Microsoft’s Activision Acquisition Explained in 3 Minutes
What the heck is going on?
In early 2022, Microsoft moved to acquire Activision Blizzard, a gaming studio that’s produced titles like Call of Duty and Candy Crush, for $75 billion. However, the deal has been blocked by both the UK and US, complicating the future of the deal.
What’s going on right now?
Yesterday, a judge ruled that the US Federal Trade Court (FTC) could not block the acquisition, which would have made the US the 39th country to allow the deal to proceed. However, about two hours ago, the FTC appealed the judge’s verdict. The reasons remain unknown, but past arguments were that the acquisition was anti-competitive as Activision’s titles, mainly Call of Duty, could be made exclusive to Xbox. *Microsoft did agree to make Call of Duty available on several platforms, including Sony’s PlayStation and the Nintendo Switch, but this seems to have had little effect on the FTC’s stance.
How the FTC’s actions affect the deal is a bit ambiguous, but just to give an example, there’s a chance Microsoft could even close the deal with no restraints whatsoever from the FTC.
On the other hand, the UK’s Competitions and Markets Authority (CMA) had blocked the deal (for similar reasons) as well, but they were willing to consider negotiations with Microsoft as of yesterday.
Currently, the deadline for the deal is July 18 (though it can be extended), so Microsoft must either reach an agreement with the CMA before the deadline or find a way to continue the deal without the UK’s support — this would likely require carving out a portion of Activision Blizzard. Alternatively, Microsoft could abandon the acquisition entirely and pay a $3 billion breakup fee to Activision.
Why does Microsoft want the deal?
Microsoft’s main goal is to become Netflix, but for gaming. As Activision Blizzard has many popular titles, the acquisition would effectively accomplish their goal. *One of the speculated agreements with the CMA has been divesting Microsoft/Activision of Call of Duty, which makes Microsoft’s goal a lot harder.
Previously, Microsoft has struggled to compete in gaming against Sony’s PlayStation models as well as Nintendo’s platforms (the two have almost an 80% market share). In response, the company adapted their strategy to focus more on cloud gaming and gaining market share through services instead of hardware. This service is the Xbox Game Pass, which could make Microsoft into a Netflix for games, as it offers access to all the titles included in the Pass for platforms like PCs, mobile, and of course their very own Xbox. It’s also a lot more lucrative, as the pass has two monthly plans for $10 or $17 dollars (On the contrary, the PlayStation is a one-time purchase for $70).
The deal would also help Microsoft gain a share in mobile, something that Apple has prevented them from doing — Microsoft attempted to have an Xbox iOS application, but Apple prohibited that so that all the games were just previews. (Imagine YouTube thumbnails except you can’t click on them). More recently, Apple’s policies shifted so that you’d have to download a separate app for each game, rather than just using the main Xbox application. If the acquisition goes through, Microsoft is hoping to again attempt to launch on app store for games on both iOS and Android.
Earlier in 2022, Microsoft claimed the deal would serve as a building block for the Metaverse, as games were expected to lead to virtual worlds in the Metaverse. Whether that remains the case now is unknown.
