Retrospective: Microsoft's $68.7 Billion Acquisition of Activision Blizzard
Deal Overview
· Acquirer: Microsoft
· Target: Activisation Blizzard
· Total Transaction Size: $68.7 bn
· Closed Date: October 13th 2023
Microsoft's acquisition of Activision Blizzard represents one of the largest, most contentious deals in the technology and gaming sectors in recent years. Announced in January 2022, the acquisition faced almost two years of intense regulatory scrutiny before its eventual closure on October 13, 2023.
This process was marked by significant challenges from regulatory bodies worldwide, including the US Federal Trade Commission (FTC) and the UK's Competition and Markets Authority (CMA). The deal's completion required Microsoft to make substantial commitments to address concerns about market competition, including promises to maintain multi-platform availability for key game titles and to provide cloud gaming rights to competitors.
Company Details: Acquirer – Microsoft
· Founded: 1975
· CEO: Satya Nadella
· Market Cap: $3.22 trillion
Microsoft, founded in 1975 by Bill Gates and Paul Allen, evolved from a software company to a diverse technology conglomerate. With a market capitalisation exceeding $3.2 trillion as of 2024, Microsoft is one of the world's most valuable companies. Its product portfolio spans operating systems, productivity software, cloud computing services, and gaming through its Xbox division.
Microsoft’s breakthrough happened with the Windows operating system. The company further expanded its reach with the Microsoft Office suite in the late 1980s, solidifying its position in productivity software. As use of the internet rapidly increased, Microsoft pivoted to web technologies, although this led to antitrust issues in the late 1990s.
In the 2000s, Microsoft significantly diversified, expanding its presence in the gaming industry. Key acquisitions included Minecraft developer Mojang in 2014 and ZeniMax Media (parent company of Bethesda Softworks) in 2021. Under Satya Nadella’s leadership since 2014, Microsoft has successfully transitioned to a cloud-first strategy with Azure, whilst making strides forward in AI and continuing its gaming expansion.
Company Details: Target – Activisation Blizzard
· Founded: 2008
· CEO: Bobby Kotick
· Market Cap: £56.60 Billion
Activision Blizzard, formed in 2008 through the merger of Activision and Vivendi Games, is one of the world's largest gaming companies. Known for iconic franchises such as Call of Duty, World of Warcraft, and Candy Crush, the company has a strong presence across console, PC, and mobile gaming platforms.
Activision, originally founded by former Atari programmers, made its mark with games for early home consoles and computers. Blizzard, founded in 1991 as Silicon & Synapse, became renowned for franchises like Warcraft, Diablo, and StarCraft. The merger created a powerhouse in the gaming industry, combining Activision's strength in console gaming with Blizzard's expertise in PC games and online multiplayer experiences.
In 2016, the company further expanded by acquiring King Digital Entertainment, the maker of Candy Crush Saga, for $5.9 billion, establishing a strong foothold in the mobile gaming market. Throughout its history, Activision Blizzard has been at the forefront of gaming trends, pioneering the games-as-a-service model with World of Warcraft and pushing the boundaries of online multiplayer gaming.
The company's diverse portfolio and strong market position made it an attractive target for Microsoft's expansion in the gaming industry, despite ongoing controversies related to workplace culture and harassment allegations that had impacted the company's reputation in recent years.
Points of contention
The acquisition of Activision Blizzard by Microsoft faced legal contention, drawing intense scrutiny from regulatory bodies worldwide. This process, lasting almost two years, was marked by several key legal challenges that set new precedents for antitrust evaluation in the tech and gaming sectors.
Foremost among these legal contentions was the concern over potential market dominance in cloud gaming, a point particularly emphasised by the UK's Competition and Markets Authority (CMA). The CMA's apprehension centred on the possibility that Microsoft might leverage Activision's popular game titles to gain an unfair advantage in the emerging cloud gaming market, potentially making these games exclusive to its Xbox Cloud Gaming service.
This legal concern was linked to broader antitrust issues surrounding vertical integration within the gaming industry. Regulatory bodies, including the US Federal Trade Commission (FTC), scrutinised the merger between a major console maker and cloud platform provider (Microsoft) with a leading game publisher (Activision Blizzard), fearing it could lead to anti-competitive practices across different levels of the gaming market. The FTC's attempt to block the deal in federal court, though unsuccessful, highlighted the increasing willingness of regulators to challenge large tech acquisitions on antitrust grounds.
Another legal contention centred on console market competition, particularly regarding the potential exclusivity of Activision's games (most notably the Call of Duty franchise, to Xbox consoles). This prospect raised antitrust concerns about the deal's impact on competition in the console gaming market, potentially disadvantaging rivals such as Sony's PlayStation. To address this, Microsoft was compelled to make legally binding commitments, including a promise to keep Call of Duty available on PlayStation for at least 10 years, setting a new precedent for the kinds of concessions required in large tech acquisitions.
The acquisition also sparked debates about the concentration of power in the subscription service market. Regulators expressed concern that the addition of Activision's strong game portfolio to Microsoft's Game Pass service could provide Microsoft with an insurmountable advantage in this increasingly important segment of the gaming industry. This led to discussions about updating antitrust laws to better address the complexities of digital markets and subscription-based services.
Data concentration emerged as another point of contention, with regulators considering the implications of Microsoft gaining access to vast amounts of user data from Activision Blizzard's games. This raised legal questions about data privacy and the potential misuse of this data for competitive advantage, echoing concerns seen in other tech sector mergers.
Precedents Set
The Microsoft-Activision Blizzard acquisition set several significant precedents that are likely to continue shaping future large-scale mergers and acquisitions in the technology and gaming sectors. Firstly, the deal established new benchmarks for regulatory scrutiny of vertical integrations in the digital entertainment industry. The examination by multiple regulatory bodies, particularly the UK's CMA, demonstrated an increased willingness by authorities to challenge the largest tech companies on competition grounds. This scrutiny may lead to more protracted and complex approval processes for future tech mergers.
Secondly, the commitments made by Microsoft to secure regulatory approval, such as guaranteeing multi-platform availability for key titles and offering cloud gaming rights to competitors, set new standards for the concessions that acquiring companies might be expected to make in similar deals. These commitments reflect a growing regulatory focus on preserving competition not just in current market conditions but also in emerging technologies and platforms.
Furthermore, the deal highlighted the increasing importance of cloud gaming and subscription services in regulatory considerations. The attention paid to these aspects of the gaming industry suggests that future mergers in the tech sector may face similar scrutiny regarding their potential impact on emerging digital service models. This precedent could influence how companies structure their acquisitions and how they present the competitive implications of their deals to regulators.
References:
Activision Blizzard. (n.d.). Our History. https://www.activisionblizzard.com/about-us
European Commission. (2023, May 15). Mergers: Commission clears acquisition of Activision Blizzard by Microsoft, subject to conditions. https://ec.europa.eu/commission/presscorner/detail/en/ip_23_2705
Federal Trade Commission. (2022, December 8). FTC seeks to block Microsoft Corp.'s acquisition of Activision Blizzard, Inc. https://www.ftc.gov/news-events/news/press-releases/2022/12/ftc-seeks-block-microsoft-corps-acquisition-activision-blizzard-inc
Fontanella-Khan, J., & Kruppa, M. (2023, July 11). UK competition watchdog to block Microsoft's $75bn Activision deal. Financial Times. https://www.ft.com/content/e8b61fe4-335d-419e-a0de-02db53f42e69
Isaacson, W. (2014). The Innovators: How a Group of Hackers, Geniuses, and Geeks Created the Digital Revolution. Simon & Schuster.
McGee, P., & Kruppa, M. (2023, May 14). Microsoft and Activision win Brussels approval for $75bn gaming deal. Financial Times. https://www.ft.com/content/e1b8ae61-0efe-42ea-89ee-368f224a6b55
Microsoft Corporation. (n.d.). Company Timeline. https://news.microsoft.com/facts-about-microsoft/
Microsoft Corporation. (2022, January 18). Microsoft to acquire Activision Blizzard to bring the joy and community of gaming to everyone, across every device. https://news.microsoft.com/2022/01/18/microsoft-to-acquire-activision-blizzard-to-bring-the-joy-and-community-of-gaming-to-everyone-across-every-device/
Takahashi, D. (2018). The History of Activision Blizzard: A Timeline. VentureBeat.
UK Competition and Markets Authority. (n.d.). Microsoft / Activision Blizzard merger inquiry. https://www.gov.uk/cma-cases/microsoft-slash-activision-blizzard-merger-inquiry
