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Microsoft has dramatically changed the terms of its $75bn acquisition of Activision Blizzard after the UK regulator issued a worldwide ban on the original deal over concerns it would stifle innovation in the nascent cloud gaming market.
The two companies submitted a new proposed merger agreement to the Competition and Markets Authority on Tuesday, giving exclusive rights to France-based games rival Ubisoft to distribute Activision Blizzard titles on PC and console, including the hit game Call of Duty, outside of the European Economic Area (EEA).
The shift marks a big concession from Microsoft, which had previously emphasised the importance to its business of cloud gaming and cross-platform play — two areas in which it would significantly relinquish control under the new agreement.
Under the new terms, Microsoft cannot release Activision Blizzard games exclusively on its own cloud streaming service Xbox Cloud Gaming.
The move comes after months of wrangling in which global regulators have taken divergent and shifting positions on the deal, which would be one of the biggest ever in the tech sector.
In April, the CMA said it would block the acquisition after it deemed Microsoft’s concessions relating to antitrust concerns to be insufficient. Yet the following month, the European Commission cleared the deal, having drawn the opposite conclusion on the concessions, which included agreeing to license Activision games to any cloud game streaming service provider.
In the US, the Federal Trade Commission launched a legal challenge to the acquisition in December, but it was overturned by a federal judge, and an appeal was rejected.
Since the CMA initially blocked the deal, Microsoft has also negotiated licensing deals with rivals, including Sony, for access to hit games in a bid to ease regulators’ antitrust concerns.
The Activision deal, which was first announced in January last year, had initially been due to close before July 18, but the companies negotiated a 90-day extension to work through regulatory issues.
They are hopeful the CMA will issue a fresh decision before the October 18 deadline.
“This is not a green light. We will carefully and objectively assess the details of the restructured deal and its impact on competition,” CMA chief executive Sarah Cardell said.
“Our goal has not changed — any future decision on this new deal will ensure that the growing cloud gaming market continues to benefit from open and effective competition driving innovation and choice,” she added.
Under the restructured deal, Ubisoft acquires cloud streaming rights to Call of Duty and all other Activision Games, as well as new ones released over the next 15 years, which it would hold forever. These rights would be exclusive everywhere except within the EEA.
According to a person familiar with the new deal, the concessions Microsoft made earlier in the year to Brussels would remain in place under the new deal.
Microsoft said it would be compensated through a one-off payment and through a market-based wholesale pricing mechanism, including an option that supports pricing based on usage.
Ubisoft shares were up 6 per cent in early trading.
“This has been a longer journey than expected, and I am very proud of how focused everyone has remained on delivering great games. Thanks for your continued dedication and commitment to our players,” Bobby Kotick, Activision Blizzard’s chief executive, wrote in an email to employees on Tuesday.
Microsoft will retain control over the development of games and rights to mobile game streaming, a space it has highlighted as a growth area where it wants to launch its app store for games on phones.
“We believe that this development is positive for players, the progression of the cloud game streaming market, and the growth of our industry . . . we remain as committed as ever to bringing the incredible benefits of the acquisition to players, developers, and the industry,” Brad Smith, president of Microsoft, said.
Additional reporting by Tim Bradshaw in London