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upstart writes:

It looks like Microsoft is gearing up for a long and difficult fight with regulators for its $68.7 billion deal:

Microsoft is furious. Last week, a surprise decision from the UK's Competition and Markets Authority (CMA) left its $68.7 billion deal to acquire Activision Blizzard blocked in Britain, thanks to concerns about the future of cloud gaming.

Microsoft president Brad Smith was awake at 2AM that morning hastily writing a response from across the pond, according to Bloomberg. He spoke to the BBC a day later and called the UK regulator's decision the "darkest day" for Microsoft in its four decades of working in Britain. He went a step further and said "the European Union is a more attractive place to start a business" than the UK, a particularly stinging statement given the political issues around Brexit.

Now, Microsoft is bruised, angry, and plotting its next move. If Brad Smith's fighting talk is anything to go by, Microsoft will try to keep this deal alive. But the CMA's decision won't be an easy one to appeal.

[...] Meta's battle with the CMA over its Giphy acquisition shows what Microsoft might be in store for. Meta was originally ordered to sell Giphy in 2021 but appealed the ruling and was unsuccessful. Meta eventually had to comply with the UK competition watchdog and divest itself of social media GIF library Giphy. Viagogo's $4 billion takeover of StubHub was also partially blocked by the CMA, forcing the company to keep StubHub's US and Canadian operations but sell its UK and international businesses.

[...] The CMA said in September that it was concerned about the effects of Microsoft owning Activision Blizzard games on existing rivals and emerging entrants offering multi-game subscriptions and cloud gaming services. I tweeted at the time that all of the headlines around Call of Duty were just noise, and there would be bigger concerns around Microsoft's ability to leverage Windows and Azure, unlike its competitors, and how it could influence game distribution and revenue shares across the game industry with its Xbox Game Pass subscription.

Microsoft knew cloud gaming would be a key concern, and that's why it has spent the past couple of months preparing by signing deals with Boosteroid, Ubitus, and Nvidia to allow Xbox PC games to run on rival cloud gaming services. These 10-year deals will also include access to Call of Duty and other Activision Blizzard games if Microsoft's deal is approved by regulators. If it's not approved, then the deals are off for Activision games, with only access to Microsoft's Xbox PC games being supplied.

[...] Most of this deal now rests on the European Union's shoulders. The cloud deals Microsoft has been signing are also designed to appease regulators in the EU. Reuters reported last month that the Activision deal is likely to be approved by EU regulators following the Nvidia and Nintendo licensing agreements. The EU is due to make a decision by May 22nd, and Microsoft is once again trying to get out ahead of regulators by signing a fresh deal with European cloud gaming platform Nware. Nvidia and Boosteroid, which both signed Microsoft's 10-year cloud deal, have publicly questioned the CMA's decision, with Microsoft hoping this kind of backing will sway EU regulators.

An EU approval could offer a glimmer of hope for Microsoft's giant deal, as such a move would put pressure on the UK as the only major market to outright block the acquisition. Regulators in Saudi Arabia, Brazil, Chile, Serbia, Japan, and South Africa have already approved the deal. Microsoft does face trouble closer to home, though.

In the US, the Federal Trade Commission sued to block Microsoft and Activision Blizzard's deal late last year. The FTC case is still at the document discovery stage, with an evidentiary hearing scheduled for August 2nd. Microsoft and Sony lawyers are already arguing over which (and how many) documents should be presented as part of the legal discovery process, and we're months away from knowing how the case will proceed.

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