Microsoft (MSFT) said it completed the purchase of Activision Blizzard for $69 billion after a nearly two-year fight with global regulators that threatened to scuttle the deal.
The biggest ever acquisition in the video games industry gives the Xbox console maker a more relevant position against rivals, jumping it from fifth to third place globally, behind Tencent Holdings and Sony. The acquisition is a stunning turnaround after Microsoft executives underestimated the magnitude and duration of antitrust objections, forcing the software giant to seek a three-month extension to the trial period of the deal with Activision.
Microsoft managed to close after making changes to its merger agreement to win over the UK authorities. The US Federal Trade Commission, which lost an attempt to block the deal in court, continues to try legal action in its own administrative hearing. This could still force the two companies to terminate the deal if the commission is successful.
The UK’s Competition and Markets Authority announced on Friday that it had approved the deal after accepting a restructuring plan involving the sale of some games rights to French publisher Ubisoft Entertainment. The regulator was concerned about preserving competition in the nascent market for cloud-based games.
Candy Crush
The job of Microsoft’s head of games, Phil Spencer, could be even more challenging. The deal provides Spencer with the basis for a plan to boost the company’s sluggish mobile games business. Among Activision’s titles is the universally popular Candy Crush and its derivatives. However, the delay means that Microsoft has fallen further behind in this space, amid a contraction in the oversaturated sector.
The company is still at loggerheads with Apple over access to its app store. In 2020, Microsoft president Brad Smith criticized Apple’s terms, which include a 30% cut in developer revenue and restrictions on cloud gaming. After Epic Games, maker of Fortnite, sued Apple alleging anti-competitive practices, it looked like the company’s walled garden might finally open. However, Epic has struggled to win victories in court. And Apple’s App Store is still inhospitable to Microsoft’s cloud gaming service, where iOS users need to access the game via a mobile browser.
Other parts of the gaming landscape have changed since the deal with Activision was first announced in January 2022. The metaverse, a persistent online world where consumers would play games and make purchases, didn’t turn out to be as big a commercial opportunity as many believed. This business was identified as a key factor for the acquisition when it was announced.
The delays have also meant that Microsoft can only now begin the process of reshaping Activision’s culture. While Microsoft has traditionally adopted an indifferent approach to the game studios it acquires, this time it may be more involved. Fans have often complained that some of Activision’s business decisions, such as crowding the market with Tony Hawk’s Pro Skater and Guitar Hero releases, ended up cheapening the franchises. Fans have also said that the StarCraft series lacks resources because it makes less money than other games.
Competition
Activision CEO Bobby Kotick has received criticism for his handling of harassment complaints at the company. In 2021, the California Department of Civil Rights sued Activision for promoting a “frat boy” culture. Since then, the company has appointed a person to oversee diversity, equity and inclusion, appointed a head of inclusive game design and released a report on the company’s progress on workplace issues.
Microsoft also promised to remain neutral on employee unionization after Activision challenged its organizing efforts. In January, workers at Microsoft’s ZeniMax video game unit joined the Communications Workers of America. Microsoft recognized the union immediately.
The agreement faced strong opposition from Sony, maker of PlayStation consoles. The company’s head of video games, Jim Ryan, suggested that Microsoft could harm competitors by selling them an unsuitable version of its popular shooter Call of Duty. In July, Microsoft and Sony signed a ten-year deal that would keep future Call of Duty entries on PlayStation consoles. Ryan told the team at the end of September that he would be retiring from Sony in March.
UK regulators had already vetoed the deal, saying it could result in higher prices, less choice and less innovation for gamers. The new deal means that Microsoft cannot limit access to Activision’s core content to its own cloud gaming service or deny those games to rivals, the regulator said.
Founded in 1979, Activision is home to some of the world’s most popular gaming franchises, including Overwatch, World of Warcraft and Crash Bandicoot. Call of Duty alone sold more than 425 million units and generated more than $30 billion in revenues before the most recent edition last year.