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Competition regulator in Britain, S.’s staunchest opponentand Microsoft $69 billion acquisition of the gaming giant Activision Blizzardthe deal was blocked in April.
It looks like the UK’s Markets and Competitions Authority may now have a change of heart.
After a US judge on Tuesday denied the Federal Trade Commission’s request for a preliminary injunction to block Microsoft from completing its purchase of Activision Blizzard, the UK’s capital markets regulator said it was ready to return to the negotiating table with the Redmond giant.
But what assurances can Microsoft provide to the Capital Markets Authority after previous attempts to make concessions failed?
Why did the CMA block the Microsoft-Activision deal
Britain’s Capital Markets Authority effectively blocked the acquisition in April, saying the deal raised competition concerns in the emerging cloud gaming market. Like other regulators, the CMA is concerned that Microsoft may take Activision’s games and make them exclusive to their own platforms.
Cloud gaming is a technology that allows gamers to access games via remote servers – effectively streaming a game as you would a movie Netflix. The technology is still in its infancy, but Microsoft is betting big on it becoming a mainstream way to play games.
“Allowing Microsoft to take such a strong position in the cloud gaming market just as it begins to grow rapidly would risk undermining the innovation necessary to develop these opportunities,” the CMA said in April.
Why did you change course?
The CMA has been pressing Microsoft hard not to buy Activision — and its decision to soften its stance came as a surprise to many.
The Capital Markets Authority suggested in its statement that it would open negotiations with Microsoft to consider proposals to resolve the dispute.
Activision Blizzard’s Call of Duty: Modern Warfare video game is inserted into Microsoft’s Xbox One video game console arranged in Denver, Colorado, on Wednesday, January 19, 2022.
Michael Ciaglo | bloomberg | Getty Images
“We stand ready to consider any proposals from Microsoft to restructure the transaction in a way that will address the concerns set out in our final report,” a spokesperson for the Capital Markets Authority 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 stop litigation in the UK and all parties have submitted a joint report to the Competition Appeal Tribunal to this effect.”
The regulator could have gone ahead and moved forward with legal action in the courts. However, this would have been a lengthy and expensive process, and could be particularly painful for the watchdog, if the case was lost.
Alex Haffner, a competition attorney at the law firm Flaggate, told CNBC that the FTC setback left the SCA “exposed to being the only regulator that actually blocked the deal.”
“Why did they do this? You can call it saving face, you can also call it pragmatic, given the circumstances,” he said.
“She was cornered and said publicly that she had announced the suspension of the appeal to negotiate with Microsoft,” Haffner added. “I added that, along with the political intrigue of all the zeal that the CMA has been subjected to. He pretty much nailed it (that) he would negotiate some kind of settlement with the parties.”
what happened after that?
The CMA, Microsoft and Activision now appear poised to find a possible solution to the regulator’s concerns to get a deal through the line.
Microsoft may seek to make further obligations to the regulator. It’s not yet clear at this point what those pledges might look like, but Haffner said they have to be “commensurate with the concerns raised.”
“There will be an intense period of negotiation on both sides that they need to get through quickly,” Hafner told CNBC. I’ll say “we’ll get it done in a week or so”.
Microsoft has a deadline of July 18th to complete the deal.
Microsoft has already made concessions to the UK regulator which have been rejected.
One remedy involves Microsoft making certain games available on other platforms for a set period of time. For example, Microsoft said 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 company’s Japanese platforms on the same day the game becomes available on Xbox.
To EU regulators who approved the deal in May, Microsoft said it would offer royalty-free licenses to cloud gaming platforms to stream Activision games, if a consumer buys them.
But the CMA rejected similar concessions on the grounds that they would be difficult to monitor and enforce, and the volatile nature of the emerging cloud gaming sector means such a remedy may not take into account changes in the cloud market.
So Microsoft will need to make another attempt to get the license privilege.
Will Microsoft have to pull some business?
Before softening its position in its ruling in April, the Capital Markets Authority in February Give notice of possible solutions to Microsoft. Among these was the sale of Microsoft’s business related to the popular game Call of Duty. Other remedies included divesting some of Activision Blizzard’s business.
Microsoft President Brad Smith told CNBC in February that he doesn’t see a “possible path” to selling Call of Duty.
But a divestment of some sort could be on the cards, according to Dan Ives, an analyst at Wedbush Securities. Ives said in a note on Wednesday that Microsoft may customize its Game Pass subscription service in the UK to satisfy the CMA.
Game Pass is Microsoft’s subscription service on Xbox console and PC, which gives users access to hundreds of games.
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