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Microsoft (MSFT) Revises Activision Deal to Obtain UK Approval

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Microsoft (MSFT - Free Report) recently announced its decision to restructure the acquisition of Activision Blizzard to address concerns raised by the U.K. Competition and Markets Authority (“CMA”) regarding the impact on cloud game streaming.

This restructuring involves transferring the cloud streaming rights for all current and new Activision Blizzard PC and console games released over the next 15 years to Ubisoft Entertainment (UBSFY - Free Report) .

Under this restructured deal, Microsoft will not have exclusive rights to release Activision Blizzard games on its own cloud streaming service, Xbox Cloud Gaming, nor it will have exclusive control over the licensing terms for these games for rival services.

Ubisoft will be the recipient of these cloud streaming rights, giving it the opportunity to commercialize the distribution of ATVI games via cloud streaming.

Will Microsoft's Latest Gambit Work?

Last month, Microsoft and Activision Blizzard agreed to extend the merger deadline to Oct 18 while working on gaining full approval. Shares of this Zacks Rank #3 (Hold) company have gained 34.5% year to date compared with the Zacks Computer and Technology sector’s rise of 34.6% in the same period. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The restructured arrangement will allow Ubisoft to innovate and experiment with different business models and pricing for these games on cloud streaming services worldwide. Ubisoft will compensate Microsoft for these rights through a one-off payment and wholesale pricing mechanism.

Microsoft states that its obligations to provide cloud streaming rights in the European Economic Area remain in place. The agreement with Ubisoft has been structured to ensure that MSFT can fulfill its legal obligations to the European Commission and other existing contractual commitments to cloud game streaming providers.

The company believes that these developments are positive for players, developers, the cloud game streaming market and overall growth of the gaming industry while addressing the initial concerns that caused the CMA to block the acquisition of Activision Blizzard.

Microsoft has been working to obtain regulatory approval for the transaction and has made binding legal commitments to address concerns. These commitments ensure that Call of Duty and other Activision Blizzard games will be available on rival consoles including Sony (SONY - Free Report) and cloud streaming platforms. The transaction is now in a position to move forward in more than 40 countries.

To assuage regulators' concerns, MSFT has also signed agreements with Switch console owner, Nintendo and Nvidia, promising to keep the game available on the competing platforms for at least 10 years.

This allows for more competition in the cloud gaming market and ensures compliance with commitments in various regions.

The Zacks Consensus Estimate for MSFT’s first-quarter fiscal 2024 gaming revenues is pegged at $3.7 billion, indicating year-over-year growth of 2.62%. The consensus mark for earnings is pegged at $2.65 per share, indicating a year-over-year increase of 12.77%.


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