In a recent development, Microsoft (NASDAQ:MSFT) has announced its strategic adjustments to the acquisition deal with Activision Blizzard (NASDAQ:ATVI) in response to concerns voiced by the U.K. Competition and Markets Authority (CMA) regarding the potential impact on cloud-based game streaming.
The revised arrangement entails the transfer of cloud streaming rights for all present and future Activision Blizzard PC and console games slated for release over the next 15 years to Ubisoft Entertainment (OTCMKTS:UBSFY). In this restructured agreement, Microsoft will relinquish its exclusive privileges to release Activision Blizzard games solely on its proprietary cloud streaming platform, Xbox Cloud Gaming. Furthermore, Microsoft will no longer retain exclusive control over the licensing terms governing these games for competing services.
Ubisoft will take on the role of the beneficiary of these cloud streaming rights, offering them the opportunity to market the distribution of ATVI games via cloud streaming channels.
Prospects for Success in Microsoft’s Latest Move
Last month, Microsoft and Activision Blizzard mutually agreed to extend the deadline for their merger until October 18 as they continued to work toward securing complete approval. Shares of Microsoft have experienced a 34.5% surge year-to-date, in contrast to the 34.6% growth observed within the same timeframe. The revamped agreement will empower Ubisoft to explore innovative business models and pricing strategies for these cloud-streamed games on a global scale. Ubisoft will compensate Microsoft for these rights through a lump-sum payment and a wholesale pricing mechanism.
Microsoft asserts its commitment to honor its obligation to provide cloud streaming rights within the European Economic Area. The agreement between Microsoft and Ubisoft has been carefully structured to ensure that MSFT remains compliant with its legal obligations to the European Commission and its pre-existing contractual commitments to other cloud game streaming providers.
The company views these developments as a boon for gamers, developers, the cloud game streaming market, and the overarching growth of the gaming industry. This strategic shift also addresses the initial concerns that led the CMA to impede the acquisition of Activision Blizzard.
Microsoft has been diligently navigating the regulatory approval process for the merger and has made legally binding commitments to address pertinent concerns. These commitments guarantee the availability of Call of Duty and other Activision Blizzard games on rival gaming consoles, including those offered by Sony (NYSE:SONY), as well as various cloud streaming platforms. With these initiatives in place, the transaction is now poised to proceed in over 40 countries.
In order to allay regulatory apprehensions, MSFT has forged agreements with Nintendo, the owner of the Switch console, and Nvidia, pledging the availability of the game on competing platforms for a minimum of 10 years.
This approach fosters increased competition in the cloud gaming sector and ensures adherence to commitments across diverse regions.
According to the Zacks Consensus Estimate, MSFT is projected to generate gaming revenues of $3.7 billion in the first quarter of fiscal 2024, reflecting a year-over-year growth of 2.62%. The consensus outlook for earnings stands at $2.65 per share, signifying a 12.77% increase compared to the previous year.
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