(Bloomberg) — Microsoft Corp.’s best chance of getting approval for its $69 billion deal with Activision Blizzard Inc. from U.S. regulators is to convince the Biden administration to agree to a deal in which the Xbox maker pledges not to hold back its popular titles from rivals.
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That’s a long shot given that Biden’s antitrust forces are not fond of such deals, especially after this month’s Ticketmaster blowup rekindled the spotlight on a failed 2010 Justice Department deal with Live Nation Entertainment Inc.
Antitrust officials in the UK and Australia have expressed concern the takeover would give Microsoft a huge advantage in cloud gaming, a fledgling industry. This is an area of particular sensitivity for Federal Trade Commission Chair Lina Khan, who earlier this year sued to prevent Meta Platforms Inc. from acquiring a popular fitness app to get a leg up in the fledgling virtual reality market.
While Khan didn’t comment specifically on the Activision deal, he said in an October briefing that the FTC is focusing on ways digital platforms are using mergers to maintain their dominance during times of technical transition.
“Right now we’re seeing that period of technology transition, whether in the context of the cloud or voice assistants or virtual reality,” Khan said. “We have to be particularly vigilant across the board, but particularly in the context of the merger.”
Microsoft announced in January that it would buy game publisher 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 top 30 deals of all time. Though Brazilian antitrust officials have cleared it, other competition regulators, including the UK and the European Union, have expressed concern that Microsoft could withhold popular titles from rivals, particularly Sony Group Corp’s Playstation.
Microsoft said it has offered a proposal that would keep Call of Duty on the Playstation for the next 10 years. But that kind of deal may 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 sue.”
The FTC declined to comment.
Microsoft said in a statement it was “ready to address the concerns of regulators, including the FTC, and Sony to ensure the deal closes in confidence.” Microsoft has emphasized that it will still pursue Sony and market leader Tencent Holdings Ltd. into the gaming market after the acquisition is complete.
Antitrust officials in the Biden administration have taken an aggressive stance with companies seeking mergers, often rejecting proposed deals in favor of lawsuits. The Justice Department has filed a record 10 merger challenges since June 2021. The FTC also blocked two major deals that required regulatory approval based on pledges that the merged company would play nice against its rivals: l Nvidia Corp.’s purchase of Arm Ltd. out of a bid by SoftBank Group Corp. and Lockheed Martin Corp. to acquire Aerojet Rocketdyne Holdings Inc.
Then there’s the furor over Live Nation’s Ticketmaster unit after its botched ticket sales launch for Taylor Swift’s concert last week. The ticket giant merged with Live Nation in 2010 after the Justice Department blessed its offer to license Ticketmaster’s software to other companies and pledged not to retaliate against venues for choosing ticketing providers. alternative tickets. Some lawmakers and lawyers are now calling for that merger to be dissolved, saying regulators never should have approved it in the first place.
Microsoft’s Activision Blizzard deal also features another aspect that has piqued the interest of regulators: major technology 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 entered the mainstream, and in September, Google announced that it would close its Stadia service.
Microsoft’s Xbox Game Pass, which includes cloud gaming in its Ultimate package, leads the market with over 25 million subscribers. In part, this is because Microsoft’s dozens of game studios provide a direct channel of content. Activision Blizzard is expected to add enormously to the subscription service’s value proposition.
UK regulators, who also need to approve the acquisition, have highlighted concerns over cloud gaming as a key reason why they have extended their review through March 2023. The deal could “overturn or significantly increase concentration of cloud gaming in favor of Microsoft before rivals have a chance to develop, said the British authority for competition and markets.
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