Microsoft Corporation has achieved the $69 billion acquisition of Activision Blizzard Inc., overcoming almost two years of resistance from global regulators, which had initially posed a threat to the deal.
This monumental acquisition marks the most substantial in the video game industry to date. It enhances the competitive edge of Microsoft, the maker of Xbox consoles, positioning it as the third-largest gaming company globally, trailing only Tencent Holdings Ltd. and Sony Group Corp. This successful acquisition comes on the heels of Microsoft’s acknowledgement of the scale and durability of antitrust objections.
The completion of the acquisition has prompted a 0.2% rise in Microsoft shares.
The negotiation process saw Microsoft introduce alterations to the merger agreement in response to concerns raised by UK authorities. However, it’s important to note that the US Federal Trade Commission, although unsuccessful in its attempt to block the transaction in court, is still pursuing legal action through an administrative hearing. If the commission prevails, it could compel the two companies to reverse the acquisition.
The UK’s Competition and Markets Authority granted approval for the deal, following the acceptance of a restructuring plan involving the sale of certain gaming rights to French publisher Ubisoft Entertainment SA. This move was made to address concerns about maintaining competition within the emerging market for cloud-streamed games.
This transformative agreement also places Microsoft’s gaming chief, Phil Spencer, in a more challenging position. The deal provides a foundation for boosting Microsoft’s mobile games business, which has been lagging. Among the assets acquired from Activision are highly popular titles like Candy Crush and its spinoffs. However, the delay in the acquisition has resulted in Microsoft falling behind in this area amid a contraction in the over-saturated market.
The company is currently in a standoff with Apple Inc. over access to its app store. In 2020, Microsoft President Brad Smith criticized Apple’s terms, which included a 30% cut of developers’ revenue and restrictions on cloud gaming. While it seemed that Apple’s walled garden might open due to a lawsuit by Epic Games Inc. alleging anti-competitive practices, Epic has faced challenges in court. Consequently, Apple’s App Store remains inaccessible to Microsoft’s cloud gaming service for iOS users.
Furthermore, shifts have occurred in the gaming industry since the initial announcement of the Activision deal in January 2022. The metaverse, a concept of a persistent online world for gaming and shopping, has not materialized as a significant commercial opportunity, as initially believed. The acquisition’s initial driver was thought to be the metaverse.
The delays in the deal have also hindered Microsoft’s ability to reform Activision’s culture according to its own preferences. Historically, Microsoft has maintained a hands-off approach to the gaming studios it acquires. Yet, it might become more engaged this time. Fans have often criticized some of Activision’s business decisions, such as oversaturating the market with releases like Tony Hawk’s Pro Skater and Guitar Hero, which diminished the value of these franchises. Fans also contend that the beloved StarCraft series has not received the necessary resources because it generates less revenue compared to other games.
As part of the acquisition, Microsoft intends to make the games library available on Game Pass, its cloud-streaming service.
Notably, Activision Blizzard CEO Bobby Kotick faced criticism for his handling of harassment complaints at the company. In 2021, the California Civil Rights Department sued Activision, alleging a “frat boy” culture. Since then, the company has appointed an officer responsible for diversity, equity, and inclusion and released a report on its progress in addressing workplace issues.
Microsoft has committed to remaining neutral regarding employee unionization, a departure from Activision’s stance against organizing efforts. In January, workers at Microsoft’s ZeniMax video game unit joined the Communications Workers of America, and Microsoft promptly recognized the union.
The deal faced significant opposition from Sony, the manufacturer of PlayStation consoles. Jim Ryan, the company’s video games chief, raised concerns that Microsoft could provide an inferior version of its popular Call of Duty shooting game to competitors. In July, Microsoft and Sony signed a 10-year agreement that would keep future Call of Duty releases on PlayStation consoles. Jim Ryan, who announced his retirement in late September, will retire from Sony in March.
The UK regulators had initially rejected the deal, citing potential implications, including higher prices, reduced choices, and less innovation for gamers. The updated agreement ensures that Microsoft cannot restrict access to Activision’s essential content for its exclusive cloud gaming service or withhold these games from competitors, as stipulated by the regulator.
Founded in 1979, Activision is home to some of the world’s most renowned game franchises, including Overwatch, World of Warcraft, and Crash Bandicoot. Call of Duty, in particular, has been a colossal success, with more than 425 million units sold and over $30 billion in revenue before the release of the most recent installment last year.