EU passes gaming strategy, probing Activision & Microsoft merger

This week, the European Union (EU) is taking more active stances on the video games industry. The EU is targeting the industry with gaming and esports legislation and an antitrust investigation into Microsoft and Activision Blizzard’s $68.7 billion merger agreement.

EU passes games and esports resolution

On Thursday, the legislative body passed a resolution recognizing the cultural and economic value of both video games and esports. By passing the legislation, the members of European Parliament (MEPs) will be tasked with developing a long-term regulatory and investment strategy to promote the industry in Europe.

The resolution passed easily — 560 votes in favor, 34 against, and 16 abstaining. Partially, this is due to the resolution being non-binding. However, it is a strong signal that MEPs are paying attention to the industry.

Committee for Culture and Education (CULT) Rappoteur Laurence Farreng made her case to the floor of Parliament on November 9. She pointed to underrepresentation of women, the economic and cultural value of gaming and esports, and the cross-border nature of Europe as reasons why the MEPs should pass the resolution.

European Commissioner Breton Thierry and several MEPs also spoke in favor of the resolution, echoing points from CULT’s original resolution. In particular, several argued for video games as a way to attract and retain highly skilled talent. They also expressed interest in using this as an opportunity for “anti-addiction measures” — specifically outlawing loot boxes.

The resolution is only the first step in a long line of procedures. In an interview with Esports Insider, Nepomuk Nothelfer, a European legal researcher who the EU commissioned to produce the report, said that implementation would be the next great challenge.

“I get the feeling the real work will begin after the resolution. Most of the time it’s before the resolution because now you have a plan and you can act on it. But in esports, it’s still so complicated… I get the feeling that the stages afterwards will take a long time,” explained Nothelfer.

Anti-trust probe from EU

However, European regulators did not wait for the resolution to regulate the industry in other ways. On Tuesday, the EU announced an in-depth antitrust investigation into the $68.7 billion Microsoft and Activision Blizzard merger. This investigation follows a similar probe in the UK.

In a statement, the European commission said it was concerned that the deal could reduce competition in the distribution of console and PC games — including subscription services like Game Pass — and for PC operating systems.

While Sony and Apple are not named in the announcement, it’s clear that the EU is worried about Microsoft making Call of Duty exclusive to Xbox and PC. The report calls out the economic incentives Microsoft has to do so. Notably, the commission has not addressed if game exclusivity itself is under fire or if this is an extraordinary case. Sony’s Bungie acquisition was not addressed, though the deal was much smaller at $3.6 billion.

“We must ensure that opportunities remain for future and existing distributors of PC and console video games, as well as for rival suppliers of PC operating systems. The point is to ensure that the gaming ecosystem remains vibrant to the benefit of users in a sector that is evolving at a fast pace. Our in-depth investigation will assess how the deal affects the gaming supply chain,” Margrethe Vestager, European commissioner for competition, concluded in a press release.

Reactions to the investigation

Following the announcement, Activision Blizzard CEO Bobby Kotick confirmed in a statement that the company would be working in tandem with Microsoft to comply with the EU’s investigation.

Microsoft has chosen an interesting strategy to combat regulators fears: Play up its competition.

“We’re continuing to work with the European commission on next steps to address any valid marketplace concerns. Sony, as the industry leader, says it is worries about Call of Duty, but we’ve said we are committed to making the same game available on the same day on both Xbox and PlayStation. We want people to have more access to games, not less,” a Microsoft spokesperson said in a statement to The Verge.

This step from the EU is somewhat expected. Europe was the most likely governing body to intervene in the deal. Of course, the UK’s investigation may have encouraged further action. While an investigation is a first step, it does not mean that the deal is dead. The EU stresses that many investigations into mergers often result in no action taken. However, it seems likely that the EU will want to put some stipulations into the deal, particularly around exclusivity.

Microsoft has 90 working days (March 23, 2023) to respond. Notably, this works in Microsoft’s favor. Per the agreement, the breakup fee increases from $2.5 billion to $3 billion on April 18, 2023.

With the EU, UK and potentially the U.S.’s FTC making moves, both Activision Blizzard and Microsoft will have their work cut out for them between now and March.