Acquisition of Activision by Microsoft
Perhaps in Microsoft's mind, everything would go smoothly. After all, the takeover of Zenimax (Bethesda, id Software, Arkane, etc.) announced in September 2020 had passed without complications or investigation in March 2021 by the American Federal Trade Commission (FTC) as well as by the European Commission. But this time, it will not be so easy. While initially, the takeover did not seem to pose a problem in the United States according to the jurisprudence on the subject, Microsoft's appetite has nevertheless made the Democratic administration in the United States sit up and take notice, no doubt in a hurry to show that it is active in the face of the GAFA. On the other side of the Atlantic, the English Competition and Markets Authority (CMA) surprised by expressing concerns about a decrease in competition in the console, multi-game subscription and cloud gaming markets. In early September, the CMA therefore deemed it necessary to enter a "phase 2" of its study of the case, with consultation of experts.
Europe, Europe, Europe! It was only at the end of September that Microsoft officially submitted its plan to buy Activision Blizzard to the European Commission's regulators. Following this submission, the regulators circulated a list of about 100 questions to the video game industry to assess the impact of this acquisition: on Microsoft's negotiating power when selling games, on the cloud as well as on OS, exclusivities, subscription systems, etc. In early November, the Commission announced that an additional investigation was necessary to validate the transaction.
According to Politico Europe, in preliminary discussions with the Commission, Microsoft was unwilling to propose any adjustments to its takeover to address the regulators' concerns. Such proposals would have required further analysis by the Commission without guaranteeing approval, and Microsoft negotiators may have felt that the regulators were determined to launch a full investigation anyway, whatever they proposed. The in-depth European investigation is expected to take at least four months, which is starting to fit in with the Seattle giant's schedule, which was aiming for an Activision Blizzard integration by June 30, 2023. Other unpleasant surprises are not to be excluded, as the regulatory authorities of several other important countries are currently looking into the matter (Australia, Japan, South Korea, etc.).
Why it can get stuck. The situation is different on both sides of the Atlantic, because while the laws have common principles, the practices and interpretations are not at all the same. Case law in the U.S. market generally suggests that "vertical" integrations (i.e., an entity absorbing a provider or customer in its market) do not pose any real problems, while "horizontal" integrations (i.e., an entity buying a competitor in its market) require scrutiny. American analysts believe that Microsoft's acquisition of Activision Blizzard falls into the first category: the manufacturer of one of the three home consoles buys one of its customers, a game publisher (as was the case with Zenimax).Quote:
In Europe, regulators are accustomed to defining for themselves the markets to be analyzed.
In this context, the statement by Lina Khan (FTC chair) that the commission would examine the impact on "the labor market, personal data and discrimination charges regarding Activision" was greeted more as posturing masking a lack of serious legal arguments to block the deal. But in Europe, regulators are used to defining the markets they analyze. For example, the English CMA does not stop at this difference between vertical and horizontal integration in the entire console video game industry, but analyzes sub-markets such as subscription or cloud gaming, where it points out that Microsoft can acquire or strengthen a dominant position. The European Commission has shown on several occasions that it does not hesitate to do the same.
Sony and the call of duty. As a result, there is a kind of discrepancy between the potential analyses of regulators in Europe and the agitation of Sony and Microsoft about the Call of Duty franchise. The Japanese company is lobbying hard to ensure that the availability of games on PlayStation is an important issue for healthy competition, while the American company gives guarantees over several years and cites the example of Minecraft (available everywhere since its acquisition in 2014) in its defense.
Call of Duty is certainly a major console series, but can it really represent an obstacle to Activision Blizzard's takeover, under the pretext that it would eventually be exclusive to the Xbox in four or five years, knowing that by then mobile gaming will be even more massive than it is today and that another Fortnite may have emerged? In a fast-moving industry where successes are quickly reversed, the problem seems contrived, and all indications are that the time for queenly exclusives has passed. On the other hand, whether integrating Call of Duty into Xbox Game Pass can give Microsoft an ultra-dominant position in the multi-game subscription segment of the video game market is perhaps a more relevant issue for regulators.
Going mobile. Today, mobile gaming accounts for the majority of the global video game industry's revenues. There are 3 billion gamers on the planet, but only 200 million households equipped with a game console. Strategically, it is not impossible that this acquisition is more motivated by the acquisition of Activision's mobile know-how (which Microsoft totally lacks) than by Call of Duty. In its last published fiscal quarter, mobile gaming at Activision Blizzard represented more than half of the company's revenue. But in this field, the only one still growing this year, Western companies are dwarfs compared to their Asian competitors. So to think that Microsoft is going to pose a dominance problem for the video game industry because it is absorbing Activision Blizzard would be a joke from a global perspective.Quote:
When it comes to mobile gaming, Western companies are dwarfs compared to their Asian competitors.
But as we've seen, European regulators don't necessarily think like that, and if I had to bet on what aspects of the Activision Blizzard buyout would require concessions from Microsoft to satisfy the authorities, I'd put my money more on the Game Pass terms and conditions than on the exclusivity issue. Will it be necessary to reduce the number of integrated games? Or offer them to other existing or future services? We'll see, but one thing is for sure, it wouldn't please Microsoft CEO Satya Nadella: the number of Game Pass subscribers is the only indicator of "video game" activity included in the calculation of his annual performance bonus.
