- Microsoft's $69 billion plan
to acquire Activision Blizzard
has turned into one of the hottest legal battlegrounds
in gaming history.
Microsoft is fighting with regulators
across the US, in Europe, and in the UK
trying to convince them that this deal is good for gamers.
Meanwhile, competitor Sony has warned of dire consequences.
And in a surprise decision,
the UK's Competition and Markets Authority warned last week
that the deal could be too great a threat to competition.
So why are regulators worried?
What happens next?
And will this ultimately change how you play your games?
This is your Status Update.
(pensive music)
Microsoft and Sony have spent the past few years
on an almost unprecedented shopping spree.
Back in 2017,
Microsoft had less than ten first party Xbox Game Studios.
Now, it's up to 23,
and Sony's not even that far behind
with about 20 in-house game studios for PlayStation.
Now, if Microsoft manages
to get this Activision Blizzard deal over the line,
it's gonna have more than 30 game studios in total.
There have been some absolutely huge gaming deals
across the industry,
and they could reshape how games are made
and where they're played.
And recent headlines
are focused on one series in particular, "Call of Duty."
It is one of the most played titles
across both Xbox and PlayStation,
and that's got Sony worried.
It has emerged as one of the main opponents
to the Activision deal,
arguing to regulators
that Microsoft may use its newfound powers to neglect
or even intentionally sabotage
the "Call of Duty" experience on PlayStation
or remove the game from stores entirely.
Now, Microsoft has offered up
10-year "Call of Duty" licensing deals
to Sony, NVIDIA, Nintendo, and many others,
but they all rely on the Activision deal
being approved by regulators.
And Sony has so far refused to sign a deal,
instead taking its concerns directly to regulators
and finding extensive arguments with the CMA.
Meanwhile, Microsoft has gone on the offensive
with digital and newspaper ads aimed at UK regulators,
and the company's even been
waving around paper envelopes in Europe,
trying to make sure everyone is aware
that Sony doesn't wanna sign a deal.
- I walk around with an envelope
that contains the definitive agreement that we set to Sony.
- This fight sometimes has quite frankly gotten ridiculous.
There's Microsoft on one side
arguing that "Call of Duty" isn't that important,
and, "You know, we're spending $69 billion,
but hey, don't worry about 'Call of Duty.'"
Whereas Sony saying it's irreplaceable
and it could seriously damage their PlayStation business
if Microsoft were to take it away
and make "Call of Duty" an Xbox-exclusive.
Sony even told UK regulators recently
that it was worried about Microsoft sabotaging its ability
to win Digital Foundry comparisons,
the be-all and end-all of video game reviews
that focus on the quality and performance of games.
Microsoft would probably face a serious backlash
and financial consequences if it was to do that,
but you could see why Sony might be nervous here.
There's real potential for Microsoft
just to not support unique PlayStation features
on a future version of "Call of Duty,"
or to even remove or block those marketing deals
that Sony relies on
to offer up exclusive "Call of Duty" content
to its PlayStation players.
And while Microsoft's offering up
all these 10-year licensing deals,
it has no qualms about locking up
some of the other games it's acquired.
After purchasing Bethesda,
it's turned the highly-anticipated
sci-fi adventure game "Starfield"
into an Xbox and PC-exclusive.
And also, according to one person
working on the co-op vampire shooter "Redfall,"
the team ditched plans for a PS5 version of the game
because Microsoft said it wasn't interested.
The deal would also give Microsoft a foot in the door
for mobile gaming.
Activision publishes the popular "Call of Duty" mobile game,
and it also owns King,
makers of "Candy Crush," "Farm Heroes," and much more.
Microsoft barely has a mobile presence right now,
but it's betting on a future
where it can build an Xbox's mobile game store
to take on Apple and Google.
But this deal isn't just about access to popular games,
and neither are regulators' fears about it.
Microsoft, Sony, and other game companies see subscriptions
as a big part of the future of gaming.
And just like how Apple, Netflix, and Disney
are all fighting over the best TV shows and movies,
Microsoft wants the hottest games on Xbox Game Pass.
And as game platforms
look more and more like streaming services,
their owners are adding these game streaming options
to their subscriptions.
Now, during the pandemic,
we saw digital game sales overtake physical ones
and services like Xbox Game Pass
have the added option of streaming games from the cloud
are increasingly proving popular
in what might be a subscription-based future.
Microsoft, Sony, NVIDIA, Amazon,
and even big game publishers, like EA and Ubisoft,
are taking bets on this in various ways.
But apparently, so are regulators.
And in the UK, that turned out pretty badly for Microsoft.
The CMA estimates that Microsoft has around 60 to 70%
of the global cloud gaming market,
and the regulator made it pretty clear early on
that there's some concerns
around Microsoft buying up Activision Blizzard
and then withholding those games
from rival cloud gaming services.
There's obviously fears that Microsoft may go on
to dominate the future of cloud gaming
and how Activision Blizzard could possibly help it do that.
Microsoft attempted to address these concerns
in a series of deals
with small and large cloud gaming competitors
that provided access to Xbox PC games.
Now, for a while, it looked like the CMA might be convinced,
but then in late April,
the regulator abruptly rejected the acquisition
saying that cloud gaming was the big concern.
It's a surprise ruling from the CMA,
especially after the regulator backed down
over "Call of Duty" concerns on the console side.
But the CMA is clearly worried
about the future of cloud gaming,
even if consumers are showing little to no interest in it
and the experience hasn't really lived up to the hype.
Microsoft says it will now appeal this decision
and it could mean the case drags on for months and months,
but Microsoft is absolutely furious here
with President Brad Smith calling the decision,
"The darkest day
of Microsoft's four decades of operating in the UK."
He even went as far as saying
that the EU looks like a better place to start a business
than the UK.
That's a particularly phony statement
given the political back and forth around Brexit right now.
So what happens next?
Microsoft's cloud deals clearly didn't do enough
to convince the UK,
and that could be a giant blocker in this giant deal.
The appeals process is costly, time-consuming,
and it's not even guaranteed
to produce the result that Microsoft wants.
EU regulators are now due
to make a decision on a deal in May,
which has reported recently that the EU regulators
are actually likely to approve the deal,
thanks to Microsoft's various deals
with Nintendo, NVIDIA, and others.
The EU decision is even more crucial for Microsoft
after UK regulators blocked the deal.
So all eyes are now firmly on Brussels.
Microsoft could face more scrutiny closer to home, too.
The FTC suit to try and block the deal late last year
with the US regulator
saying that he wants to try and stop Microsoft
from gaining control over Activision.
The FTC case is still at the document discovery stage
with an evidentiary hearing scheduled for August 2nd.
Microsoft and Sony lawyers
are currently at the point of arguing
over what documents should be presented in the case,
and we're months away
from knowing exactly how this all pans out.
Microsoft has always maintained that this deal will close
by the end of its fiscal 2023 year,
which is the end of June.
Now, that deadline seems increasingly unrealistic right now,
thanks to the CMA's intervention
and then the possibility that Microsoft
could end up in court against the FTC
fighting for it not to break up this giant deal.
If Microsoft deal fails to get approval from EU regulators,
then it will almost certainly look like game over,
with Microsoft owing Activision $3 billion dollars
in breakup fees.
The biggest gaming deal in history
hangs in the balance right now,
but if Microsoft's recent fighting talk
is anything to go by,
it's really ready to battle to keep this deal alive.
So that's where Microsoft is at with the Activision deal.
It's appealing the CMA's decision
and we'll see how that turns out down the line.
Keep an eye on theverge.com
for all the updates to this story and much more.