(Bloomberg) – The best chance for Microsoft Corp. to win US regulators’ approval for its $69 billion Activision Blizzard Inc. deal is to persuade the Biden administration to agree to a settlement in which the Xbox maker agrees not to withhold its popular titles of its rivals.
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It’s a very long shot considering Biden’s antitrust authorities don’t like such deals — especially after this month’s Ticketmaster outburst brought a failed Justice Department settlement back to light in 2010. with Live Nation Entertainment Inc.
Antitrust officials in the UK and Australia have raised concerns the takeover would give Microsoft an overwhelming advantage in nascent cloud gaming. It’s a particularly sensitive area for Federal Trade Commission Chairman Lina Khan, who earlier this year filed a lawsuit to stop Meta Platforms Inc. from acquiring a popular fitness app to gain an advantage over the nascent virtual reality market.
Although Khan did not comment specifically on the Activision deal, she told a conference in October that the FTC was focused on how digital platforms use mergers to maintain dominance during times technical transitions.
“Right now, we’re seeing this period of technology transition – whether it’s in the context of the cloud, voice assistants or virtual reality,” Khan said. “We must be particularly vigilant in all areas, but particularly in the context of the merger.”
Microsoft announced plans in January to buy games maker Activision Blizzard, which has developed popular franchises like Call of Duty and World of Warcraft. The acquisition would be the company’s largest ever and one of the 30 biggest deals of all time. Although Brazilian antitrust authorities have cleared it, other competition regulators, including the United Kingdom and the European Union, have raised concerns that Microsoft may deny popular titles to rivals. especially Sony Group Corp’s Playstation.
Microsoft said it has come up with a proposal that would keep Call of Duty on Playstation for the next 10 years. But that kind of settlement might not appease regulators, said Bloomberg Intelligence analyst Jennifer Rie.
“This is an agreement that requires behavioral concessions, and the FTC does not accept behavioral concessions,” Rie said. “They have no choice but to file a complaint.”
The FTC declined to comment.
Microsoft said in a statement that it was “ready to address concerns from regulators, including the FTC, and Sony to ensure the deal closes with confidence.” Microsoft pointed out that it would still lag behind Sony and market leader Tencent Holdings Ltd. in the gaming market following the completion of the takeover.
Antitrust officials in the Biden administration have taken an aggressive approach with companies seeking to merge, often rejecting proposed settlements in favor of lawsuits. The Justice Department has filed a record 10 merger challenges since June 2021. The FTC has also blocked two major deals that sought regulatory approval based on promises the merged company would play well with rivals — buying of Arm Ltd. by Nvidia Corp. of SoftBank Group Corp. and Lockheed Martin Corp.’s offer. to purchase Aerojet Rocketdyne Holdings Inc.
Then there’s the furor over Live Nation’s Ticketmaster unit after its botched launch of Taylor Swift concert ticket sales last week. The ticketing giant merged with Live Nation in 2010 after the Department of Justice approved its offer to license Ticketmaster software to other companies and pledged not to retaliate against sites that chose other ticketing providers. Some lawmakers and advocates are now calling for that merger to be reversed, saying regulators should never have approved it in the first place.
Microsoft’s Activision Blizzard deal also features another aspect that has caught the interest of regulators – with major tech platforms using acquisitions to dominate emerging industries, in this case cloud gaming. Several tech companies have launched forays into subscription gaming services using cloud technology, including Microsoft, Sony, Alphabet Inc.’s Google and Amazon.com Inc. – though few have made it into the mainstream dominant and, in September, Google announced that it would shut down its Stadia service.
Microsoft’s Xbox Game Pass, which includes cloud gaming in its Ultimate package, leads the market with more than 25 million subscribers. That’s partly because Microsoft’s dozens of game studios provide a direct channel for content. Activision Blizzard should add hugely to the value proposition of the subscription service.
UK regulators, who must also approve the acquisition, have highlighted concerns over cloud gaming as one of the main reasons they have extended their review until March 2023. The deal could “swing or significantly increase concentration” of cloud gaming in Microsoft’s favor before rivals have a chance to grow, the UK Competition and Markets Authority has said.
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