Microsoft to sell off Activision cloud gaming rights to Ubisoft in bid for UK approval

Microsoft is restructuring its proposed Activision Blizzard deal to transfer cloud gaming rights for current and new Activision Blizzard games to Ubisoft. The transfer of rights is designed to appease regulators in the UK that are concerned about the impact Microsoft’s proposed $68.7 billion deal will have on cloud gaming competition. The restructured deal has triggered a new regulatory investigation in the UK that could last until October 18th.

“To address the concerns about the impact of the proposed acquisition on cloud game streaming raised by the UK Competition and Markets Authority, we are restructuring the transaction to acquire a narrower set of rights,” says Microsoft president Brad Smith. “This includes executing an agreement effective at the closing of our merger that transfers the cloud streaming rights for all current and new Activision Blizzard PC and console games released over the next 15 years to Ubisoft Entertainment SA, a leading global game publisher. The rights will be in perpetuity.”

This restructured deal means that if Microsoft does close its proposed acquisition, then it will not be able to release Activision Blizzard games exclusively on Xbox Cloud Gaming. Microsoft won’t be able to exclusively control the licensing terms of Activision Blizzard games on rival services, either. Instead, Ubisoft will control the streaming rights to Activision Blizzard games outside of the EU and license titles back to Microsoft to be included in Xbox Cloud Gaming.

“Ubisoft will compensate Microsoft for the cloud streaming rights to Activision Blizzard’s games through a one-off payment and through a market-based wholesale pricing mechanism, including an option that supports pricing based on usage,” explains Smith. “It will also give Ubisoft the opportunity to offer Activision Blizzard’s games to cloud gaming services running non-Windows operating systems.”

Ubisoft will also add Activision Blizzard games to its Ubisoft Plus Multi Access subscription, which is available across PC, Xbox, Amazon Luna, and on PlayStation via Ubisoft Plus Classics.

The UK’s Competition and Markets Authority (CMA) first blocked Microsoft’s deal in April, citing cloud gaming concerns before agreeing to negotiations with the Xbox maker following the Federal Trade Commission’s (FTC) loss in a US federal court last month. Now, the CMA has signaled a new investigation phase thanks to Microsoft’s restructured deal, with a statutory deadline set for October 18th — the same deadline that Microsoft recently agreed to in its extension of the deal closing date with Activision. A source familiar with Microsoft’s plans tells The Verge that the company now isn’t expecting to be able to close its Activision Blizzard deal until early October.

The CMA has now imposed a final order on Microsoft’s original deal, prohibiting it worldwide while it investigates this new restructuring of the proposed Activision Blizzard acquisition. The CMA notes, “Ubisoft will also be able, for a fee, to require Microsoft to adapt Activision’s titles to operating systems other than Windows, such as Linux, if it decides to use or license out the cloud streaming rights to Activision’s titles to a cloud gaming service that runs a non-Windows operating system.”

The restructured transaction won’t affect Microsoft’s obligations to the European Commission, though. Microsoft has made several cloud gaming deals, and EU regulators approved the Activision Blizzard deal thanks to a free license to consumers in EU countries that would allow them to stream via “any cloud game streaming services of their choice” all current and future Activision Blizzard PC and console games that they have a license for.

“The agreement with Ubisoft has been structured so that 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,” says Smith.

The CMA will now assess the reworked deal over the coming weeks and deliver a decision by the October 18th deadline. “This is not a green light. We will carefully and objectively assess the details of the restructured deal and its impact on competition, including in light of third-party comments,” says Sarah Cardell, chief executive of the CMA. “Our goal has not changed – any future decision on this new deal will ensure that the growing cloud gaming market continues to benefit from open and effective competition driving innovation and choice.”

In an internal memo to Microsoft employees, Xbox chief Phil Spencer praised Sarah Bond, head of Xbox creator experience, for her “exceptional leadership” during the regulatory processes. Spencer also expects the CMA’s review processes to be completed before the new deal deadline of October 18th. Here’s the full memo:

Team,

Today, we’re taking another important step regarding our proposed acquisition of Activision Blizzard. To address the concerns about the impact of the proposed acquisition on cloud game streaming raised previously by the UK Competition and Markets Authority, we are modifying the transaction to acquire a narrower set of rights. This includes executing an agreement effective at the closing of our merger that transfers the cloud streaming rights for all current and new Activision Blizzard PC and console games released over the next 15 years to Ubisoft. Under the modified transaction, Microsoft will obtain those cloud streaming rights for Activision Blizzard games necessary to fulfill our commitments to the European Commission and under our existing streaming agreements.

We have notified the modified transaction to the CMA and we anticipate that the CMA review processes can be completed before the 90-day extension in our acquisition agreement with Activision Blizzard expires on October 18. You can read more about this important step in this blog post from our Vice Chair and President Brad Smith.

Thank you to everyone who has devoted their time and energy in support of our acquisition. I would like to specifically call out Sarah Bond’s exceptional leadership throughout this process.

And as we continue to navigate the review process with the CMA, we remain as committed as ever to bringing the incredible benefits of the acquisition to players, creators, and the industry. Today’s developments move us one step closer to bringing the joy of gaming to everyone on the planet.

Phil

Update August 22nd, 10AM ET: Article updated with internal email from Xbox chief Phil Spencer.