Microsoft Closes $69 Billion Activision Deal, Overcoming Regulators’ Objections
Microsoft on Friday said it closed its $69 billion purchase of the video game giant Activision Blizzard, overcoming significant regulatory hurdles in Britain and the United States and signaling that the tech industry’s giants are still free to use their cash hoards to get even bigger.
The deal, the largest consumer tech acquisition since AOL bought Time Warner more than two decades ago, won approval from British regulators on Friday, the last remaining regulatory obstacle.
The completion of Microsoft’s Activision acquisition is a clear signal that several years of governments around the world scrutinizing big tech companies have so far done little to curb their power, their growth or their ability to ink megadeals. And the deal could provide a blueprint for other big tech companies on how to successfully fend off the intervention of regulators.
Microsoft overcame roadblocks in multiple countries from government officials who said the merger would dampen competition in the video game industry.
Their challenges were part of a larger effort by governments around the world to take action against tech companies like Microsoft, Google, Apple, Amazon and Meta, which owns Facebook. The Federal Trade Commission tried to stop Meta from buying a start-up that makes a virtual reality fitness game. The Justice Department last year sued to stop a deal for a health tech company it said would give one of the nation’s largest insurers data about its competitors.
But both of those challenges were unsuccessful. Although regulators have succeeded in blocking or forcing companies to abandon some deals — including in publishing, aerospace and semiconductor manufacturing — they have yet to score a major victory against one of the giant digital platforms that dominate online commerce.
Regulators are nonetheless pushing ahead with cases against tech companies. The Justice Department is in the middle of a trial against Google, arguing the company abused its power as a monopoly over online search. The F.T.C. is pursuing a monopoly lawsuit of its own against Meta, arguing the company used the acquisitions of Instagram and WhatsApp to stamp out future competitors. In September, it sued Amazon, saying the company had hindered competition when it squeezed merchants and favored its own services.
Microsoft navigated a tricky process for its megadeal that included securing approval from dozens of countries. It agreed to offer continued access to one of Activision’s flagship franchises, Call of Duty, on game platforms from other companies like Nintendo and Sony.
In April, Britain’s regulatory agency, the Competition and Markets Authority, dealt the deal a significant blow by blocking its approval in Britain. But the regulator reversed its decision after Microsoft agreed to license to a rival a part of Activision’s business associated with so-called cloud gaming, a small but promising new area for the industry.
The F.T.C. unsuccessfully sought a preliminary injunction against Microsoft in the United States, which would have delayed the deal’s closing and potentially doomed it to a drawn-out legal appeals process. The agency has appealed that ruling, but the deal was able to close while that legal process plays out.
Phil Spencer, the chief executive of Microsoft Gaming, celebrated the deal’s closure in a blog post Friday, nodding to the concerns from rivals and regulators about players without an Xbox losing access to Activision’s games.
“Whether you play on Xbox, PlayStation, Nintendo, P.C. or mobile, you are welcome here — and will remain welcome, even if Xbox isn’t where you play your favorite franchise,” he wrote.
Microsoft has not fully satisfied regulators and it is taking a calculated risk that it will not be forced to unwind the acquisition years down the line. An F.T.C. case against the combination is still pending in its administrative court, in a process that can take years to resolve.
If the F.T.C. prevails there, Microsoft can eventually appeal to almost any federal court of its choosing. That means it could take the case to the same court that already ruled in its favor in denying the F.TC. its preliminary injunction.
Victoria Graham, a spokeswoman for the F.T.C., said that the agency was focused on appealing the judge’s order declining to block the deal from closing in the United States.
“The F.T.C. continues to believe this deal is a threat to competition,” she said in a statement.
Microsoft convinced a federal judge in July that the F.T.C.’s arguments about the merger harming competition were not strong enough to stop the deal from closing. The company then announced in August that it had struck a deal aimed at addressing the concerns of the C.M.A., the British regulator. Microsoft said it would give Ubisoft Entertainment, a rival game publisher, the rights to license all current and future Activision games for distribution on streaming platforms, meaning games played by harnessing the power of the cloud.
The C.M.A. had worried that Microsoft’s exclusive control of the popular Activision games would help it attain a monopoly in the nascent cloud gaming industry, but the Ubisoft deal alleviated its concerns.
For Microsoft, closing the deal is “a win for their Xbox strategy,” said Joost van Dreunen, a video game analyst who teaches at New York University. “It’s also, perhaps more importantly, a win for Microsoft as a company” because it represents the culmination of a yearslong effort to improve its relationship among regulators and in Washington, he said.
When it announced the acquisition in January 2022, Microsoft committed to closing the deal by mid-July of this year or paying Activision a $3 billion breakup fee. Ultimately, it needed a little more time, and the two companies agreed to extend the deadline to mid-October.
Now, the merger has the potential to reshape competition in the video game industry. Microsoft has long been criticized for lagging behind competitors like Sony and Nintendo in its quality of games, and it has lacked a substantial presence in the fast-growing mobile-gaming sector.
Activision’s King division, which produces the mobile game Candy Crush, will give Microsoft a significant boost in that area. Call of Duty games alone have generated more than $30 billion in lifetime revenue. And Activision’s portfolio of other popular titles, like Overwatch, Diablo and World of Warcraft, could make its game subscription service, called Xbox Game Pass, even more enticing.
Activision had not allowed those marquee titles on a subscription platform, betting that it could make more money by selling them individually. But Microsoft has indicated that it will have no such qualms, because the future of its gaming ambitions rests on its Netflix-style Game Pass offering, which has more than 25 million subscribers who pay about $10 a month for access to a catalog of games.
“At 25 million subscribers, they’re losing money, but at 100 million, they’re probably making money; at 200 million, they’re making a lot of money,” said Michael Pachter, a tech analyst for Wedbush Securities. “They know they’ll never get from 25 to 50 without a game like Call of Duty.”
Activision said this month that it expected its games would begin showing up on Game Pass sometime next year. Aside from offering Activision’s games on Game Pass, Microsoft has indicated it plans to allow Activision to continue operating as an independent studio. Still, being under Microsoft’s umbrella could be a win for both shareholders and the company’s employees, analysts said.
When the proposed merger was announced, Activision was undergoing a cultural upheaval after a California lawsuit accused the company of fostering a sexist workplace environment in which women were routinely harassed. Its chief executive, Bobby Kotick, faced calls to resign. Now, he could exit the company, earning more than $400 million for completing the merger.
Mr. Spencer, in his blog post, seemed to allude to the workplace concerns, writing that Microsoft’s gaming division had “a culture that strives to empower everyone to do their best work, where all people are welcome.”
“The win for people not in the C-Suite,” Mr. van Dreunen said, “is they will now be working for an employer that maintains perhaps higher standards in its relationship with its employees.”
This is a developing story. Check back for updates.
Karen Weise contributed reporting.
