Microsoft-Activision Deal Approved in U.S. Court, U.K. Decision Pending

In a significant development, a U.S. federal court has given the green light to the proposed merger between Microsoft and Activision Blizzard. This ruling means that the two companies can proceed with their merger in the United States without any current obstacles, pending the Federal Trade Commission (FTC) court proceedings scheduled for August.

The FTC had attempted to halt the deal until a separate legal process began in August. However, U.S. District Judge Jacqueline Scott Corley does not believe that Microsoft’s acquisition of Activision Blizzard would reduce competition in the video game and cloud gaming services market, nor does she think the FTC has a high chance of winning the case in August. As a result, the judge has allowed Microsoft to complete the Activision Blizzard deal.

While the FTC can appeal the decision or continue its efforts to block the deal, experts speculate that the agency is unlikely to pursue further legal action based on its past behaviour. It is also possible that the FTC may proceed with its challenge to block the merger.

The FTC’s lawsuit argued that the deal would enable Microsoft to control how consumers access Activision’s games beyond its own Xbox consoles and subscription services. Microsoft, however, has maintained that the deal is advantageous for both gamers and competition.

Microsoft has spent a year and a half seeking approval for the Activision merger from regulatory bodies worldwide, underscoring the challenges faced by global companies in navigating antitrust regulations with different powers and approaches to review.

Sony has expressed concerns to competition authorities that Microsoft may deprive them of access to Activision Blizzard games, such as the popular “Call of Duty” franchise, or offer them an inferior version that could prompt PlayStation users to switch consoles. The FTC and the U.K.’s Competition and Markets Authority (CMA) supported these concerns. However, the European Commission and many other competition authorities worldwide have found that the merger does not harm competition in the video game or cloud gaming services market and have approved the deal.

To address critics’ concerns, Microsoft has entered into 10-year agreements with various companies, including Nintendo and Nvidia, ensuring access to Activision Blizzard games over the next decade. The same offer was extended to Sony, but the company declined, citing a lack of benefit and the difficulty of monitoring Microsoft’s compliance with the agreement.

During the court proceedings, the judge questioned FTC representatives about the direct harm to consumers if “Call of Duty” became an exclusive game available only on Microsoft’s platforms. Microsoft’s representatives successfully countered the FTC’s arguments, demonstrating their commitment to making games accessible to a wider audience through their cloud services and the 10-year agreements with third parties. Even the FTC’s own economic expert failed to present a compelling argument against this scenario, as it remained hypothetical.

While Microsoft has received clearance to proceed with the merger in the United States, it still faces the U.K.’s Competition and Markets Authority (CMA), which rejected the acquisition in April, citing concerns about its impact on competition in the U.K. gaming industry. Microsoft has appealed that decision, and a hearing before the Competition Appeal Tribunal in the U.K. is scheduled to begin in late July.

However, shortly after the ruling in the US, the CMA and Microsoft announced that they had decided to sit down together again to negotiate a way to get the deal approved by the CMA. An agreement will be reached within this week.

The focus now shifts to the demands that the CMA may have for Microsoft to grant approval for the deal. Will Microsoft be willing to meet those demands? What will be the next steps if an agreement is not reached this week?

Tom Smith, an antitrust lawyer with Geradin Partners and a former legal director at the CMA, doubts that Microsoft will attempt to finalize the deal unless the U.K. agency reverses its decision. Following the rejection, the CMA issued an interim order prohibiting Microsoft from acquiring Activision without prior written consent from the agency.

The outcome of the U.K. proceedings will determine the fate of the deal and its implications for the gaming industry. Microsoft and Activision await the final decision from the U.K. authorities, which will shape the future of their combined operations.

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