Following Microsoft’s victory over the Federal Trade Commission (FTC) in the battle to buy Activision Blizzard for $69 billion, thoughts now turn to the final stumbling block: the UK.
The UK’s Competition and Markets Authority (CMA) blocked the deal earlier this year. Microsoft appealed, with a hearing originally set to kick off July 28. But last night, in response to Judge Corley ruling in favour of Xbox over the FTC, Microsoft, Activision, and the CMA agreed on a stay of the litigation in the UK, effectively pausing Microsoft's appeal so the three parties can thrash out a satisfactory restructure of the transaction.
In a statement issued to IGN, Microsoft's Brad Smith said Microsoft is now "considering how the transaction might be modified" in order to address the CMA's concerns.
Responding, the CMA told IGN: "We stand ready to consider any proposals from Microsoft to restructure the transaction in a way that would address the concerns set out in our final report.”
The CMA is concerned specifically about the buyout's implications for cloud gaming. In its ruling, the CMA said the deal “would alter the future of the fast-growing cloud gaming market, leading to reduced innovation and less choice for UK gamers over the years to come”. Interestingly, cloud gaming did not form a significant part of the FTC’s case in the U.S. Rather, the FTC preferred to focus on console gaming, the exclusivity of Call of Duty, and whether or not the Nintendo Switch competes in the same market as the Xbox and PlayStation.
It’s the phrase “proposals from Microsoft to restructure the transaction” that seems key to getting this deal over the line, but what could it involve? Microsoft’s previous effort to appease the CMA on cloud gaming fell on deaf ears, despite striking new deals with various cloud gaming providers such as Nvidia. IGN has heard a variety of drastic last resort steps, including pulling out of cloud gaming in the UK, that Microsoft could take. If Microsoft did that, UK gamers could be blocked from playing the likes of Call of Duty and Diablo 4 via the cloud - a move that would surely cause a backlash in the country.
Last night, CNBC’s David Faber reported that Microsoft had offered a “discreet, small divestiture”, one Microsoft believes will satisfy the CMA. Faber speculated this divestiture could relate to a licensing deal for the cloud, but neither Microsoft or the CMA has issued a comment on this.
Gareth Sutcliffe, senior games analyst at Enders Analysis, told IGN any divestiture “is likely to be face-saving as opposed to impactful”, adding: "Long-term access contracts are a better solution and have been accepted elsewhere.
"The question is really how would a divestiture benefit the UK market or consumer, especially if it’s related to cloud gaming? The CMA should pivot towards a long-term commitment from Activision and Microsoft to stay and invest more systemically in the UK games industry. No other regulator has requested or achieved that."
An agreement with the CMA could put Microsoft on a path to close the deal as soon as Monday, July 17, just one day before the expiration of the merger agreement. If Microsoft fails to close the deal by July 18, it would have to pay Activision Blizzard a $3 billion reverse termination fee.
Louise Wooldridge, research manager at Ampere Analysis, told IGN this is unlikely. If Microsoft fails to get the CMA on-side over the next week, Microsoft is likely to renegotiate its deadline for completion with Activision, Wooldridge said. But “approval from the UK is on the horizon”.
As Microsoft's Brad Smith said last night: “our focus now turns back to the UK.” UK gamers will be anxiously awaiting the decision.
Wesley is the UK News Editor for IGN. Find him on Twitter at @wyp100. You can reach Wesley at wesley_yinpoole@ign.com or confidentially at wyp100@proton.me.
