The EU is Unsure About Microsoft’s New UK CMA Deal

The European Commission said today that it would determine whether Microsoft’s new concessions to the UK Competition and Markets Authority in its Activision Blizzard acquisition represent a reneging of its own deal with the software giant.

“The Commission is carefully assessing whether the developments in the UK require another notification to the Commission,” a European Commission (EC) statement notes tersely.

So what does that mean?

Well, when the EC approved the Microsoft acquisition, it was partially predicated on a legally binding agreement by which Microsoft would “globally license popular Activision Blizzard games automatically to competing cloud gaming services.” But the proposal that Microsoft made to the UK CMA stipulates that it will now license Activision Blizzard games for cloud streaming to Ubisoft specifically, at least outside of the EU.

My guess here is that the EC is concerned that this change means that Activision’s Blizzard’s games will be made available to fewer competing cloud services. (In fact, this raises an interesting point, as the agreement Microsoft already made with the EU addresses the original UK CMA complaint, when you think about it. Which was the point I made back in July, of course.) And honestly, this is a valid concern. One that further highlights how pointless it is to even meet the CMA’s demands: this regulatory body is not working in the best interests of consumers or competitors, as is the EC.

But we can do a bit of legwork ourselves to see whether there is any evidence that this new deal with the CMA could upend Microsoft’s previous (and legally binding) agreement with the EU. We can simply see whether any statements by Microsoft or Ubisoft address this issue.

The Ubisoft announcement is, understandably, Ubisoft-centric. It notes that its agreement with Microsoft gives it “cloud streaming rights to games like Call of Duty and more,” but it is notable, I think, that these rights are not explicitly exclusive. (That is, the word “exclusive” does not appear in the Ubisoft announcement.) This is what I’ll call “soft evidence,” because it’s just a public statement and we don’t know what the actual terms of their agreement are.

Then there is Microsoft president Brad Smith’s announcement of the “restructured” Activision Blizzard acquisition. And this one is more explicit: Smith says that Microsoft will have a “narrower set of rights” when it comes to the intellectual property it acquires with Activision Blizzard, specifically with regards to “cloud streaming rights.” In Smith’s description of this restructured deal, Microsoft will upon executing the acquisition “transfer the cloud streaming rights for all current and new Activision Blizzard PC and console games released over the next 15 years to Ubisoft” and that “the rights will be in perpetuity.”

That seems pretty unilateral. But then he also notes Microsoft will not be able to release Activision Blizzard titles “exclusively” on its own cloud streaming service, Xbox Cloud Gaming, “or to exclusively control the licensing terms of Activision Blizzard games for rival services.” And those instances of the term exclusive suggest something else entirely. That is, Microsoft can release AB titles on Xbox Cloud Gaming, just not exclusively. And it can license AB games to (other) rival services (plural, with an “s”), it just can’t control the licensing terms. This means that Ubisoft will control the terms (as Smith spells out later in the announcement). And means that Microsoft still gets paid.

Smith also addresses the EU. He specifically says that Microsoft’s “obligations” to the EU “remain in place” and that it will stay in “full compliance [with its] commitments to the European Commission.” So Microsoft has clearly examined this situation and believes that the restructured deal still meets the EC’s requirements. ” Microsoft will still acquire the rights needed to honor fully its legal obligations under its commitments to the European Commission, as well as its existing contractual obligations to other cloud game streaming providers, including Nvidia, Boosteroid, Ubitus, and Nware,” he writes. “Microsoft is engaging closely with the European Commission to support the EC’s assessment of the agreement and confirmation that the commitments remain undisturbed.”

He’s probably correct. But it will be interesting if the EC disagrees and, if so, if that disagreement could scuttle Microsoft’s new offer for the UK CMA. And, in that event, whether the acquisition would be in danger yet again.

Round and round we go.