Technology giant Microsoft has cleared a significant hurdle in its attempt to conclude a $69-billion acquisition of prominent video game publisher Activision Blizzard after the deal was approved by the European Commission (EC).

The EC said Microsoft has offered commitments that “fully address” the competition concerns it identified and “represent a significant improvement for cloud gaming as compared to the current situation.”

The regulator said its decision, announced yesterday (May 15), follows an “in-depth investigation” of the proposed acquisition and added that it based its decision on “hard evidence, and on extensive information and feedback from competitors and customers, including from game developers and distributors as well as cloud game streaming platforms in the EU.”

This comes just three weeks after the UK’s competition watchdog blocked the deal due to concerns that it will suppress competition in the cloud gaming market.

The Competition and Markets Authority (CMA) said the deal would offer reduced innovation and less choice for gamers in the nascent but fast-growing cloud gaming market.

Cloud gaming enables gamers to access titles via companies’ remote servers, similar to streaming a movie or live sports on a platform. Microsoft believes it will become the mainstream way of playing games in the future.

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Microsoft and Activision hit out at the CMA’s decision and will appeal.

For the deal to go through, Microsoft and Activision need approval from regulatory bodies in the UK, EU, and the US.

The deal is also currently being investigated by the US Federal Trade Commission (FTC). In December last year, the FTC took legal action against Microsoft in an attempt to block the deal over similar concerns.

In its complaint, the FTC pointed to Microsoft’s record of acquiring well-known game developer Bethesda and making several titles exclusive to its consoles despite giving European antitrust authorities assurances it had no desire to do so.

To address the competition concerns identified by the EC, Microsoft has offered multiple free 10-year licensing deals which promise European consumers and cloud game streaming services access to Activision’s PC and console games.

The EU regulator said an in-depth market investigation indicated that Microsoft “would not be able to harm rival consoles and rival multi-game subscription services.”

It also said cloud game streaming service providers “gave positive feedback and showed interest in the licences,” with some having already entered into agreements with Microsoft based on their proposals.

The CMA criticized the EC’s decision and said it will not alter its own stance.

CMA chief executive Sarah Cardell said: “Microsoft’s proposals, accepted by the European Commission, would allow Microsoft to set the terms and conditions for this market for the next 10 years.

“They would replace a free, open, and competitive market with one subject to ongoing regulation of the games Microsoft sells, the platforms to which it sells them, and the conditions of sale.

“This is one of the reasons the CMA’s independent panel group rejected Microsoft’s proposals and prevented this deal.”

Microsoft announced its intention to acquire Activision Blizzard in January 2022 in one of the biggest deals the video gaming industry has ever seen.

The agreement, which would be the most expensive acquisition ever for Microsoft, dwarfing its $26-billion takeover of LinkedIn in 2016, would see Microsoft paying $95 for each Activision Blizzard share.

The proposed takeover would create a gaming giant, adding Activision’s lineup of popular titles including Call of DutyWorld of WarcraftHearthstoneCandy Crush Saga, and Overwatch to Microsoft’s growing stable of first-party developers and consoles.

The tech heavyweight said the acquisition will create the world’s third-largest esports and video game company in terms of revenue, behind Tencent and Sony.

Its original plan to close the deal by the end of July will now be pushed back amid an appeal of the CMA decision. If the appeal fails or if Microsoft fails to get approval from other key regulators looking into the deal, it will have to pay Activision $3 billion in breakup fees.

Regulators in Saudi Arabia, Brazil, Chile, Serbia, Japan, and South Africa have already approved the deal.

Image: Belinda Jiao/Getty Images