Explained | What is $69bn Microsoft-Activision deal that could transform gaming industry forever?

A courtroom victory against American competition regulator Federal Trade Commission (FTC) has opened the doors for Microsoft to close its historic $69 billion acquisition deal with Activision Blizzard. California Judge Jacqueline Scott Corley submitted the ruling on Tuesday in favour of Microsoft, saying, “The motion for a preliminary injunction is therefore DENIED.”

Following the decision, Microsoft president Brad Smith said the company was “grateful to the Court in San Francisco for this quick and thorough decision and hope other jurisdictions will continue working towards a timely resolution.”

Experts believe the historic acquisition deal, if executed, will transform the mobile gaming industry forever. Some have even equated Microsoft’s potential impact on the gaming industry to that of Netflix on the movie business.

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Sarah Hindlian-Bowler, head of technology research at Macquarie, likened the situation to the emergence of streaming television and movies. “First there’s the arrival of a Netflix, and everyone panics. Then whole new ecosystems emerge,” she said.

What next for Microsoft?

The US tech giant is now free to close its deal with Activision Blizzard before the July 18 deadline, which it set 18 months ago. However, Microsoft still faces resistance from competition regulation authorities in the UK.

European regulators already gave the deal a go-ahead back in May, so it is highly likely that Microsoft could close the deal across the world barring the UK, unless an interim deal is worked out.

Meanwhile, FTC can still appeal the California court ruling until Friday this week; however, that possibility remains distant given FTC’s past precedents.

UK regulators also show signs of thaw

Shortly after the US court decision was out, regulators in the UK also appeared to backtrack from their initial rigid stance. UK’s Competition and Markets Authority (CMA) said it had put its earlier decision regarding the deal on hold and instead wanted both parties to come up with new terms and conditions to satisfy its concerns.

The CMA had been the only major regulator agency in the world which opposed the deal between Microsoft and Activision vehemently. However, it seems to be offering rare concessions to the US tech giant following the setback to their American counterparts.

Why regulators are opposing the deal?

The $69 billion deal will see Microsoft acquire video gaming company Activision Blizzard. FTC is of the opinion that the deal will help Microsoft establish a monopoly in the gaming sector. Purchasing Activision will give Microsoft’s Xbox exclusive access to the company’s games, leaving other players such as Sony’s PS and Nintendo out in the dark.

"A preliminary injunction is necessary to... prevent interim harm" while the FTC determines whether "the proposed acquisition violates US antitrust law," the regulator said in the filing in June.

Microsoft’s argument

Microsoft argues that it doesn’t aim to establish a monopoly in the console market but its eyes are set on much bigger and more lucrative mobile gaming. Furthermore, the company has made several concessions to authorities in the US as well as Europe to alleviate the fears of a hostile takeover of the gaming sector.

The California judge also noted in Tuesday's ruling, “Microsoft has committed in writing, in public, and in court to keep Call of Duty on PlayStation for 10 years on parity with Xbox. It made an agreement with Nintendo to bring Call of Duty to Switch. And it entered several agreements to for the first time bring Activision’s content to several cloud gaming services.”

Activision share price jumps

Activision’s share price on Tuesday saw a boost of 10 per cent following the court order, which surged to $90.99. Investors, who thought the deal was on its last legs just a few weeks ago, now seem convinced that it will be executed before the deadline expires.

However, some investors were still concerned that UK’s CMA could force Microsoft to divest part of Activision’s business. “In our world, this a big and unprecedented development,” one big hedge fund investor was quoted as saying by Financial Times, suggesting that the regulators would still push for important concessions.

What if July 18 deadline is missed?

Industry analysts have pointed out that if the acquisition fails to be completed by the upcoming Tuesday, the game maker's board could request additional financial incentives to extend the process while awaiting regulatory approval. This could potentially complicate the overall deal.

Watch: Microsoft's acquisition of Activision Blizzard receives approval

Meanwhile, within the gaming industry, the Federal Trade Commission's (FTC) failure has sparked predictions of a new era. Now, FTC may simply stop pursuing legal proceedings against such dealings in future, paving the way for more such mergers in the future, which could lead to unchecked expansion of some tech giants in the US market.

The progress of cloud gaming has been slow so far, with Google's decision to shut down its ambitious Stadia cloud gaming service earlier this year raising doubts about consumer adoption. However, if Microsoft fulfils its promise, it could compel the rest of the gaming industry to seriously consider embracing a completely new approach to conducting business.

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