UK reconsiders Microsoft Activision deal after cloud gaming concessions

After it’s initial plan to purchase gaming giant Activision Blizzard was blocked by the CMA, Microsoft has submitted an amended deal it hopes will appease the UK’s regulator’s concerns.

The new proposal means that Microsoft would not acquire the cloud streaming rights to all current and future Activision games released during the next 15 years, and they would instead be divested to another games publisher called Ubisoft prior to the acquisition of Activision Blizzard – though this excludes the EEA.

This reflects the concerns raised by the CMA (Competition and Markets Authority) in April when it initially blocked the $69 billion purchase, the largest deal in gaming history. The CMA at the time concluded that the combined entity could dominate the cloud gaming market through its already strong position in PC gaming and ownership of the Xbox platform, and restrict competitors’ cloud access to Activision games in the cloud such as the hugely popular Call of Duty and Fortnight.

“Microsoft already enjoys a powerful position and head start over other competitors in cloud gaming and this deal would strengthen that advantage giving it the ability to undermine new and innovative competitors,” said Martin Coleman of the CMA investigation at the time. “Microsoft engaged constructively with us to try to address these issues and we are grateful for that, but their proposals were not effective to remedy our concerns and would have replaced competition with ineffective regulation in a new and dynamic market.”

This prompted a spirited public response from Activision in particular:

The new tabled deal would see Ubisoft provided with the ability to supply Activision’s gaming content to all cloud gaming service providers, including to Microsoft itself, and it will be able to license out the games under different business models, including subscription services. Furthermore, Ubisoft would have the ability to require Microsoft to provide versions of games on operating systems other than Windows.

Microsoft says under the new plan it will not be in a position either to release Activision Blizzard games exclusively on its own cloud streaming service called Xbox Cloud Gaming, or to exclusively control the licensing terms of Activision Blizzard games for rival services.

“As a result of the agreement with Ubisoft, Microsoft believes its proposed acquisition of Activision Blizzard presents a substantially different transaction under UK law than the transaction Microsoft submitted for the CMA’s consideration in 2022,” reads a Microsoft statement.

Sarah Cardell, Chief Executive of the CMA said: “The CMA has today confirmed that Microsoft’s acquisition of Activision, as originally proposed, cannot proceed. Separately, Microsoft has notified a new and restructured deal, which is substantially different from what was put on the table previously. As part of this new deal, Activision’s cloud streaming rights outside of the EEA will be sold to a rival, Ubisoft, who will be able to license out Activision’s content to any cloud gaming provider.

“This will allow gamers to access Activision’s games in different ways, including through cloud-based multigame subscription services. We will now consider this deal under a new Phase 1 investigation.”

Before anyone gets the champagne out, it qualified: “This is not a green light. We will carefully and objectively assess the details of the restructured deal and its impact on competition, including in light of third-party comments. Our goal has not changed – any future decision on this new deal will ensure that the growing cloud gaming market continues to benefit from open and effective competition driving innovation and choice.”

Just weeks after the CMA blocked it, The EU gave the nod to the deal back in May. In that case there were also articulated fears over potential domination of the cloud gaming sector, but the below ten-year commitments were made by Microsoft to EU regulators:

Apparently satiated, the EU said the deal in its latest form would now ‘represent a significant improvement for cloud game streaming compared to the current situation.’

On this point, Microsoft said in its statement yesterday regarding the amended deal put to the CMA: “Of importance, Microsoft’s obligations to provide cloud streaming rights in the European Economic Area remain in place, in full compliance with Microsoft’s commitments to the European Commission.

“The agreement with Ubisoft has been structured so that Microsoft will still acquire the rights needed to honour fully its legal obligations under its commitments to the European Commission, as well as its existing contractual obligations to other cloud game streaming providers, including Nvidia, Boosteroid, Ubitus, and Nware. Microsoft is engaging closely with the European Commission to support the EC’s assessment of the agreement and confirmation that the commitments remain undisturbed.”

This new CMA investigation will be carried with the deadline for a decision set as 18 October 2023.

Cloud gaming as a concept has been around for years – the first evidence of which seems to have been provided by a startup called G-cluster in 2000 – and while it hasn’t taken off to the extent to which the fanfare promised over the years, as an idea it represents a significant disruptor to the games industry by skirting around the need for high-spec gaming hardware in the home.

The speed upgrades networks have enjoyed in the intervening years makes the whole thing look more plausible too, and it could well end up providing telcos with a solid use case for things like 5G network slicing which have thus far not been abundant.

Vodafone and Ericsson recently ran a trial at Coventry University which used an optimised 5G standalone network slice to improve cloud gaming performance, claiming a 270% increase in download performance, a 25% decrease in latency and 57% less jitter as a result.

In other regulatory news, it was also announced today that The CMA has cleared Broadcom’s $69 billion purchase of VMware. The regulator has been conducting a more in-depth, Phase 2 inquiry into the merger after its Phase 1 investigation gave it reason to believe the deal could hamper innovation in the server market.

In July it announced that upon further investigation the deal will not substantially reduce competition in the supply of server hardware components in the UK, and today Richard Feasey, chair of the independent panel carrying out the Phase 2 inquiry, said:

“Broadcom and VMware are US-based companies supplying hardware and software used by thousands of businesses and public bodies in the UK. Even if the UK market represents a small proportion of total sales in a merger, the CMA’s job is to scrutinise deals like this thoroughly to ensure they don’t harm competition in the UK.

“In this case, having carefully considered the evidence and found no competition concerns, we have concluded the deal can go ahead.”

The acquisition of VMware was agreed in May 2022 and will make Broadcom one of the world’s biggest suppliers of hardware and software solutions to the networking and server markets, as well as one of the world’s biggest suppliers of server virtualisation software.

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