What the divergent EU and U.K. rulings say about the future of the Microsoft–Activision Blizzard merger

Last month, the United Kingdom’s Competition and Markets Authority blocked Microsoft’s planned acquisition of Activision Blizzard, only for the European Union’s European Commission to approve the deal last week. Now, all eyes are on the Federal Trade Commission, whose impending decision will decide if the merger ultimately goes through — and it really is a matter of if, not when.

The CMA and EU’s diverging rulings show the two paths the Microsoft–Activision Blizzard deal could take in the future — and demonstrates how the FTC’s decision could come down to the lens through which it views the potential acquisition. If the FTC focuses on how the deal will affect the gaming industry, it is almost certain to approve it. But if it views the deal as Microsoft’s play to dominate the future of cloud computing, then the merger could be in jeopardy.

At this point, it could very well go either way. But the European Commission and FTC work closely together and are rarely divided on such large rulings, making last week’s news an encouraging sign for Activision Blizzard executives.

“The EC conducted an extremely thorough, deliberate process to gain a comprehensive understanding of gaming,” said Activision Blizzard CEO Bobby Kotick in a statement shared with Digiday. “As a result, they approved our merger with Microsoft, although they required stringent remedies to ensure robust competition in our rapidly growing industry.”

When the CMA blocked the Microsoft–Activision deal at the end of April, U.K. regulators blamed the decision on Microsoft’s share of the cloud gaming market, stating that the merger could give Microsoft a monopoly in this growing sector. But observers from within both the European Commission and the gaming industry believe that fears over Microsoft’s dominance of cloud gaming are overblown.

“Their frustration with cloud gaming is primarily driven by a complete misunderstanding of what cloud gaming even is,” said Josh Chapman, a managing partner of the gaming-focused venture fund Konvoy Ventures, who pointed out that the companies’ combined revenue in 2021 accounted for 11.6 percent of the global gaming market, compared to Sony’s 10.1 percent. “Their assessment of the market could not have been more off-base.”

For Microsoft and Activision Blizzard, challenges could arise if the FTC takes a more proactive view of cloud gaming as a way for Microsoft to become a dominant player in cloud computing, which experts predict will scale up massively in the next decade. 

“This is where the philosophy of Lina Khan [chairperson of the Federal Trade Commission] becomes really, really important,” said Steven Weber, a professor of the Graduate School, School of Information at University of California, Berkeley, who recently participated in an FTC panel on cloud computing. “If she wants to frame this as a question about cloud services, with gaming as just sort of a leading-edge application in the cloud — which is the way I tend to think of it — then I think Microsoft’s in trouble.”

This FTC is arguably more activist than previous iterations of the regulatory body. And its attempted block of Meta’s acquisition of VR fitness app Supernatural is evidence that it is willing to predict the future in order to block deals that appear relatively unthreatening in the present.

“Khan has taken a different view, and it’s not just philosophical — like the way in which she acted on the Meta virtual reality deal,” Weber said. “You know, ‘we’re going to act to prevent the closing down of competition in emerging markets that we can see, but that aren’t yet there.’ Because it’d be very hard to argue that Meta has a dominant position in virtual reality, because that market barely exists.”

Cloud computing market notwithstanding, Microsoft stands to benefit tremendously from the deal if it passes muster with the FTC, both from a gaming-industry viewpoint and beyond. 

Last year, Microsoft reportedly started spinning up an internal in-game advertising division, and Activision Blizzard’s massive library of premium games would be very effective inventory for this endeavor.

As it becomes clear that gaming could the forerunner of the metaverse, Activision Blizzard’s wealth of gaming properties could help Microsoft catch up with Epic Games’ significant lead in that arena. And new leadership from Microsoft could also improve investors’ confidence in Activision Blizzard, which was rocked by reports of sexual harassment and unequal treatment of employees in 2021.

“I think this is a great development for global gaming; this is a great development for the future of cloud gaming,” Chapman said. “This is only positive for the industry.”

https://digiday.com/?p=504688

More in Marketing

Digiday+ Research deep dive: Agency spending on TikTok sees a sharp decline

Agency marketers have historically been more skeptical toward TikTok than their brand marketer counterparts, and a Digiday+ Research survey found that agency spending on TikTok has fallen sharply in the last few months.

The Home Depot rebrands its retail media network in pitch for ad dollars

The Home Depot hosted its inaugural InFront, a play on the television industry’s UpFronts or NewFronts, digital media’s answer to the upfronts, for its retail media offering.

Why Georgia-Pacific consolidated most retail media spending with seven networks after testing over 25 options

Figuring out which retail media network is worth spending on given the glut of new retail media networks can be a challenge for marketers.