzoo. By
buying up Activision’s must-have content, Microsoft could
theoretically muscle out others from the market before they’ve
had time to enter it.
    Microsoft has picked away at this thesis. Agreements to
supply rivals like Nintendo  7974.T  and Sony  6758.T  with
Activision games for a decade got the EU onside. A U.S. court
rejected FTC concerns. Now, for the UK, Microsoft is promising
for an undisclosed fee to separate the nascent cloud market from
Activision’s existing business, transferring streaming rights
outside Europe to all current and new Activision games to
Ubisoft for 15 years.
    This clean structural fix means the CMA doesn’t have to rely
on Microsoft simply promising to act in good faith, since it now
has a real-deal strategic partner with its own rights and
self-interest. More importantly, Microsoft may have charted a
path that outflanks regulators’ obsession with the unknowable
future. It was still a long slog, and in the U.S., especially,
consolidation-skeptical regulators won’t suddenly drop all
concerns. But for high-stakes big-tech mergers, separating the
present from the future might be a way to keep antitrust
watchdogs from instinctively biting. 
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    CONTEXT NEWS 
    Microsoft announced on Aug. 22 that, in an attempt to win
British antitrust approval for its $69 billion acquisition of
“Call of Duty” maker Activision Blizzard, it has agreed to sell
global streaming rights for the company’s games to French gaming
group Ubisoft Entertainment.
    Under the terms of the deal, Ubisoft will be granted
streaming rights for Activision’s current and future games for
15 years outside of the European Economic Area, as well as a
non-exclusive license within the bloc. Microsoft expects the
United Kingdom’s Competition and Markets Authority to complete a
review of the restructured deal by Oct. 18.  

 (Editing by Jonathan Guilford and Sharon Lam)
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