Microsoft completes $69 billion Activision purchase; biggest-ever deal in gaming industry

saumyasingh October 13, 2023

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Microsoft is implementing a novel approach to address issues of online toxicity among players on Xbox devices. This new framework centers around a 'Strikes' mechanism designed to combat inappropriate behavior within the gaming community. The system operates by categorizing the severity of misconduct, with different levels of consequences associated with each strike. Under this system, instances of inappropriate behavior by players will result in the issuance of a strike. In cases of repeated violations, these strikes have the potential to accumulate, leading to increasingly serious consequences for the individuals involved. By employing this approach, Microsoft aims to create a deterrent against online toxicity and encourage more respectful and positive interactions among players on Xbox devices. Effective immediately, all players will start with a clean record under this new 'Strikes' framework. However, it's important to note that any prior sanctions that have been imposed will still need to be served by the individuals affected. The punitive system operates on a tiered basis, meaning that as players commit offenses, they will receive strikes that escalate in severity for recurring violations. As players accumulate strikes, the associated penalties and bans will become more severe. This tiered approach serves as a means of reinforcing accountability and discouraging repeat instances of inappropriate behavior within the gaming community. By implementing this system, Microsoft aims to create a more inclusive and respectful online gaming environment for all players on Xbox devices. Under this new 'Strikes' framework, the strikes issued to users will remain active on their accounts for a period of six months starting from the time of their initial occurrence. This means that any strikes a player receives will be visible and taken into account for six months from the time they were initially issued. This time-bound approach ensures that players are held accountable for their behavior over a reasonable period. It also allows for a balanced approach by not carrying the consequences of strikes indefinitely while still encouraging players to maintain respectful behavior over an extended period. The new 'Strikes' system covers a range of offenses, with varying consequences based on the severity of the misconduct. For instance, instances of profanity will result in the issuance of a single strike. On the other hand, more serious transgressions such as hate speech can lead to the imposition of up to three strikes. This tiered approach reflects the intention to differentiate penalties according to the gravity of the offense, thereby fostering a fair and proportional response to various forms of misconduct within the gaming community. Furthermore, the framework acknowledges the possibility of misjudgments or wrongful sanctions. To address this, individuals who believe that they have been unfairly banned can initiate an appeal process. If their appeal is deemed successful, the corresponding strike will be expunged from their record. This appeals mechanism adds an extra layer of accountability and transparency to the 'Strikes' system, ensuring that players have the opportunity to contest decisions they consider unjust. The consequences associated with the 'Strikes' system are directly linked to the number of strikes a player accumulates. For instance, a single strike on a player's account could result in a suspension lasting up to 24 hours. However, as the number of strikes increases, the severity of the penalties escalates accordingly. If a player accumulates a total of eight strikes, the repercussions could involve suspensions that extend for up to a year. This progressive escalation underscores the system's commitment to addressing repeated instances of inappropriate behavior. The intention is to create a meaningful deterrent against misconduct by implementing penalties that reflect the gravity of the violations and encourage players to engage in respectful interactions within the gaming community. Microsoft's comparison of the 'Strikes' system to the demerit strike system used for driver's licenses in various countries provides a helpful analogy for understanding the escalating consequences associated with accumulated strikes. In the context of the gaming community, this comparison helps clarify the graduated approach to penalties. For instance, if a player receives two strikes, a one-day suspension from the platform would be imposed. Similarly, a player who accumulates four strikes would be subject to a more extended suspension lasting for seven days. This comparison to the driver's license demerit system underscores how Microsoft has structured the 'Strikes' system to mirror the principles of accountability and proportionality present in real-world penalty frameworks. This approach is aimed at fostering responsible and respectful behavior among players on Xbox devices. According to a recent blog post by Microsoft, players are allocated a maximum of eight strikes under the 'Strikes' system. When a player accumulates all eight strikes, they will face a suspension from various Xbox social features. This suspension encompasses activities such as messaging, participating in parties and party chat, multiplayer gaming, and other related interactions. The suspension will be enforced for a substantial duration, lasting for an entire year from the date the enforcement is initiated. This announcement reinforces the strict and progressive nature of the 'Strikes' system, highlighting that players are expected to adhere to respectful behavior standards to maintain their access to the Xbox platform's social and multiplayer features. The delineation of the specific consequences for accumulating all eight strikes underscores Microsoft's commitment to fostering a safe and positive online environment for all players.

Microsoft completes $69 billion Activision purchase; biggest-ever deal in gaming industry

The successful completion of Microsoft’s acquisition of Activision Blizzard Inc., despite regulatory challenges spanning nearly two years, marks a significant development in the gaming industry. Valued at a whopping $69 billion, this deal stands as the largest-ever acquisition in the history of the video game sector. By integrating Activision Blizzard into its operations, Microsoft, known for its Xbox gaming consoles, has significantly strengthened its position in the gaming market, propelling it from the fifth position to the third globally, trailing only Tencent Holdings Ltd. and Sony Group Corp.

This acquisition represents a strategic move by Microsoft to enhance its competitive edge, expand its gaming portfolio, and consolidate its presence in the ever-evolving gaming sector. The extensive negotiations and regulatory hurdles encountered during the acquisition process underscore the complexities and challenges involved in large-scale mergers within the tech and gaming industries.

Microsoft completes $69 billion Activision purchase; biggest-ever deal ... Microsoft’s efforts to secure a three-month extension for the deal’s expiration period from Activision highlight the company’s determination to navigate and overcome the regulatory obstacles that threatened to derail the transaction. This acquisition not only amplifies Microsoft’s gaming capabilities but also highlights the company’s commitment to remaining at the forefront of innovation and market leadership within the dynamic landscape of the global gaming industry.

Microsoft’s successful closure of the acquisition of Activision Blizzard Inc. was not without its challenges, particularly with regards to regulatory compliance. The company made strategic modifications to the merger agreement in order to secure approval from UK authorities, a move that ultimately facilitated the completion of the deal. However, despite this progress, the US Federal Trade Commission, which initially attempted to block the transaction through legal means, is continuing to pursue legal action in its own administrative hearing.

UK blocks Microsoft $69 billion Activision deal over cloud gaming ...

The potential consequences of this ongoing legal battle are significant, as a successful outcome for the Federal Trade Commission could compel Microsoft and Activision Blizzard to undo the entire acquisition. Despite the obstacles presented by the FTC’s persistence, Microsoft remains resolute in its pursuit of securing the long-term viability of the deal.

In order to address the concerns raised by UK regulators, Microsoft devised a restructuring plan that involved the divestiture of certain gaming rights to Ubisoft Entertainment SA, a French video game company. The UK’s Competition and Markets Authority ultimately granted approval for the deal after accepting this restructuring proposal. The primary focus of the UK regulator was to ensure that healthy competition is maintained in the emerging market for cloud-based game streaming services. This decision highlights the increasing regulatory scrutiny within the gaming industry, particularly in relation to the preservation of fair competition and consumer welfare, as digital gaming platforms continue to evolve and expand.

The completion of the Activision acquisition by Microsoft marks not only a significant milestone for the gaming industry but also poses a series of fresh challenges for Phil Spencer, Microsoft’s gaming chief. The deal presents Spencer with an opportunity to revitalize the company’s underperforming mobile games business, with Activision’s portfolio, including the widely popular Candy Crush franchise, serving as a cornerstone for this strategic objective. However, the delays in finalizing the deal have further exacerbated Microsoft’s struggle to catch up in the mobile gaming market, especially considering the sector’s oversaturation and the company’s ongoing dispute with Apple Inc. over App Store access.

Microsoft, Activision to sell streaming to secure biggest video gaming ...

Despite the hope that the legal dispute between Epic Games Inc. and Apple would lead to a more open environment for gaming platforms, progress has been limited, and Microsoft’s cloud gaming service continues to face restrictions within Apple’s ecosystem. These challenges underscore the persisting difficulties in establishing a more accommodating landscape for gaming and cloud-based services within the competitive mobile market.

Furthermore, the gaming landscape has evolved since the initiation of the Activision acquisition, as the much-hyped potential of the metaverse hasn’t fully materialized as a significant commercial opportunity. This shift is notable given that the metaverse was initially identified as a key driver for the acquisition when it was first announced in January 2022.

The delayed completion of the deal has also granted Microsoft the opportunity to begin the process of reshaping Activision’s culture in alignment with the company’s vision. While Microsoft has historically adopted a hands-off approach to the gaming studios it acquires, this time it may choose to be more actively involved. Fans’ feedback about some of Activision’s past business decisions, such as excessive releases that diluted the value of certain franchises and the perceived neglect of beloved series like StarCraft, might influence Microsoft’s strategy for fostering a more favorable gaming environment and enhancing its relationship with the gaming community.

The handling of harassment complaints and allegations of fostering a “frat boy” culture at Activision under the leadership of CEO Bobby Kotick has garnered significant criticism and legal challenges. In 2021, California’s Civil Rights Department filed a lawsuit against Activision, intensifying the scrutiny on the company’s workplace environment. In response, Activision took steps to address these issues, including the appointment of a diversity, equity, and inclusion officer, the introduction of a head of inclusive game design, and the release of a report detailing the progress made on workplace concerns.

Microsoft, in contrast, has taken a different approach, publicly pledging to maintain a neutral stance on employee unionization, distinguishing itself from Activision, which had actively opposed employee unionization efforts. In a significant move, Microsoft’s ZeniMax video game unit’s employees joined the Communications Workers of America in January, with Microsoft promptly recognizing the union.

The acquisition deal between Microsoft and Activision faced resistance from various quarters, notably from Sony, the maker of the popular PlayStation consoles. Jim Ryan, Sony’s video games chief, raised concerns that Microsoft could potentially disadvantage competitors by offering them a subpar version of the widely popular Call of Duty shooting game. However, in July, Microsoft and Sony entered into a 10-year agreement ensuring that future entries of the Call of Duty franchise would continue to be available on PlayStation consoles. Recently, Jim Ryan announced his decision to retire from Sony in March, marking a significant transition in the leadership of the gaming industry. These developments highlight the complexities and competitive dynamics within the gaming industry, with a focus on maintaining a fair and inclusive working environment and fostering healthy competition among industry leaders.

The initial concerns raised by UK regulators regarding the Microsoft-Activision deal centered on the potential consequences for gamers, including the possibility of increased prices, limited options, and reduced innovation within the gaming industry. However, the latest agreement between Microsoft and the UK regulators stipulates that Microsoft will not be able to restrict access to Activision’s crucial content solely to its own cloud gaming service or prevent other competitors from accessing these games. This measure aims to safeguard fair competition and ensure that gamers continue to have access to a diverse array of gaming choices and innovations, thereby promoting a healthy and dynamic gaming ecosystem.

Activision, established in 1979, has emerged as a powerhouse in the gaming industry, housing some of the most beloved and widely recognized game franchises worldwide. From the immensely popular titles like Overwatch, World of Warcraft, and Crash Bandicoot to the blockbuster success of Call of Duty, which has amassed more than 425 million units in sales and generated over $30 billion in revenue, Activision has solidified its position as a major player in the gaming market. Its impressive track record and diverse portfolio of successful game franchises underscore its significance within the gaming industry and highlight the strategic value that the acquisition holds for Microsoft as it seeks to bolster its position in the global gaming landscape.