Microsoft pushes hard, converts Nvidia to Activision deal, but Sony still won’t budge

Microsoft is attempting to persuade regulators around the world to clear its $68.7 billion acquisition of Activision Blizzard — the biggest deal of its kind the gaming industry has ever seen. Amid concerns about its effect on competition in the industry, and in the face of ardent lobbying against the deal by competitor Sony, the U.S. Federal Trade Commission has said it will attempt to block the deal legally, while the U.K.’s Competition and Markets Authority has also expressed skepticism.

Here’s the latest on Microsoft’s plans to snap up Activision Blizzard.

Microsoft pushes hard at EU meeting, converts Nvidia, but Sony won’t budge

Microsoft used every means at its disposal on Tuesday, Feb. 21, to push its acquisition of Activision Blizzard forward. It announced it had signed a deal with Nvidia to make Xbox PC games, including Activision Blizzard titles like Call of Duty, available on the GeForce Now cloud gaming service, a direct rival to its own Xbox Cloud Gaming. This is the first step Microsoft has taken to calm regulators’ concerns about it establishing a stranglehold over the cloud gaming market, as opposed to the availability Call of Duty on rival consoles.

Microsoft also attended a meeting with European Union regulators in Brussels, Belgium, at which competitors, including Sony, were present. Media were then summoned to a press conference where Microsoft vice chair and president Brad Smith passionately made the case for the deal; you can get a good sense of this event from Eurogamer’s report. Smith rammed home Sony’s dominance in the console market, characterizing the split in global market share between PlayStation and Xbox as 70:30.

At one point, Smith theatrically produced an envelope which, he said, contained the 10-year contract, similar to Nintendo’s (see below), that has been offered to Sony. “I’m ready to sign it at any time,” Smith said, in a direct challenge to PlayStation boss Jim Ryan — and an invitation to regulators to see Microsoft’s openness and flexibility. (Though he did draw the line at the UK regulator’s suggestion that the Call of Duty business be sold off.)

The substance of the actual meeting, at which Ryan was present, as well as Xbox boss Phil Spencer and Activision Blizzard CEO Bobby Kotick, remains private. But all sources indicate that Ryan is unmoved, and Sony remains committed to its attempt to block the deal outright. At the press conference, Smith pointed out Microsoft’s long experience in getting deals like this done. It seems Sony is willing to test that to the limit.

Microsoft finalizes deal to bring Call of Duty to Nintendo for 10 years

Microsoft has confirmed that it has signed a “binding 10-year legal agreement” to put Call of Duty on Nintendo platforms on “the same day as Xbox, with full feature and content parity.” Microsoft vice chair and president Brad Smith announced the deal on Twitter.

“We are committed to providing long-term equal access to Call of Duty to other gaming platforms, bringing more choice to more players and more competition to the gaming market,” Smith’s statement read. His wording, and the agreement itself, are clearly aimed at regulators deliberating over Microsoft’s proposed acquisition of Activision Blizzard, among whom the accessibility of Call of Duty to other platforms has been seen as a key issue. The deal will bring Call of Duty back to Nintendo consoles for the first time since 2013.

The contract was first announced in December, alongside a similar offer to Steam; at the time, Valve boss Gabe Newell waved the offer aside, saying his trust in Microsoft and its gaming chief Phil Spencer was so deep that such a contract wasn’t necessary, and that he believed it was in Microsoft’s interest to keep Call of Duty widely available anyway. Microsoft says it has made the same offer to Sony, but the PlayStation platform holder is presumably holding out, preferring to plead with regulators to kill the deal entirely.

War of words gets uglier as Sony accuses Microsoft of “harassment” and Activision accuses Sony of “sabotage”

The wrangling over Microsoft’s acquisition of Activision Blizzard has entered a testy phase. In court documents responding to Microsoft’s subpoena of internal Sony documents (see below), Sony’s lawyers have accused Microsoft of “obvious harassment” — in particular for requesting performance reviews of Sony executives. That’s according to Feb. 9 reporting by Axios and Kotaku. “This is not an employment case,” Sony said.

Meanwhile, controversial Activision Blizzard chief Bobby Kotick has come out swinging after a couple of years in stealth mode. Just after telling MSNBC that blocking the deal would turn the U.K. into “Death Valley,” Kotick told the Financial Times that Sony was “trying to sabotage” the deal and that Sony leadership was refusing to return calls from Microsoft and even Activision itself. Of course, Sony and Activision are close partners on the PlayStation version of Call of Duty, among other things. Kotick says the idea that Microsoft would not support Activision games on PlayStation is “absurd.”

Things are clearly getting a little heated as the three biggest governments’ regulators line up against the deal. But, interestingly, analysts at Wedbush Securities reckon it’s all just hot air. In a note to investors (as reported by VGC), Wedbush’s Nick McKay and Michael Pachter said that the U.K.’s CMA, and the other regulators, are maneuvering to look tough and extract concessions from Microsoft because they know they have “a losing legal argument,” and the merger is in fact “close to being approved.” In other words, it’s all a political game of double bluff. It’s enough to make your head spin.

U.K. regulator says the deal could “harm gamers,” but leaves door open for negotiations

On Feb. 8, the U.K.’s Competition and Markets Authority announced it had “provisionally concluded” its investigation into Microsoft’s acquisition of Activision Blizzard, and decided the deal could harm competition in the games market in a way that would have an impact on gamers. The CMA said the deal could weaken the “important rivalry” between Xbox and PlayStation as well as stifling competition in the growing cloud gaming market. It foresaw “higher prices, reduced range, lower quality, and worse service in gaming consoles over time” as a result of the deal.

However, the chair of the investigation, Martin Coleman, also said the CMA had “sent the companies an explanation of how our concerns might be resolved, inviting their views and any alternative proposals they wish to submit.” The provisional nature of the findings, and this effective invitation to Microsoft and Activision to sit at the negotiating table, indicate that the deal is not dead in the water in the U.K. just yet.

In a statement to Polygon, Microsoft’s deputy general counsel Rima Alaily said, “We are committed to offering effective and easily enforceable solutions that address the CMA’s concerns. Our commitment to grant long term 100% equal access to Call of Duty to Sony, Nintendo, Steam, and others preserves the deal’s benefits to gamers and developers and increases competition in the market.”

EU has officially objected to the deal, with U.K. expected to follow

As reports previously suggested it would, the European Commission — the governmental executive of the European Union — has sent a “statement of objections” to Microsoft, outlining its formal opposition to the tech company’s acquisition of Activision Blizzard. That’s according to a Feb. 1 report from Politico. This concludes the Commission’s investigation into the deal, but it also serves as a prelude to negotiations with Microsoft, which may be willing to offer concessions to gain the EU’s eventual approval. “We are listening carefully to the European Commission’s concerns and are confident we can address them,” a Microsoft spokesperson told Politico.

Meanwhile, a Feb. 4 piece in The New York Times reports that Microsoft’s legal team expects the U.K. Competition and Markets Authority to oppose the deal, which is certainly consistent with the CMA’s initial stated concerns. (In a statement to the Times, Microsoft said that it believes it has a strong case in Britain and it has not predetermined, nor been advised by its lawyers, that the merger will be blocked.) Microsoft’s lawyers reportedly think the EU will be the most open to remedies of the three main regulators; if they can strike an agreement there, the thinking goes, it will be easier to talk the FTC and CMA into accepting the deal with compromises. Still, with all three regulators seeming closely aligned, Microsoft faces an uphill battle to get its acquisition through.

FTC reportedly filed suit early to try to head off a settlement approving the deal in Europe

Bloomberg reports that the U.S. Federal Trade Commission filed its lawsuit attempting to block the deal much earlier than expected, as it was trying to head off a potential agreement between European regulators and Microsoft that would see the deal waved through. Political intrigue intensifies!

According to Bloomberg’s sources, the FTC had not expected to file suit until the spring, but did so in December on the very same day it had learned from EU regulators that they were preparing to negotiate a compromise with Microsoft. Apparently the FTC wanted to get ahead of the European Commission, set the terms, and avoid a situation where it could be bounced into rubber-stamping the acquisition.

Microsoft subpoenas Sony as it prepares to defend itself against the FTC’s case

According to Axios’ Stephen Totilo, Microsoft subpoenaed Sony on Jan. 17, asking it to hand over internal information to help it build its defense against the lawsuit the Federal Trade Commission is bringing against its acquisition of Activision Blizzard.

Given the extent to which the FTC’s case, along with other regulators’ concerns, rest on Sony’s complaints that its competitive position will be weakened by its console rival acquiring Call of Duty and other Activision Blizzard games, it seems likely that Microsoft wants some internal data that will help them dispute this claim — perhaps Sony’s release or development schedule, or some sales or engagement data. Sony, for its part, will try to limit how much sensitive information it has to share with its competitor, but by pushing so hard for regulators to block the deal, it did open itself up to this kind of exposure.

Microsoft says it hopes to bring its pro-union approach to Activision Blizzard

On Jan. 6, as reported by The Verge, Microsoft ran an ad in the Washington Post highlighting its acceptance of unions, co-signed by the Communication Workers of America union. “As we enter a new year, we remain committed to creating the best workplaces we can for people who make a living in the tech sector. When both labor and management bring their voices to the bargaining table, employees, shareholders and customers alike benefit,” the note reads. Then it adds: “During 2023, we hope to bring the same agreement and principles to Activision Blizzard, which Microsoft has proposed to acquire.”

This is certainly a pitch to the FTC that Microsoft can improve working conditions at Activision Blizzard, which has shown resistance to a move to unionize among its employees after the dreadful scandal about its workplace culture in 2021. The ad highlights the successful unionization of 300 Bethesda and ZeniMax workers after Microsoft’s acquisition of that company, and concludes by saying, “We aren’t asking the FTC to ignore competition concerns. On the contrary, we believe it’s important to explore solutions that protect competition and consumers while also promoting the needs of workers and economic growth and American innovation.”

Chile approves the acquisition

On Dec. 29, 2022, Chile’s National Economic Prosecutor’s Office became the latest international regulator to approve the deal. It said it did not think the deal would significantly reduce competition, and it did not think it likely that Microsoft would pull Call of Duty from other platforms including PlayStation (this concern has been at the center of Sony’s objection to the deal).

Here’s a list of all the countries that have approved Microsoft’s acquisition of Activision Blizzard so far:

  • Chile
  • Brazil
  • Saudi Arabia
  • Serbia

What happens next?

The next major deadline is the European Commission’s verdict, which is due to be delivered on or by April 11.