On Monday, the European Union's antitrust regulator approved Microsoft's $74.5 billion deal to acquire Activision Blizzard, the maker of popular video game franchise "Call of Duty". This decision complicates the path forward for the deal, which was rejected by regulators in the United Kingdom in April. The UK's Competition and Markets Authority (CMA) ruled to block the acquisition, citing concerns about the impact it could have on the fast-growing cloud gaming market and the potential for reduced innovation and less choice for UK gamers in the future.
Despite the UK's decision, Activision Blizzard's stock rose 1% in morning trading following the EU's approval, while Microsoft's stock remained roughly flat. If the deal goes through, it would make Microsoft the third-largest gaming company in the world by revenue, after Tencent and Sony.
The US Federal Trade Commission (FTC), which sued to block the acquisition, is still evaluating the deal. Microsoft Vice Chair and President Brad Smith said the company plans to appeal the CMA's decision, arguing that Microsoft's existing partnerships with gaming market players demonstrate its commitment to diverse access to gaming.
Activision Blizzard also plans to appeal the CMA's decision and has threatened to pull back on its investment in the UK. A spokesperson for the company accused the CMA of contradicting the UK's ambitions to become an attractive country for technology-building businesses.
Microsoft is eyeing the acquisition as an opportunity to solidify its dominance in the gaming industry and further eclipse Sony in the still-nascent cloud-gaming industry. Cloud gaming allows gamers to play titles that would normally require high-powered consoles and PCs on low-powered devices such as smart TVs, smartphones, tablets, laptops, and Chromebooks.
The latest "Call of Duty" title, "Modern Warfare 2," topped $1 billion in sales over its first 10 days on the market. Microsoft's ownership of the franchise would mean eating into Sony's sales. A central concern for US regulators is that Microsoft's ownership of "Call of Duty" would enable it to suppress competitors to its Xbox gaming consoles and its rapidly growing subscription content and cloud-gaming business.
Microsoft has countered these concerns by offering to keep "Call of Duty" available to Sony's PlayStation for 10 years, and has made similar agreements with Nintendo and Nvidia. However, the FTC has accused Microsoft of backtracking on a similar prior assurance in another tie-up with content developer Zenimax. The FTC has also expressed concerns that Microsoft is one of only two high-performance console makers.
In addition to cloud gaming and "Call of Duty", Microsoft would also stand to benefit from Activision Blizzard's mobile-focused King business. Mobile gaming is the fastest-growing segment of the gaming industry thanks to the ubiquity of smartphones, which is important when trying to reach consumers in developing countries.
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