Microsoft dramatically altered the terms of the $75bn acquisition by Activision Blizzard, after UK regulators issued a global ban on the deal due to concerns that it would stifle the innovation in the cloud gaming market.
The two companies have submitted a proposed merger agreement with the Competition and Markets Authority (CMA) on Tuesday. This gives exclusive rights to Ubisoft, based in France, to distribute Activision Blizzard games on PC and consoles, including the popular Call of Duty outside of the European Economic Area.
This is a major concession by Microsoft. It had previously stressed the importance of cloud gaming to its business, and the cross-platform aspect.
Microsoft’s latest terms prohibit it from releasing Activision Blizzard exclusive games on its cloud streaming service Xbox Cloud Gaming. Activision’s titles may still be available on Microsoft cloud platforms.
Ubisoft’s shares rose by nearly 10% on Tuesday. The deal is contingent on its completion, but Ubisoft may also be able to add titles like World of Warcraftand Diabloto its subscription service.
After months of debate, global regulators took divergent and changing positions on this deal. It would be the largest ever in the technology sector.
In April, The CMA announced that it would block Microsoft’s acquisition because it found Microsoft’s concessions regarding antitrust concerns to be insufficient. The European Commission, however, cleared the deal the month after, after coming to the opposite conclusion about the concessions made, including agreeing to grant Activision’s games to any cloud gaming service provider.
The Federal Trade Commission in the US launched a legal challenge against the acquisition, but it was overturned by a federal court and the appeal was denied.
Microsoft, in an effort to allay regulators’ concerns about antitrust, has also negotiated license deals for hit games with competitors, including Sony.
The merger, first announced in January of last year and due to be completed before July 18th, was extended by 90 days to allow the companies to resolve regulatory issues.
After reviewing the updates, the CMA rejected Tuesday’s original agreement in a final ruling.
It is rare, but it has happened in the past. However, never before was a deal of this magnitude brought to the table. According to two people who are close to the regulator, the new deal triggers a probe, but as the CMA has already done a lot of work during its previous investigation, the process could be quicker.
Both companies hope that the CMA will approve this deal before the deadline of October 18. Microsoft may be required to pay up to $4.5bn as termination fees under the terms of the extension if it does not.
This is not a green signal. CMA CEO Sarah Cardell stated on Tuesday that the CMA will be evaluating the details and impact of the restructured agreement and the competition.
Ubisoft will retain cloud streaming rights for Call of Duty, all Activision titles, including those released in the next 15-year period, and new releases. These rights are exclusive to the EEA.
Microsoft will honour the concessions it made to Brussels earlier this year, including licenses for other cloud services.
As part of this agreement, other subscription services such as streaming giants Netflix would be able license the games.
Microsoft announced that it would receive compensation through an upfront payment, a wholesale pricing system based on the market and a pricing option based on time spent playing games or usage.
Companies have not yet provided details about how commercial terms will work. For example, Ubisoft has not said whether it would charge a royalty or if Microsoft would pay an upfront license fee. The terms were interpreted by people familiar with them as encouraging licensing and easing antitrust concerns.
Microsoft has highlighted mobile game streaming as an area of growth where it plans to launch its own app store.
Louise Wooldridge of Ampere Analysis, a research group that specializes in games, said: “A major motive behind Activision’s acquisition was to make Microsoft more competitive on the mobile gaming market.” Microsoft’s mobile gaming is more important to them than cloud gaming at the moment, it is implied.
Bobby Kotick is the chief executive of Activision Blizzard. He acknowledged that “it was a longer journey than we expected”, and in an email sent on Tuesday he praised his employees for their focus on “delivering excellent games”.
Brad Smith, Microsoft’s president, deemed the development as “positive for the players, progress of the cloud gaming streaming market, and growth of our industry”.
Chris Early, Senior Vice-President of Strategic Partnerships and Business Development at Ubisoft said: “Today’s agreement will give players more opportunities to enjoy and access some of the largest brands in gaming.”