Rumour: Xbox Is Talking To 'Major' Japanese Publishers About Acquisitions
Even while the ActiBlizz deal is underwaywww.purexbox.com
They’ve been saying that since they first announced the ABK announcement, we’ll maybe like next day….it was either Phil or Satya saying something like “we’re not done yet…”
I really hope it’s platinum, but maybe it’s whatever Shingi Mikami has planned or better yet Ikumi Nakamura with her new studio “Unseen”
He might not be a great game analyst, but he is very professional with his lawyer skills.
I listened to him on a podcast and he seems very competent and knowledgeable. I almost think he makes "predictions" purely to get attention, not that he thinks are actually accurate.
Microsoft-Activision Spread Hits Lowest Since Merger Announced
The gap between Activision Blizzard’s stock price and Microsoft Corp.’s takeover offer is at its narrowest level since the $69 billion merger was announced in January 2022, as an update from UK regulators lifts expectations that the deal could go through.
www.bloomberg.com
Activision rallied 5.9% on Friday to $84.39, the highest since August 12, 2021. The surge came after the UK Competition and Markets Authority narrowed the scope of their merger probe, putting the stock around 11% below Microsoft's $95-per-share offer. The gap was 23% when British regulators voiced opposition to the tie up back in February.
The market is currently pricing in roughly 50% odds of the deal being completed, assuming a $75 standalone value in Activision if the deal does not go through, according to Cowen's Aaron Glick. This compares to about 30% odds a month ago, but at the time, market was pricing a $65 standalone value, he said.
"This seems to be a major pivot" from the UK's CMA, which is now saying Microsoft has no incentive to withhold Call of Duty from competitors, said Frederic Boucher, a risk arbitrage analyst at Susquehanna International Group.
This approval is the main regulatory roadblock, he added. However, the pivot "does not mean that the approval is a done deal," Boucher noted, since it still has an issue related to cloud gaming.
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From the lawyer
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On the other hand, if there was any doubt that the CMA already knew about the PS5 version of Redfall, the addendum to the PF includes this (page 12):
We remain of the view that console providers, including Microsoft, place significant value in having exclusive content to differentiate their platform and attract more users. Most first-party Xbox and PlayStation games are exclusive to their respective platform, and almost every studio that Microsoft has bought now makes games exclusive to Xbox. Moreover, where Microsoft has seen value in making multiplatform third-party studio games exclusive to Xbox, it has done so (eg, the upcoming release in the Redfall franchise following the Bethesda acquisition).
So, as we said the CMA already knew about it and the statement from Arkane this week changed nothing.
This bit about partial foreclosure is also very interesting, because if the deal goes through and MS is in the mood, I think that this is legally opening the door to exclusive content, perks or availability (only on Game Pass, for example) for COD (page 13):
We have not seen any robust evidence to suggest that PlayStation users would switch from PlayStation to Xbox at the same rate in response to partial and total foreclosure strategies. We consider that it is unlikely that they would do so, since under a partial foreclosure strategy CoD would still be available on PlayStation (albeit not at the same time, or not with the same exact content). Given that any deterioration in PlayStation's offering would be more modest under a partial foreclosure strategy, we would expect that only a fraction of gamers would switch to Xbox. On this basis, we have provisionally concluded that Microsoft would not have the ability to foreclose PlayStation on the basis of partial foreclosure strategies.
I don't think that it will happen in the short - medium term because MS has said multiple times in public and private that they want full parity. But right now the reality is that the EC and CMA doesn't care about that anymore (from a legal point of view).
Regarding COD on Game Pass, if the deal goes through it's important to remember that MS is limited in that regard and that Sony will have access to COD until the end of 2024, no matter what:
Microsoft has publicly stated that it plans to "launch Activision Blizzard games into Game Pass". Microsoft's intention is that future Activision releases, including Call of Duty, will be made available on Game Pass on the day of release, similar to Microsoft's first-party content. This is subject to existing contractual obligations with Activision, which will be honoured (REDACTED).
So, if Sony wants to let the dust settle a bit and avoid negotiating the new deal until the start of 2024, I think that could be an option for them.
From the lawyer
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Normally I would expect a boring week to end March, but after the major news from last week, hard to predict now! Let's see how the month ends.
THE LAST 15 DAYS
- March 10th: MS published a website explaining the benefits of bringing Call of Duty to 150 million more players.
- March 14th: Microsoft signed a licensing deal with cloud gaming provider Boosteroid.
- March 15th: Microsoft signed a licensing deal with cloud gaming provider Ubitus.
- March 16th: MS officially offered remedies to the EC, making ABK's catalog of games, including Call of Duty, available to rival cloud gaming services. There are no remedies regarding console and PC OS markets. Second update about the topic.
- March 16th: New provisional deadline for the decision from the EC, May 22nd 2023.
- March 16th: The CMA published 9 responses to the provisional findings, MS, ABK, Sony and 6 market participants.
- March 17th: The lawsuit from gamers has been dismissed and they'll have to redraft the complaint.
- March 21st: the CMA published a supplemental response from MS to the remedies notice.
- March 24th: The CMA modified the original provisional findings and dropped the concerns about the console market.
NEXT KEY DATES:
- March 31st 2023: last day to send the CMA a response about the modified PF (and suggestions about the proposed remedies, probably).
- Late March - early April 2023: meetings and discussions with the CMA regarding the remedies working paper.
- Late March - early April 2023: the EC will conduct and assess the market test for the remedies proposed by MS.
- April 10th 2023: the Canada Competition Bureau will update the list of merger reviews completed during the previous month (probably nothing will come out of it, but my guess is that sooner rather than later there will be a decision).
- April 18th 2023: second extension of the original outside date. If MS quits by that date they have to pay a termination fee of $2,500,000,000; if they don't, the outside date gets extended until July 18th 2023.
- April 26th 2023: final report and remedies from the CMA.
- April 28th 2023: decision from New Zealand.
- April - May 2023: decision from the SAMR in China.
- May 22nd 2023: final decision from the EC.
- July 18th 2023: The end of the second extension and final outside date in the merger agreement. If MS quits by that date they have to pay a termination fee of $3,000,000,000; if they don't, they'll have to renegotiate the outside date with ABK.
- August 2nd 2023: beginning of the FTC in-house trial.
- Early 2024: decision from the FTC administrative law judge.
- Anything beyond that: unknown
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Normally I would expect a boring week to end March, but after the major news from last week, hard to predict now! Let's see how the month ends.
THE LAST 15 DAYS
- March 10th: MS published a website explaining the benefits of bringing Call of Duty to 150 million more players.
- March 14th: Microsoft signed a licensing deal with cloud gaming provider Boosteroid.
- March 15th: Microsoft signed a licensing deal with cloud gaming provider Ubitus.
- March 16th: MS officially offered remedies to the EC, making ABK's catalog of games, including Call of Duty, available to rival cloud gaming services. There are no remedies regarding console and PC OS markets. Second update about the topic.
- March 16th: New provisional deadline for the decision from the EC, May 22nd 2023.
- March 16th: The CMA published 9 responses to the provisional findings, MS, ABK, Sony and 6 market participants.
- March 17th: The lawsuit from gamers has been dismissed and they'll have to redraft the complaint.
- March 21st: the CMA published a supplemental response from MS to the remedies notice.
- March 24th: The CMA modified the original provisional findings and dropped the concerns about the console market.
NEXT KEY DATES:
- March 31st 2023: last day to send the CMA a response about the modified PF (and suggestions about the proposed remedies, probably).
- Late March - early April 2023: meetings and discussions with the CMA regarding the remedies working paper.
- Late March - early April 2023: the EC will conduct and assess the market test for the remedies proposed by MS.
- April 10th 2023: the Canada Competition Bureau will update the list of merger reviews completed during the previous month (probably nothing will come out of it, but my guess is that sooner rather than later there will be a decision).
- April 18th 2023: second extension of the original outside date. If MS quits by that date they have to pay a termination fee of $2,500,000,000; if they don't, the outside date gets extended until July 18th 2023.
- April 26th 2023: final report and remedies from the CMA.
- April 28th 2023: decision from New Zealand.
- April - May 2023: decision from the SAMR in China.
- May 22nd 2023: final decision from the EC.
- July 18th 2023: The end of the second extension and final outside date in the merger agreement. If MS quits by that date they have to pay a termination fee of $3,000,000,000; if they don't, they'll have to renegotiate the outside date with ABK.
- August 2nd 2023: beginning of the FTC in-house trial.
- Early 2024: decision from the FTC administrative law judge.
- Anything beyond that: unknown
If and when it were to go through, when looking back at ZeniMax deal:
Mar 8 - EU approves
Mar 9 - Deal closes
Mar 12 - Drop of 20 games added to Game Pass for PC, console, cloud
Mar 8 - EU approves
Mar 9 - Deal closes
Mar 12 - Drop of 20 games added to Game Pass for PC, console, cloud
Microsoft's chances of closing Activision deal raised to 70% from 50% at Citi
The probability of Microsoft (MSFT) closing its planned $69 billion acquisition of Activision (ATVI) was raised to 70% from $50% at Citi after the U.K.'s antitrust...
seekingalpha.com
So now this is likely to close once again.
What a rollercoaster. I want it to happen because I believe in what Microsoft is doing in the industry, with GP and Cloud. I play on all platforms so don’t really see myself as terribly biased. But I am a huge Blizzard fan and would like to see them restored to glory.
What a rollercoaster. I want it to happen because I believe in what Microsoft is doing in the industry, with GP and Cloud. I play on all platforms so don’t really see myself as terribly biased. But I am a huge Blizzard fan and would like to see them restored to glory.
I see it more of a good thing for the devs, but it’s gonna be a given that manny will be let go (cos overlap) or they’ll leave to start something new or retire….but, we may get some to come back.
From the lawyer
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I guess that now is a good time to post it again as a reminder:
I think that it's important to talk about third party strategies in mergers, what Sony is doing and (probably) why.
Third parties can oppose to a potential transaction in their industry taking proactive steps to challenge a deal: 1) encouraging the regulators to block it; 2) filing a private civil suit or 3)even lobbying politicians.
But first of all, what is a third party in this case?
When a third party complains to the regulator during the review process, it's mainly for 4 reasons.
- To influence the regulator to investigate particular aspects of a transaction
- To encourage regulators to make a formal legal challenge or reject the deal
- To help regulators to shape an eventual merger remedy
- To obtain the merging parties' divested assets
While the complaints that usually carry more weight are the ones from customers, the ones from competitors can also be relevant. In fact, even more in vertical mergers where foreclosure is a potential key issue (like this one). In any case, regulators are always skeptic about a competitor opposing a merger because their interests usually diverge from the interests of the consumer. But competitors can be helpful for regulators because they are well-placed to offer concrete, relevant and detailed facts that regulators may find useful in developing theories and arguments.
If a third party wants to oppose a transaction, they have to start as soon as possible. Early involvement can help set the tone for the investigation, including what the regulators view as key issues and whom the regulator approaches for information. It looks like Sony approached regulators in April - May (the start of the first review processes) and from the info shared by CADE and the CMA it's obvious that they tried to set the tone of the investigation.
Third parties usually provide things like internal documents, studies, pricing analyses, market research, customer surveys, face to face meetings with the CEO or knowledgeable representative, etc. Expert opinions from reputable economists are also useful.
Sony provided documents, studies, pricing analyses and market research to CADE and the CMA, Jim Ryan met with the European Commission (and the CMA) and they hired a team of economists for the deal. They have even lobbied politicians.
If a competitor decides to oppose a transaction, they'll highlight that the merger is likely to stop the competitor from competing effectively against the merged entity by:
- Foreclosing the competitor from access to a necessary market or input (Call of Duty)
- Foreclosing the competitor from specific and important market opportunities (ABK games in subscription services)
- Subjecting the competitor to higher costs (Gamepass negatively affecting the value of games)
- Subjecting the competitor to exclusionary conduct (raising barriers to entry in cloud gaming)
In addition, although regulators are generally skeptical of competitor complaints, if a regulator decides to oppose a transaction, a complaining competitor can be a valuable ally for the agency (for example in future litigation). This is way the FTC staff was probably getting third party signed declarations in October.
But complaining to the agencies also have risks:
- Third-party materials and testimonies that now are confidential could become public
- It's not cheap
- You are wasting time that could be spend on your business
- It's a one-way flow of information (the regulators will not provide a complaining third party with info about the investigation)
- It could affect future acquisitions: regulators could use arguments and information submitted by Sony in the future (market definitions, for example)
So, I understand what Sony is doing and it makes sense from their perspective. But if the trend of the industry is consolidation, they'll have to make more acquisitions too. And being so aggressive now could have unintended consequences in a few years...
——————
I guess that now is a good time to post it again as a reminder:
I think that it's important to talk about third party strategies in mergers, what Sony is doing and (probably) why.
Third parties can oppose to a potential transaction in their industry taking proactive steps to challenge a deal: 1) encouraging the regulators to block it; 2) filing a private civil suit or 3)even lobbying politicians.
But first of all, what is a third party in this case?
- Customers (Users from Xbox or ABK, for example)
- Competitors (Sony or Nintendo)
- Suppliers (Take-Two, Electronic Arts or any indie developer)
- Distributors (From Steam in digital to GAME in retail)
- Wholesalers (GameStop, for example)
- Advocacy groups (the Communications Workers of America, for example)
When a third party complains to the regulator during the review process, it's mainly for 4 reasons.
- To influence the regulator to investigate particular aspects of a transaction
- To encourage regulators to make a formal legal challenge or reject the deal
- To help regulators to shape an eventual merger remedy
- To obtain the merging parties' divested assets
While the complaints that usually carry more weight are the ones from customers, the ones from competitors can also be relevant. In fact, even more in vertical mergers where foreclosure is a potential key issue (like this one). In any case, regulators are always skeptic about a competitor opposing a merger because their interests usually diverge from the interests of the consumer. But competitors can be helpful for regulators because they are well-placed to offer concrete, relevant and detailed facts that regulators may find useful in developing theories and arguments.
If a third party wants to oppose a transaction, they have to start as soon as possible. Early involvement can help set the tone for the investigation, including what the regulators view as key issues and whom the regulator approaches for information. It looks like Sony approached regulators in April - May (the start of the first review processes) and from the info shared by CADE and the CMA it's obvious that they tried to set the tone of the investigation.
Third parties usually provide things like internal documents, studies, pricing analyses, market research, customer surveys, face to face meetings with the CEO or knowledgeable representative, etc. Expert opinions from reputable economists are also useful.
Sony provided documents, studies, pricing analyses and market research to CADE and the CMA, Jim Ryan met with the European Commission (and the CMA) and they hired a team of economists for the deal. They have even lobbied politicians.
If a competitor decides to oppose a transaction, they'll highlight that the merger is likely to stop the competitor from competing effectively against the merged entity by:
- Foreclosing the competitor from access to a necessary market or input (Call of Duty)
- Foreclosing the competitor from specific and important market opportunities (ABK games in subscription services)
- Subjecting the competitor to higher costs (Gamepass negatively affecting the value of games)
- Subjecting the competitor to exclusionary conduct (raising barriers to entry in cloud gaming)
In addition, although regulators are generally skeptical of competitor complaints, if a regulator decides to oppose a transaction, a complaining competitor can be a valuable ally for the agency (for example in future litigation). This is way the FTC staff was probably getting third party signed declarations in October.
But complaining to the agencies also have risks:
- Third-party materials and testimonies that now are confidential could become public
- It's not cheap
- You are wasting time that could be spend on your business
- It's a one-way flow of information (the regulators will not provide a complaining third party with info about the investigation)
- It could affect future acquisitions: regulators could use arguments and information submitted by Sony in the future (market definitions, for example)
So, I understand what Sony is doing and it makes sense from their perspective. But if the trend of the industry is consolidation, they'll have to make more acquisitions too. And being so aggressive now could have unintended consequences in a few years...
——————
From the lawyer
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Yes, Japan has approved the deal:
Receiving notifications regarding the proposed acquisition of Activision Blizzard, Inc. ("Activision Blizzard" headquartered in the U.S.) by Microsoft Corporation (JCN8700150090374) ("Microsoft" headquartered in the U.S.; and Activision Blizzard and Microsoft are hereinafter collectively referred to as the "Parties"), the Japan Fair Trade Commission (hereinafter referred to as the "JFTC") reviewed the transaction and reached the conclusion that the transaction is unlikely to result in substantially restraining competition in any particular fields of trade. Accordingly, the JFTC has notified the Parties that the JFTC will not issue a cease and desist order, resulting in the completion of its review.
- Press release (in English)
- Decision in Japanese (43 pages)
- Decision in English (automatic translation)
- Infographic of the case (in English)
From the lawyer, when asked about the relevancy of the ftc
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I wouldn’t say that the FTC is irrelevant, I think that they are easier to handle than other regulators (in this acquisition).
In any case, if the FTC is in the mood for a fight, they can delay things quite a bit.
What I'm expecting:
- Decisions from the majority of smaller regulators in 3-5 weeks (almost all of them will be approvals without remedies).
- Decisions from the CMA, EC and SAMR in late April - early May. The CMA is still the main obstacle there, but things look easier now.
- If everyone approves it, I think that MS will offer the same remedies to the FTC to sign a consent decree and be done with this merger by late June. An interesting topic is what remedies MS would offer, because if the CMA and EC approve the deal, the issues about the console market are non existent. But the FTC had concerns about the console, subscription services and cloud gaming markets. So, does MS offer remedies to the FTC only about cloud gaming or the rest too?
- Then the big question mark: the FTC accepts the remedies or rejects them and goes to court? Yesterday, Lisa Khan said that bad precedent is better than non precedent at all. Was the bad precedent from the Meta case enough or they need more?
Important to remember that the FTC Staff didn’t recommend to challenge the Meta case, but Khan overruled them and went ahead. Something similar could happen here, I guess.
The idea is that even if the FTC has potentially a weak case, if they are in the mood for more “bad precedent”, we are going to be here until late 2023 - early 2024. Meanwhile, MS will need to change the merger agreement to close the deal without them (the approval from the FTC is a requirement to close the deal).
So, the FTC is not a huge obstacle in theory, but they are not irrelevant because they can delay the whole process 6-9 extra months. Of course, those extra months would provide more insights about the industry and the case.
We’ll see what’s happens.
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I wouldn’t say that the FTC is irrelevant, I think that they are easier to handle than other regulators (in this acquisition).
In any case, if the FTC is in the mood for a fight, they can delay things quite a bit.
What I'm expecting:
- Decisions from the majority of smaller regulators in 3-5 weeks (almost all of them will be approvals without remedies).
- Decisions from the CMA, EC and SAMR in late April - early May. The CMA is still the main obstacle there, but things look easier now.
- If everyone approves it, I think that MS will offer the same remedies to the FTC to sign a consent decree and be done with this merger by late June. An interesting topic is what remedies MS would offer, because if the CMA and EC approve the deal, the issues about the console market are non existent. But the FTC had concerns about the console, subscription services and cloud gaming markets. So, does MS offer remedies to the FTC only about cloud gaming or the rest too?
- Then the big question mark: the FTC accepts the remedies or rejects them and goes to court? Yesterday, Lisa Khan said that bad precedent is better than non precedent at all. Was the bad precedent from the Meta case enough or they need more?
Important to remember that the FTC Staff didn’t recommend to challenge the Meta case, but Khan overruled them and went ahead. Something similar could happen here, I guess.
The idea is that even if the FTC has potentially a weak case, if they are in the mood for more “bad precedent”, we are going to be here until late 2023 - early 2024. Meanwhile, MS will need to change the merger agreement to close the deal without them (the approval from the FTC is a requirement to close the deal).
So, the FTC is not a huge obstacle in theory, but they are not irrelevant because they can delay the whole process 6-9 extra months. Of course, those extra months would provide more insights about the industry and the case.
We’ll see what’s happens.
If I put my tin foil hat on and say “does Sony come across as ok with COD becoming exclusive in ten years?” would I be called a crazy? Maybe Sony will go after valve getting counter strike 2 as a console exclusive?
From the lawyer
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MLex had a few extra bits about the approval in Japan:
- Looking at the rapidly changing market, including cloud gaming and subscriptions, was the difficult and time-consuming aspect of the deal.
- Japan was the geographical market except for Windows, where the market was defined as global.
- The deal wouldn't harm competition in the Japanese market, largely because Xbox isn’t as popular as in the US and Europe, and Call of Duty has many rival games in Japan.
- The JFTC exchanged information with competition regulators in the UK, EU, South Korea, Australia and the US.
- The JFTC received opposition and support for the deal, but declined to comment on specific dialogue with Sony, who was the most vocal opponent of the deal.
If the next target is a Japanese publisher, this is going to be an interesting precedent for a future acquisition in Japan.
——————
MLex had a few extra bits about the approval in Japan:
- Looking at the rapidly changing market, including cloud gaming and subscriptions, was the difficult and time-consuming aspect of the deal.
- Japan was the geographical market except for Windows, where the market was defined as global.
- The deal wouldn't harm competition in the Japanese market, largely because Xbox isn’t as popular as in the US and Europe, and Call of Duty has many rival games in Japan.
- The JFTC exchanged information with competition regulators in the UK, EU, South Korea, Australia and the US.
- The JFTC received opposition and support for the deal, but declined to comment on specific dialogue with Sony, who was the most vocal opponent of the deal.
If the next target is a Japanese publisher, this is going to be an interesting precedent for a future acquisition in Japan.
Is Sony the next TikTok?
Opinion Is Sony the next TikTok? By Paul Boardman March 27, 2023 06:00 AM Twitter LinkedIn Facebook Email Print Opinion Is Sony the next TikTok? By Paul Boardman March 27, 2023 06:00 AM Twitter LinkedIn Facebook Email Print FILE – In this May 14, 2014 file photo, people walk by the Sony Building...
www.washingtonexaminer.com
From the lawyer
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Small update from MLex:
- Microsoft's remedies to address EU competition concerns have received broadly positive feedback from the association representing videogame developers in Europe.
- The European Games Developer Federation was generally pleased with the remedy offer, but it has encouraged the commission to further investigate how they would work in the future when the cross-platform distribution of games becomes more common.
- Sony and Google have criticized the remedies proposed by MS.
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Small update from MLex:
- Microsoft's remedies to address EU competition concerns have received broadly positive feedback from the association representing videogame developers in Europe.
- The European Games Developer Federation was generally pleased with the remedy offer, but it has encouraged the commission to further investigate how they would work in the future when the cross-platform distribution of games becomes more common.
- Sony and Google have criticized the remedies proposed by MS.