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Microsoft to Sell Activision Cloud Gaming Rights in Push to Greenlight Deal

Microsoft has proposed divesting from Activision Blizzard’s cloud streaming rights in a bid to secure approval of the $69 billion deal from U.K. competition regulators. Under the agreement, Microsoft will not be able to exclusively release popular Activision titles like Call of Duty, Diablo or Overwatch on Xbox cloud gaming or control the terms of licensing to rival services. Instead, Ubisoft will acquire the rights to the company’s existing and future games for the next 15 years.

The proposal is intended to convince the Competition and Markets Authority to permit the merger. The agency blocked the transaction on the basis that it would hurt competition in the nascent cloud gaming market.

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After months of wrangling, the CMA on Tuesday finalized its order to block the original merger. Microsoft had taken the unconventional step of looking to revisit the decision, highlighting concessions secured by the European Union to license popular Activision games to rival game streaming platforms for 10 years. The CMA stuck by its order but separately, Microsoft and Activision agreed on a restructured deal that includes the newly merged entity acquiring a narrower set of rights.

In a statement, CMA chief executive Sarah Cardell said the new investigation is “not a green light.” She added that the proposal “will allow gamers to access Activision’s games in different ways, including through cloud-based multigame subscription services.”

By surrendering control of the ability to exclusively release Activision games on its own cloud streaming service, the proposal is intended to alleviate concerns that Microsoft will suppress consumer choice and innovation in the market.

Microsoft president Brad Smith stressed in a statement that the agreement “will enable Ubisoft to innovate and encourage different business models in the licensing and pricing of these games on cloud streaming services worldwide.”

Ubisoft, a third-party content supplier, will supply Activision’s gaming content to all cloud gaming service providers, including Microsoft. The company will be able to license the titles under different business models, including subscription services. The deal also proposed that Ubisoft have the ability to require Microsoft to provide versions of games on operating systems other than Windows, the CMA said.

The arrangement gives Ubisoft the exclusive global rights to stream Activision games, with the exception of nonexclusive rights in Europe, for all existing titles on top of those to be released in the next 15 years. The rights are in perpetuity.

Ubisoft will compensate Microsoft with a “one-off payment” and a “market-based wholesale pricing mechanism,” including an “option that supports pricing based on usage,” according to Smith.

The CMA said that the proposal will be examined under its usual process. Under the U.K.’s merger review regime, different evidence thresholds are applied. At phase 1, the agency applies a “realistic prospect” standard. If there are still competition concerns, it applies a higher “balance of probabilities” standard.

The deadline for a decision is Oct. 18, which also serves as the date Microsoft and Activision agreed upon to complete the deal. It was extended by three months due to regulatory review in the U.K. and United States.

In a statement, Activision chief executive Bobby Kotick said, “Nothing substantially changes with the addition of this divestiture: our merger agreement with Microsoft, closing deadline, and the cash consideration to be paid for each Activision Blizzard share at closing remain the same.”

Kotick, who has been accused of knowing about Activision’s allegedly toxic workplace, stands to get a payout of more than $500 million if the merger goes through at the $95 per share price that Microsoft offered. He owns 4.3 million shares in the company and has the right to acquire another 2.2 million through the exercise of options.

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