UK competition watchdog, staunchest opponentf microsoft $69 billion acquisition of gaming giant Activision Blizzardflatly blocked the deal in April.
The U.K. Competition and Markets Authority now appears to have changed its mind.
After a US judge on Tuesday rejected the Federal Trade Commission’s motion for a preliminary injunction preventing Microsoft from completing its acquisition of Activision Blizzard, the UK’s CMA said it was ready to return to the negotiating table with the Redmond giant.
But what assurances can Microsoft offer the CMA after previous attempts to back down failed?
Why the CMA Blocked Microsoft’s Activision Deal
The UK’s CMA effectively blocked the acquisition in April, saying the deal raised competition concerns in the nascent cloud gaming market. Like other regulators, the CMA is concerned that Microsoft could take over Activision games and use them exclusively for its own platform.
Cloud gaming is a technology that enables gamers to access games through remote servers, effectively streaming games like watching movies Netflix. The technology is still in its infancy, but Microsoft is betting on it becoming a mainstream way to play games.
“Giving Microsoft such a strong position in the cloud gaming market at a time when it is beginning to grow rapidly could compromise innovation that is critical to the development of these opportunities,” the CMA said in April.
Why did it change direction?
The CMA has been actively urging Microsoft not to buy Activision Blizzard, and its decision to relax its stance came as a surprise to many.
In a statement, the CMA said it would start negotiations with Microsoft to consider proposals to resolve the dispute.
Activision Blizzard’s Call of Duty: Modern Warfare video game is plugged into a Microsoft Xbox One video game console in Denver, Colorado, Wednesday, Jan. 19, 2022.
Michael Siaglow | Bloomberg | Getty Images
“We stand ready to consider any proposals from Microsoft to restructure the transaction to address the concerns raised in our final report,” a CMA spokesperson told CNBC via email on Tuesday.
“In order to be able to prioritize work on these proposals, Microsoft and Activision have agreed with the CMA that it would be in the public interest to stay the proceedings in the UK, and the parties have submitted a joint submission to the Competition Appeals Tribunal. The impact.”
Regulators could have gone ahead and pursued legal action in court. However, this would be a long and expensive process, and the regulator could be hit particularly hard if it loses the case.
Alex Haffner, a competition lawyer at law firm Fladgate, told CNBC that the FTC’s setback essentially makes the CMA “the only regulator that actually blocked the deal.”
“Why did they do it? You could call it face-saving or you could call it pragmatic, given the circumstances,” he said.
“It has been cornered and has publicly stated that it has announced an appeal to suspend negotiations with Microsoft,” Haffner added. “You add that, plus all the heated political machinations that the CMA is subject to. It’s pretty sure it will Negotiate some sort of resolution with all parties.”
what happened next
The CMA, Microsoft, and Activision Blizzard now appear to be working on a possible solution to the regulator’s concerns to finally reach an agreement.
Microsoft may seek to provide further commitments to regulators. It was unclear what those pledges would look like, but Haffner said they would need to be “commensurate with the concerns raised.”
“There’s going to be an intense period of negotiation between the two sides, and they need to get this done as quickly as possible,” Haffner told CNBC. “I’d say we’ll be done in a week or so.”
Microsoft’s deadline to close the deal is July 18.
Microsoft has made concessions to British regulators, but has been rejected.
One remedy is for Microsoft to make certain games available on other platforms for a specified period of time.For example, Microsoft stated in February It will bring Xbox PC games to Nvidia’s cloud gaming service. The company also signed a 10-year deal with rival Nintendo to bring Call of Duty to the Japanese company’s platform on the same day it launches on the Xbox.
Microsoft told European Union regulators, which approved the deal in May, that it would offer a royalty-free license to cloud gaming platforms to stream Activision Blizzard games if consumers bought Activision games.
But the CMA has rejected similar concessions on the grounds that they are difficult to monitor and enforce, and that the rapidly volatile nature of the nascent cloud gaming industry means that remedial measures may not take into account changes in the cloud market.
So Microsoft needs to try again for licensing concessions.
Does Microsoft need to spin off some businesses?
Before softening its stance in the April ruling, the CMA in February Notified Microsoft of a possible resolution. One of them is Microsoft selling its business related to the popular Call of Duty game. Other remedial measures include divesting parts of Activision Blizzard’s business.
Microsoft President Brad Smith told CNBC in February that he didn’t see a “viable path” for selling Call of Duty.
But Wedbush Securities (Wedbush Securities) analyst Dan Ives (Dan Ives) said that some form of asset divestiture is likely. Ives said in a note on Wednesday that Microsoft may launch a Game Pass subscription service in the UK to satisfy the CMA.
Game Pass is Microsoft’s subscription service on Xbox consoles and PCs that gives users access to hundreds of games.