EU approves takeover of Call of Duty maker

European Union regulators on Monday approved Microsoft’s proposed $69 billion acquisition of gaming firm Activision Blizzard, subject to remedies offered by the U.S. tech giant.

The European Commission, the EU’s executive arm, said that Microsoft offered remedies in the nascent area of cloud gaming that have staved off antitrust concerns. These remedies centered on allowing users to stream Activision games they purchase on any cloud streaming platform.

Europe’s green light is a huge win for Microsoft, after the U.K.’s top competition authority last month blocked the deal.

Regulators globally have been probing whether Microsoft’s acquisition of Activision could distort competition in the console and cloud gaming market. One area regulators questioned is whether Microsoft might take Activision games and keep them exclusively on the U.S. giant’s own platforms.

Activision is behind some of the biggest console and PC games in the world, including the Call of Duty franchise and World of Warcraft.

The EU decision comes after the U.K. Competition and Markets Authority last month blocked the deal over concerns it would reduce competition in the nascent cloud gaming market. The CMA said that Microsoft would find it commercially beneficial to make Activision’s key games, such as Call of Duty, exclusive to its own cloud gaming platforms. The CMA nevertheless said the acquisition would not reduce competition in the console market.

Microsoft has faced opposition to the deal from regulators and some of its rivals, including PlayStation games console maker Sony.

Microsoft sought to allay the commission’s concerns over making Activision games exclusive ahead of the EU decision. Microsoft President Brad Smith met with EU officials in February, after which the tech giant said it would bring Xbox PC games to Nvidia’s cloud gaming service. The chipmaker had reportedly expressed opposition to the acquisition.

The commission examined a number of areas around the deal, including the impact on competition in the console and fast-growing cloud gaming market.

Microsoft has broadly fallen behind with its Xbox in the latest generation of consoles versus Sony’s PlayStation 5 and the Nintendo Switch. But the U.S. giant has staked its future in the market on so-called cloud gaming, a nascent part of the industry.

The EU Commission found that the Activision takeover would not reduce competition in the console market given Sony’s dominance with the PlayStation.

A large part of the EU’s investigation centered around cloud gaming.

Cloud gaming will allow people to effectively stream games from servers, removing the need for expensive dedicated hardware, such as consoles. These games could be played on existing devices like TVs, smartphones and laptops. For example, if a user buys a game online, they could stream it via a cloud gaming service.

But the key to success for cloud gaming will also be a large catalogue of games that users could immediately access via a subscription service, sort of like Netflix. That is one part of the rationale behind Microsoft’s proposed Activision takeover.

The British regulator was concerned about Microsoft’s ability to secure a dominant position in cloud gaming before it even takes off.

EU regulators found that Microsoft would harm the competition in the distribution of PC and console games via cloud gaming services, as a result of the acquisition. One way competition would be hurt were if Microsoft made those Activision games exclusive to its own platform, the commission said.  

But the European Commission said Microsoft offered remedies to allay competition concerns. Consumers who have bought or will buy an Activision game will be able to stream these titles on any cloud gaming platform of their choice. Microsoft will also offer royalty-free licenses to cloud gaming platforms to stream Activision games, if a consumer has purchased them. The idea is that gamers do not necessarily need to stream the game where they buy it.

A senior official at the European Commission told reporters on Monday that the move will increase competition in the market and allow streaming platforms that didn’t have access to Activision games to now have them.

“We had a concern about cloud gaming, [which is ] very nascent right now, but it will grow,” Margrethe Vestager, the EU’s top competition official, told CNBC’s Silvia Amaro on Monday.

“We were given a remedy, so a 10-year license for free for existing and coming games, now to be made available. So, we think this is not only sort of solving a problem, but it is also pro-competitive. And that, for us, is a good thing.”

Microsoft’s Smith also cheered the approval.

“The European Commission has required Microsoft to license popular Activision Blizzard games automatically to competing cloud gaming services. This will apply globally and will empower millions of consumers worldwide to play these games on any device they choose,” he said in a statement Monday.

Activision CEO Bobby Kotick had said Thursday that the company, which was founded in France, has “deep roots in Europe.”

He added, “We intend to meaningfully expand our investment and workforce throughout the EU, and we’re excited for the benefits our transaction brings to players in Europe and around the world.”

While both U.K. and EU regulators saw potential issues with the Microsoft-Activision deal, they diverged on their conclusions, with Britain blocking the takeover and the European Commission green lighting it.

Microsoft offered a similar remedy to U.K. authorities as it did to the EU, but the U.K. Competition and Markets Authority said that the U.S. tech giant’s solution was not sufficient.

The U.K.’s CMA appeared to hit out against the EU’s decision to clear the deal.

“Microsoft’s proposals, accepted by the European Commission today, would allow Microsoft to set the terms and conditions for this market for the next ten years,” CMA CEO Sarah Cardell said in a statement Monday.

“They would replace a free, open and competitive market with one subject to ongoing regulation of the games Microsoft sells, the platforms to which it sells them, and the conditions of sale. This is one of the reasons the CMA’s independent panel group rejected Microsoft’s proposals and prevented this deal.”

Cardell said that the CMA respects the EU decision but that the U.K. regulator “stands by its decision.”

Microsoft plans to appeal the CMA decision.

Despite the EU approval, Microsoft still faces a tough task of convincing rivals such as Sony and other regulators, including the U.S. Federal Trade Commission, that the Activision takeover will not harm competition.

The case between the FTC and Microsoft is still ongoing. A senior commission official said the EU has exchanged views with the FTC on several occasions and has had close cooperation regarding it.