Analysts Claim Microsoft's Activision Blizzard Deal 'Isn't Dead' Following UK Block - News
by William D'Angelo , posted on 02 May 2023 / 6,465 Views
The UK regulator, Competition and Markets Authority (CMA), today announced it decided to block Microsoft’s $67.8 billion acquisition of Activision Blizzard over concerns with cloud gaming. Microsoft and Activision Blizzard plan on appealing the decision.
Wedbush Securities managing director of equity research Michael Pachter and Ampere Analysis research director of games Piers Harding-Rolls in statements send to VideoGamesChronicle claim that despite the UK regulator blocking the deal there is still a chance the deal passes.
Pachter said the CMA blocking deal had thrown "a wrench into the process, but the deal isn't dead."
"While successfully appealing a CMA decision is a difficult task for several reasons, we think the CMA is on the wrong side of the law on this ruling, and believe its concerns can be addressed," said Pachter.
"Ultimately, the ruling hinges on the CMA’s belief that Microsoft will have pricing power due to its market dominance in cloud gaming. We think that the CMA’s belief is correct, and Microsoft erred in not addressing this issue before the CMA’s ruling.
"However, we firmly believe that Microsoft is willing to concede maintaining pricing at $15 per month plus inflation, and we believe the CMA will reverse its position if Microsoft makes that offer."
Pachter added that if the appeal proves unsuccessful, Microsoft could still get the CMA approval if it agrees to keep Activision Blizzard games off of Xbox Game Pass in the UK.
"It can separate Game Pass UK from Game Pass elsewhere, either by creating a separate entity in the UK that can easily be monitored by the CMA or by an appointed third party, or by merely managing the UK business separately,” he wrote. “We expect that this will be sufficient for the CMA to rule the merger acceptable on the condition that Activision titles are not available on Game Pass.
"Microsoft will agree to this condition subject to an appeal: should it prevail, it captures full value from the acquisition; should it fail, it captures most of the value, but its prospects for Game Pass growth in the UK (a low percentage of global GDP) will be limited due to a lower amount of content available on the service."
Harding-Rolls did say the CMA blocking the deal is "clearly a blow to Microsoft and Activision and their efforts to get the acquisition over the line."
"Historically, a majority of CMA appeals have been unsuccessful but there is still a chance this can be overturned," said Harding-Rolls. "According to the Competition Appeal Tribunal site, straightforward cases are aimed to be dealt with within nine months but often take at least a few months.
"If the appeal is successful it is then returned to the CMA to review which again will take some time. So, we could be looking towards the end of the year if everything goes in favour of Microsoft and Activision to close the deal."
Harding-Rolls added, "Next up is the EU decision on the deal towards the end of May and the FTC administrative court action at the beginning of August."
Microsoft has submitted remedies to the European Union regulator, the European Commission, which has a deadline of May 22 for its final decision.
The US Federal Trade Commission (FTC) in December 2022 announced it had sued to block Microsoft's acquisition of Activision Blizzard claiming the deal would give Microsoft the ability to suppress its competitors in gaming. The deal is not only the largest in Microsoft history, but also the largest in the video game industry as a whole.
The FTC pointed to Microsoft's record of acquiring and using gaming content to suppress content from rival consoles, including its acquisition of the parent company of Bethesda Softworks, ZeniMax Media.
Microsoft has recently announced it has signed multiple 10-year deals to bring Xbox games on PC to three cloud streaming services - Nvidia's GeForce Now, Boosteroid, and Ubitus. Microsoft has also signed a 10-year deal with Nintendo to release Call of Duty on Nintendo consoles on day one with full content parity.
The deal has been approved in South Africa, Japan, Chile, Brazil, Saudi Arabia, and Serbia.
A life-long and avid gamer, William D'Angelo was first introduced to VGChartz in 2007. After years of supporting the site, he was brought on in 2010 as a junior analyst, working his way up to lead analyst in 2012 and taking over the hardware estimates in 2017. He has expanded his involvement in the gaming community by producing content on his own YouTube channel and Twitch channel. You can contact the author on Twitter @TrunksWD.
More Articles
Thank you for ensuring this deal is dead and burried Patcher.
indeed, now we know for sure, this deal is dead.
Pachter may be right about some things and wrong about others, but he's almost certainly right about this one. The courts are likely to side with Microsoft over the regulators, since it's a (primarily) vertical acquisition.
From what I have read the appeal in UK (which seems like didn't succeed in the past 13 years) go back to CMA and they basically never reverse their decision.
Yep, but they don't need to. CMA approval isn't necessary to get the deal done. It helps a hell of a lot, but it's not mandatory. Microsoft can not sell ABK games in the UK. They can create a semi-independent Activision UK business and run it in the way the regulators (and/or the UK courts) would accept. They can sell/licence ABK properties in the UK to some other company. If Microsoft is determined to go ahead, they can get around the CMA.
If the EU regulator finds against Microsoft, though, then that's a disaster because the EU is a bigger market and more difficult to work around.
For MS UK is likely equal or bigger than the whole of EU isn't it? But as I answered Machiavelian even the special arrangement in UK wouldn't be enough since UK government gave power for CMA to oversee activities of the companies outside UK if they have business in UK, so they conducting the merger WW except UK may not be sufficient.
But ABK's EU business is WAAAAAY bigger than the ABK's UK business.
But yes, a worst-case scenario would be Microsoft closing the deal, then having to not distribute ABK games in the UK. They could licence their distribution to another company, though, in this worst-case scenario.
Pachter is coping hard. Why would the CMA even consider foreclosing their own population from access to games?
I don't think there's any chance that the deal doesn't happen if the CMA is the only regulator that tries to stop it. Worst case scenario, microsoft would operate the Activision business separately in the UK, or maybe even agree to sell the rights to important activision games within the UK.
Now, if the EU also rules against Microsoft, I think it becomes a lot harder for them to justify continuing to fight for the deal. The US isn't a real problem, but it is going to tie up money, time and effort. If they're going to have trouble in their other major markets, I can see them just saying to hell with it, paying the breakup fee to Activision, and moving on to something else.
We also need to keep in mind that Activision would be able to be purchased for less money today then the deal that they have on the table. So, that reduces some of the sting of the deal falling through. Microsoft could, and likely would go after some other major publishers and/or individual developers. And they'd be able to get them for a lot less money.
Microsoft can get past the CMA because the UK market, while important, is nonetheless small enough that they can work around it.
The FTC they can likely get past because American courts are likely to side with Microsoft, as the courts have traditionally been friendly to vertical mergers.
If the EU blocks them, though, they're in a world of hurt.
If their intention was only King then they certainly could have moved to buy just that portion (not sure if AB would be willing to part or for how much though), since King isn't that focused on a gametype that cloud benefits I don't think it could be levied as a problem by CMA.
I think they want all of ABK. But I think they'd accept getting less than all of it, if that was the only way to get the deal done.
It's like one case in the last fifteen years has been overturned. Lems should of researched this instead of spouting bull that the deal is a slam dunk.
Microsoft may still close the deal, but in a way that disadvantages UK consumers. Microsoft could (for example) create a wholly-owned, but independently-run, subsidiary (Activision Blizzard King UK) to hold ABK's properties in the UK, and run it in the way that ABK has traditionally been run (nothing in Game Pass, etc.). That would remove the cloud competition concerns entirely.
MS circumventing the regulators (as the rumor of they giving the middle finger to FTC if CMA and EU approved) would give them a very bad standing.
Thats not circumventing since its a legit path. If COD is the issue you just spin out that part of the business in the UK as its own business.
Re-read scrapking post and you are right, although it being a global business I don't think that would null impact for streaming markets in UK since those wouldn't exist to solely serve UK customers. That would just avoid being regulated by UK.
That is exactly what I the CMA stated they wanted MS to do in order to purchase ABK, so I am not sure why that doesn't solve the problem. The UK can only monitor their market not everyone else. ABK would only operate in the UK as they do today, they cannot monitor what the rest of the world does.
Considering the latest new I saw, that UK is giving more power to the CMA that include remedies for activities outside of UK for companies that do business in UK, the merger being conducted outside of UK and having the different setting only there may not be enough to satisfy the CMA.
That is something that can be ligated because the UK should not be the authority for the rest of the world. If the rest of the world does not have an issue why would any business want to be subjugated by the UK. I would consider that extremely overreach by one nation to attempt to place restrictions on any business outside of their boarders. I believe if that becomes a precedent they hold, it would make the UK a very unpopular place for a lot of business and could potentially cause business to leave the UK.
I do agree, although I'm not an expert it seems the most CMA could do is give fines (not sure of the limits on it though).
I am not really sure about the CMA process. Lets say MS wins in CAT and it goes back to the CMA and MS as a remedy decides to create that independent COD company and split it from the rest. Basically doing what the CMA wanted but this would only apply in the UK. If the CMA still block based on that not being enough because MS does not do the same for other Nations that approved the deal, does this goes back to CAT on appeal or is it final. I would believe that since its something totally new, MS would appeal that as well since the UK cannot be the authority for the rest of the world.
Exactly. And Microsoft could file for an injunction to let them continue operating ABK UK while the case goes through the UK courts (if it's been approved everywhere outside the UK). Meanwhile, the UK would be the only country on the Earth whose citizens are being denied cloud streaming of ABK games.
Maybe Microsoft makes a real statement and shuts down all cloud streaming (if it can only service a maximum of 5k people at a time anyway) in the UK while it goes through the courts, so UK residents miss out on Xcloud streaming entirely?
That's a good point, it seems the EU regulator mostly levies fines if companies don't comply. Maybe the CMA is similar?
I would hope so, otherwise it seems a little to excessive to me.
Patcher also said the CMA would pass this deal. So do we really care what he says?
Quote : Michael Pachter and Ampere Analysis research director of games Piers Harding-Rolls in statements send to VideoGamesChronicle claim that despite the UK regulator blocking the deal there is still a chance the deal passes.
Translation : No chance in hell of passing.
Poor Pachter-Always wrong!!!!
I saw one that is not named patcher saying this is dead , like 1% chance the deal will pass lol
In other news sony stock skyrocketed
Ron Howard's voice "they were actually dead"
