Microsofts Mr Smith Goes To Europe In Quest To Win Activision Deal

Analysis Microsoft President Brad Smith has spent this week in Europe trying to convince EU and UK regulators - and a gaming rival - to support the company's $69 billion bid for Activision Blizzard.

Regulators on both sides of the Brexit border are skeptical of the deal on antitrust grounds and Microsoft is on a charm offensive. Any shift in their position would also be useful in persuading the US Federal Trade Commission (FTC) to drop its lawsuit blocking the acquisition, which claims Microsoft "would have both the means and motive to harm competition."

Smith this week met behind closed doors with EU regulators and Sony PlayStation representatives in Brussels to try and negotiate terms for the acquisition to go through. This week Microsoft concluded agreements with two other gaming legends - Nvidia and Nintendo - to share platforms.

He emphasized in a press conference afterward that the deals with Nintendo and Nvidia can serve as a roadmap to ensure competition and innovation won't be hurt if Activision comes into the Microsoft fold, and that the eventual winners will be game players around the world.

"We have a clear path to get this deal done and today it takes us a huge step forward, I think, for regulators to be able to look at this deal and recognize that it brings a game like Call of Duty to 150 million more people," Smith told CNBC.

"That has to be good for competition and consumers. But more than that, I think these two agreements together really provide a model for regulators, those that want to have regulatory controls in place. We've been equally clear we're open to doing that. I think that's the path forward."

A call to arms

With the Nvidia deal, Microsoft will bring Xbox PC games to the GPU maker's GeForce NOW cloud gaming service, which has more than 25 million members in more than 100 countries, if the deal goes ahead. Those users will be able to stream the games from GeForce NOW, including the highly popular Call of Duty.

The combination of Xbox games and GeForce NOW "will propel cloud gaming into a mainstream offering that appeals to gamers at all levels of interest and experience," Jeff Fisher, senior vice president for GeForce at Nvidia, said in a statement.

The agreement with Nintendo focuses on specifically making Call of Duty available to its players. New versions of the game will be available to Nintendo the same time it comes to Xbox, with all the same features and content.

It's the same deal that Microsoft is offering Sony, whose deal for Call of Duty with Activision for the game expires next year, Smith said.

The Microsoft president also signaled the importance of Call of Duty to the company. The UK's Competition and Markets Authority (CMA), which this month said it was "provisionally" concluding the deal would hit consumers with higher prices and less competition, has floated the idea of Microsoft relinquishing Call of Duty as a condition of gaining regulatory approval.

"We really don't see a feasible path to sell off the Call of Duty game," Smith said. "It wouldn't be inexpensive. It just isn't something that seems to be lining up. It's far better, in our view, to bring Call of Duty to 150 million more people. The only reason to sell it off is the CMA's potential concern that if we buy it, we won't provide it to others as broadly. I think that concern should be dispelled by the agreements we've signed today."

A template for regulators

Microsoft will have to wait to see if those deals will lead the EU and CMA – and maybe the FTC – to approve the acquisition. Roger Kay, principal analyst with Endpoint Technologies Associates, isn't sure they will.

The software behemoth is clearly using the Nvidia and Nintendo agreement as a "template" that regulators could require for Sony and other companies, Kay told The Register. It could be a hard sell.

"I don't think [the regulators] will be fooled by it," he said. "If they decide to let it go through, I'd think it will be for other reasons than that."

Kay called EU the "bulwark against monopolism," more so than the US, although the Biden Administration has put such large tech deals under closer scrutiny. The FTC's decision in December 2022 to sue Microsoft to block the Activision acquisition illustrates that.

The European Commission reportedly in late January sent Microsoft a statement of objections to the deal, and that combined with the CMA's provisional finding illustrate the tough road ahead for Microsoft.

That said, the agreements with Nvidia and Nintendo cleared away some significant competitive roadblocks, with Nvidia saying it resolved concerns it had and that it now supports regulatory approval. Still, Sony continues to hold out.

Smith said in his press conference that Sony holds the lion's share of the global console market, at about 70 percent. Buying Activision would only begin to help Microsoft close the gap. However, Microsoft has a strong position in the emerging game subscription service space with Xbox Game Pass, where players can choose from among more than 300 games available for Xbox, PCs, tablets, and phones via a $10- to $15-a-month subscriptions.

Acquiring Activision would make more games available through not only Microsoft's service but also those from others, including Sony. Smith is optimistic about an eventual agreement with Sony.

"That would be great for consumers around the world," he said. "We're not there yet, but I do think as we make progress with others – if we can get a deal done with Nintendo, if we can get an agreement with Nvidia – it should provide a path forward that others like Sony can build on as well." ®