Microsoft Rethink Puts Big Tech M&A Back On Table

By Breakingviews

Microsoft’s (MSFT) extended shoot-out with global trustbusters may nearly be over. On Tuesday, the technology giant inched forward in its quest to seal its $69 billion acquisition of Activision Blizzard (ATVI) with a deal to sell most of the video-game publisher’s global streaming rights to French rival Ubisoft Entertainment (OTCPK:UBSFY). Hurdles remain, but if the move satisfies objections from British regulators, it points to a path for assuaging global concerns about big-tech dealmaking choking off nascent markets.

The 19-month merger odyssey still isn’t over. The UK’s Competition and Markets Authority, which blocked the tie-up in April, must now restart its investigation. The United States Federal Trade Commission, which lost an attempt to block the deal, is still fighting in court. And while the European Union previously gave the green light, it is weighing whether the changed terms require re-opening its probe.

But the fact that Microsoft has a path to approval at all is a huge turnaround. Earlier this year, deals by tech giants seemed totally off the table, as regulators worried that prospective buyers could use their scale to crush would-be future competition in fledgling markets. Video games fit the bill: while most gamers buy titles up-front to play on distinct platforms, streaming promises to allow Netflix-like subscription access anywhere. It is still very early days, though: only $2 billion of the gaming industry’s $183 billion in 2022 revenue came from cloud services, according to Newzoo. By buying up Activision’s must-have content, Microsoft could theoretically muscle out others from the market before they’ve had time to enter it.

Microsoft has picked away at this thesis. Agreements to supply rivals like Nintendo (OTCPK:NTDOY) and SONY with Activision games for a decade got the EU onside. A U.S. court rejected FTC concerns. Now, for the UK, Microsoft is promising for an undisclosed fee to separate the nascent cloud market from Activision’s existing business, transferring streaming rights outside Europe to all current and new Activision games to Ubisoft for 15 years.

This clean structural fix means the CMA doesn’t have to rely on Microsoft simply promising to act in good faith, since it now has a real-deal strategic partner with its own rights and self-interest. More importantly, Microsoft may have charted a path that outflanks regulators’ obsession with the unknowable future. It was still a long slog, and in the U.S., especially, consolidation-skeptical regulators won’t suddenly drop all concerns. But for high-stakes big-tech mergers, separating the present from the future might be a way to keep antitrust watchdogs from instinctively biting.

Context News

Microsoft announced on Aug. 22 that, in an attempt to win British antitrust approval for its $69 billion acquisition of “Call of Duty” maker Activision Blizzard, it has agreed to sell global streaming rights for the company’s games to French gaming group Ubisoft Entertainment. Under the terms of the deal, Ubisoft will be granted streaming rights for Activision’s current and future games for 15 years outside of the European Economic Area, as well as a non-exclusive license within the bloc. Microsoft expects the United Kingdom’s Competition and Markets Authority to complete a review of the restructured deal by Oct. 18.

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