Microsoft Corp. has successfully concluded its monumental $69 billion acquisition of Activision Blizzard Inc., marking the culmination of a nearly two-year struggle with global regulators that had threatened to derail the deal.
This acquisition, the most substantial in the history of the video game industry, bestows upon the creator of Xbox consoles a far more formidable stance against its competitors, propelling it from the fifth to the third position globally. Microsoft now stands just behind Tencent Holdings Ltd. and Sony Group Corp., a transformation that signifies a remarkable turnaround.
It's noteworthy that Microsoft's executives initially underestimated the scope and endurance of the antitrust objections they would face, which eventually prompted the software giant to request a three-month extension of the deal's expiration period from Activision.
At the time of this achievement, Microsoft's shares had experienced a modest 0.2% rise, indicating the significance of this acquisition for the company and the industry.
Microsoft's ability to complete this transaction hinged on making strategic adjustments to its merger agreement to gain the approval of UK authorities. Nevertheless, the U.S. Federal Trade Commission, which had previously failed in its attempt to block the transaction in court, continues to pursue legal action in its own administrative hearing. If successful, this could still compel the two companies to unwind the deal.
In this intricate process, the UK's Competition and Markets Authority, on a notable note, granted its approval following an agreed-upon restructuring plan, which involved divesting certain gaming rights to the French publisher Ubisoft Entertainment SA. This arrangement was aimed at addressing concerns about maintaining competition in the emerging market for cloud-streamed games.
The post-acquisition responsibilities now rest on the shoulders of Phil Spencer, Microsoft's gaming chief. He is tasked with orchestrating a turnaround for the company's ailing mobile games business, where Microsoft had previously underestimated the significance of this sector. Activision boasts several high-profile titles, including the globally acclaimed Candy Crush and its derivatives. The delay in completing the deal has further distanced Microsoft from its competitors in the already oversaturated mobile gaming industry.
Meanwhile, Microsoft remains engaged in a standoff with Apple Inc. over access to its app store. This tension has simmered since 2020 when Microsoft's President Brad Smith criticized Apple's terms, which included a 30% revenue share from developers and restrictions on cloud gaming. The lawsuit brought by Epic Games Inc., the creator of Fortnite, against Apple, which alleged anti-competitive practices, raised hopes that Apple's App Store might become more accessible. However, Epic has encountered challenges in court, and the App Store remains largely inhospitable to Microsoft's cloud gaming service, which iOS users must access through a mobile browser.
Furthermore, the dynamics of the gaming landscape have evolved since the initial announcement of the Activision deal in January 2022. The concept of the metaverse, a continuous online world where users engage in gaming and shopping, did not emerge as the major commercial opportunity that many in the industry had expected. This shift is noteworthy because the metaverse was a key driver behind the acquisition when it was first revealed.
Another consequence of the delays in finalizing the deal is that Microsoft can only now initiate the process of reforming Activision's culture in accordance with the company's desired vision. Microsoft had traditionally adopted a hands-off approach toward the gaming studios it acquired, but this time, it might take a more hands-on role. Fans had voiced concerns over certain business decisions made by Activision, such as oversaturating the market with Tony Hawk's Pro Skater and Guitar Hero releases, which ultimately cheapened the franchises. The company's beloved StarCraft series also suffered from resource allocation issues, as it was not as financially lucrative as other games.
As part of the announcement, Microsoft revealed its intention to make the games library available on Game Pass, the company's cloud-streaming service. This move aligns with Microsoft's broader strategy in the gaming sector.
It is also crucial to mention that Activision Blizzard's CEO, Bobby Kotick, faced criticism for his handling of harassment complaints within the company. In 2021, California's Civil Rights Department sued Activision, alleging a "frat boy" culture. Since then, the company has taken steps to address these concerns by appointing an officer to oversee diversity, equity, and inclusion, appointing a head of inclusive game design, and releasing a report on the company's progress regarding workplace issues.
In the realm of employee unionization, Microsoft has pledged to remain neutral, in contrast to Activision's resistance to unionization efforts. Earlier, in January, employees at Microsoft's ZeniMax video game unit had joined the Communications Workers of America, and Microsoft recognized the union immediately.
In his communication with staff, Phil Spencer confirmed that Bobby Kotick would continue to serve as the chief executive of Activision Blizzard until the end of the year, reporting to him.
It is worth noting that the deal had faced resistance, particularly from Sony, the maker of PlayStation consoles. Jim Ryan, the head of Sony's video games division, had suggested that Microsoft might provide its competitors with a subpar version of the popular Call of Duty shooting game. In July, Microsoft and Sony signed a 10-year agreement that ensured future Call of Duty entries would continue to be available on PlayStation consoles. Ryan had also announced his retirement from Sony in late September.
For UK regulators, the earlier rejection of the deal was based on concerns about higher prices,
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