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Microsoft’s $69B Activision Blizzard deal temporarily blocked in U.S.

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This article has been updated to reflect the judge’s decision on Tuesday, June 13.

A U.S. judge has granted a request by the Federal Trade Commission (FTC) to put a temporary block on Microsoft proceeding with its $69 billion bid to acquire Activision Blizzard.

The court said on Tuesday that the temporary restraining order “is necessary to maintain the status quo while the complaint is pending,” the BBC reported.

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The FTC had also asked for an injunction that would allow it to present its case against the acquisition before it could go through, and U.S. District Judge Edward Davila said the court will consider this during a two-day hearing starting June 22. Davila added that the block on closing the deal will remain in place until at least five days after the court rules on the preliminary injunction request.

“Both a temporary restraining order and a preliminary injunction are necessary because Microsoft and Activision have represented that they may consummate the proposed acquisition at any time,” the FTC said in a filing on Monday. The U.S. regulator added that if the deal goes through before its own hearing involving Microsoft on August 2, then it would be difficult to undo.

A delay would also mean that Microsoft’s appeal to the U.K.’s Competition and Markets Authority, which blocked the deal in April over concerns that it could negatively impact the nascent cloud gaming market, would be heard before the deal’s July 18 deadline. European Commission regulators gave the deal the nod in May, saying it was happy with Microsoft’s reassurances over antitrust concerns linked to cloud gaming.

The proposed acquisition deal would be Microsoft’s priciest acquisition and the biggest ever in the video game industry, but the FTC isn’t happy about it.

The regulator has concerns that a Microsoft-owned Activision would give the computer giant an unfair advantage over rivals, and as a consequence moved to block the deal in December 2022.

The FTC’s filing with a California court on Monday described Microsoft as having the “ability and increased incentive to withhold or degrade Activision’s content in ways that substantially lessen competition, including competition on product, quality, and innovation.”

In real terms, that could mean Microsoft preventing popular Activision titles from launching on the Sony PlayStation, or, if they did launch, offering fewer features than those released for Microsoft’s Xbox.

Microsoft insists that taking over Activision would be advantageous for both the gaming industry and gamers, and has even offered to put its name to a legal document that promises the availability of games like Call of Duty on other consoles for a decade.

If Microsoft fails in its bid to acquire Activision Blizzard, it could face a termination fee of as much as $3 billion.

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Trevor Mogg
Trevor Mogg
Contributing Editor
Not so many moons ago, Trevor moved from one tea-loving island nation that drives on the left (Britain) to another (Japan)…
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Microsoft signage at the Meridian Building (formerly CompuWare) in Detroit, Michigan.

Microsoft has agreed to pay $20 million to U.S. regulators for violating the Children's Online Privacy Protection Act (COPPA).

The breach involved the computer giant collecting and retaining personal information from children who set up an Xbox account prior to obtaining permission from their parents.

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Why cloud gaming is the linchpin in Microsoft’s troubled Activision Blizzard acqusition
Key art showing multiple devices playing games via the cloud.

The United Kingdom’s Competition and Markets Authority (CMA) delivered a shocker this week when it blocked Microsoft’s acquisition of Activision Blizzard on Wednesday. While a lot of focus on Microsoft’s fight was centered around whether or not the acquisition would give Xbox consoles an unfair advantage over PlayStation consoles, what ultimately decided it was a much smaller market: cloud gaming.
The idea of being able to stream the game you’re playing from the cloud has existed for well over a decade. Cloud gaming’s relevance to the video game industry has only grown over the past several years thanks to both failed and successful efforts from big tech companies like Google, Amazon, and, most importantly, Microsoft. Still, cloud gaming is considered relatively niche, with Activision Blizzard Bobby Kotick calling it "inconsequential" in an interview with Bloomberg and UCL Associate Profession Joost Rietveld saying it’s not a distinct market in a submission to the CMA.
Despite those pleas, the CMA claims that cloud gaming is a “nascent market” and that “already strong incumbent in this market even stronger” in its 418-page report on the matter. Following the CMA’s decision on Wednesday, I spoke to several different analysts to find more clarity about how big Microsoft is in the cloud gaming space and why the CMA should feel compelled to intervene. While experts mostly side with Microsoft over the CMA on this decision, one greater truth emerged from these discussions. Whether one thinks cloud gaming is relevant to this acquisition or not, this emergent style of gaming has reached a point of no return where it'll be instrumental to the video game industry going forward. 
Microsoft, king of cloud gaming
Cloud gaming may sound like a niche within the industry, but that's not entirely accurate. BrandFinance Managing Director Laurence Newell tells Digital Trends that “cloud-based services account for over 70% of Microsoft’s brand value, amounting to a staggering $137.5 billion.” That’s quite an eye-catching number that understandably would raise a regulator's alarm bells. However, Newell admits that gaming only makes up 8.5% of Microsoft’s revenue, and cloud gaming is an even smaller amount of that slice.
Despite its relatively small impact on the wider company, most of the experts I spoke to agreed that Microsoft has emerged as a cloud gaming leader thanks to its compatibility with a large segment of the Xbox Game Pass Ultimate library. Conversely, Activision Blizzard has had almost no cloud gaming presence outside of one Sekiro: Shadows Die Twice port on Google Stadia before that service’s shutdown. If it were to be acquired, it is inevitable that more Activision Blizzard games would likely come to cloud-based gaming services.

Despite the shutdown of Google Stadia and the relatively small brand value received from cloud gaming compared to the rest of the company, the CMA still points out in the press release about its decision that “monthly active users in the U.K. more than tripled from the start of 2021 to the end of 2022. It is forecast to be worth up to 11 billion British pounds globally and 1 billion pounds in the U.K. by 2026.” Associate Professor of Strategy and Entrepreneurship at the UCL School of Management Joost Rietveld, who has also been a consultant for Microsoft during its acquisition process, challenges the notion that cloud gaming as a whole is a single market.
Instead, Rietveld splits it into four categories, placing Xbox Game Pass into a category called “cloud gaming as a feature,” which is when it’s “offered as part of a consumer-facing distribution platform” or “included within a bigger bundle of services provided by the platformer.” Under Rietveld’s view, services like Nvidia GeForce Now, Ubitius, and EE -- all of whom Microsoft has made individual deals to bring Activision Blizzard and Xbox Game Studios titles to -- fall into different categories and thus shouldn’t be considered or directly compared to Xbox Game Pass. No matter how they’re categorized now, the real question mark looming over the technology is its future growth, according to Omdia Senior Principal Games Analyst Steve Bailey.
“Will it remain a niche additional service or become the gaming platform of the future?” Bailey asks in his statement to Digital Trends. “Our projection is that cloud gaming is growing rapidly (revenue should more than double by 2026), but it’s still a long way from taking over the games market, so it remains arguable either way.”
“Arguable” stands out as the keyword to me here. Like any emergent technology, we’re heavily debating the positives and negatives of cloud gaming, specifically through the lens of this acquisition. But what exactly is it that the CMA sees in Microsoft that worries them?
The CMA’s problem with Microsoft
“The CMA’s argument is not that acquiring Activision Blizzard would allow Microsoft to dominate the console market as a whole, where Sony and Nintendo have strong positions relative to Xbox, but only that it would help it to achieve a dominant position in cloud gaming specifically,” Bailey tells Digital Trends. “Microsoft and Activision Blizzard will likely argue that this is disproportionate, given the relatively small scale of the cloud gaming market.”

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Microsoft’s Activision Blizzard acquisition blocked in the U.K. over cloud concerns
microsoft activision blizzard deal questions overwatch 2 lucio

The U.K.'s Competition and Markets Authority (CMA) has blocked Microsoft's attempt to acquire Activision Blizzard because of its potential negative impact on cloud gaming. 
Since January 2022, Xbox parent company Microsoft has been trying to acquire Activision Blizzard, the video game publisher behind franchises like Call of Duty, Diablo, Warcraft, and Overwatch. The companies have run into lots of regulatory hurdles, though, especially from the CMA and FTC, the latter of which is currently suing Microsoft. While it seemed like the CMA was inching towards approving the deal, the U.K. regulator ultimately decided to block it due to its potential impact on the fledgling cloud gaming market.

"Microsoft has a strong position in cloud gaming services and the evidence available to the CMA showed that Microsoft would find it commercially beneficial to make Activision’s games exclusive to its own cloud gaming service," a press release from the CMA explains. " Allowing Microsoft to take such a strong position in the cloud gaming market just as it begins to grow rapidly would risk undermining the innovation that is crucial to the development of these opportunities."
Over the past couple of months, Microsoft has attempted to ease these cloud gaming concerns by making deals with companies like Nvidia and EE. The CMA did not think these remedies were enough, though, saying that Microsoft's efforts didn't account for enough potential business models, cloud gaming services that don't use Windows, and how the deal could take "the dynamism and creativity of competition" away from the U.K.'s cloud gaming market.
Obviously, Activision Blizzard and Microsoft aren't too happy about this decision. Activision Blizzard directly attacks the CMA in a statement provided to Digital Trends, saying that the "report contradicts the ambitions of the U.K. to become an attractive country to build technology businesses," before calling the country's economic prospects "dire" and threatening that it will reconsider its plans for growth in that country. 
Microsoft's statement from Vice Chair and President Brad Smith is a bit more measured, saying that Microsoft is "fully committed to this acquisition and will appeal." Citing the deals the company has already made to bring Call of Duty to more platforms, Smith says that the decision shows "a flawed understanding of this market and the way the relevant cloud technology actually works."
https://twitter.com/BradSmi/status/1651182266406584320
Microsoft has a lot of work cut out for itself if it still wants to force this deal through after pressure from the FTC and CMA. As the appeals process could take up to nine months or more, it seems unlikely that the acquisition meets its original June 2023 deadline; it's probable we'll be following this fight to acquire Activision Blizzard for the rest of the year. 

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