Foreign of this year, the technology giant Microsoft announces 69 billion dollar deal to buy Activision Blizzard in what would be the largest ever merger in the video game industry. Activision is a video game publisher behind hit games like Call of Duty Candy Crush World of Warcraft and many others. Whenever a massive corporation like Microsoft becomes even bigger via Acquisitions, there is always Anti-Trust scrutiny. While Microsoft May hold a monopolistic position in some of its Enterprise software offerings, Xbox which is owned by Microsoft is far from a monopoly in video games.

PlayStation holds roughly 70 market share in the video game console industry compared to Xbox's 30. Not only that, but Microsoft committed to continue making Call of Duty and other popular Activision Games available on PlayStation and Nintendo consoles for the next 10 years. With these assurances, it seemed that the deal could achieve regulatory approval. In fact, the acquisition looked so likely to close that Warren Buffett's Berkshire Hathaway bought a 9.5 stake in the company, hoping to benefit from the buyout premium.

With with both Microsoft and Activision being multinational corporations, they needed to get regulatory approval from many different countries. One of those jurisdictions is the United Kingdom on April 26th, the UK's competition and markets Authority blocked the deal, saying that it would be anti-competitive and bad for gamers. Based on the UK's legal system, the chances of successfully appealing this decision are almost zero. Following the announcement, Activision's share price fell as 78 dollars, almost 20 percent less than the 95 dollars per share that Microsoft would have paid for them.

But what's perhaps more interesting than the Cma's decision itself is the Pr campaign that Microsoft and Activision employed in an effort to get the deal done a few months before the decision. Activision CEO Bobby Codeick said the UK was the first country in Europe facing a recession. The government wants to turn the country into the Silicon Valley of Europe, though if they block the deal, they'll instead turn into Death Valley When the UK blocked the deal, Microsoft's president Brad Smith said the ruling represented The Darkest Day for Britain and the company's 40-year history in the country, it is a clear side of the UK is closed for business. Both Microsoft and Activision were implicitly threatening the UK that they would pull back and possibly even lay off workers in the country if their Mega merger wasn't approved.

What's even more surprising is that Activision's Chief communication officer has been prolifically tweeting about the deal going so far as the post memes insulting Xbox's biggest competitor Sony which was strongly opposed to the merger. In the past, legal and Regulatory disputes were handled by professionals behind closed doors, but today companies appear increasingly inclined to fight out their legal battles in the court of public opinion. This has been epitomized by The Cryptocurrency, Exchange Coinbase, which is facing an imminent regulatory Crackdown which threatens to destroy its entire business. In response, CEO Brian Armstrong has prolifically tweeted about his grievances with the SEC and they've even launched an Nft People Can Mint To show their support for the industry.

In this video, we'll look at the merits of the UK's ruling to block the Activision merger. We'll also look at why companies are getting more and more aggressive with their PR campaigns against regulators friends. Microsoft already owns a number of gaming Studios whose games are in many cases exclusive to Xbox and PCs. The biggest example of this is the hit first person shooter franchise Halo which has never been available on non-microsoft platforms.

By making Halo exclusive to Xbox, they're giving up some sales as people with PlayStations can't buy it. but this also boosts Xbox sales because some Gamers will choose to buy an Xbox instead of a PlayStation just so they can play Halo. To be fair, Sony The company behind PlayStation does the same thing. Currently, there are 41 titles exclusive to PlayStation with the most significant exclusive franchise being God of War according to the consumer website: Xbox One Headquarters Xbox has over 300 exclusive titles, far more than PlayStation.

With that being said, exclusive games have thus far failed to be a decisive factor in competition between Xbox and PlayStation. PlayStation has 70 Global gaming console market share despite having far fewer exclusive games. However, if Microsoft could own Call of Duty and make it exclusive to Xbox, that would be a real game changer. Call of Duty is the most successful first person shooter franchise of all time by far over the past 10 years, Call of Duty has been the highest selling console game in the US almost every year.

The only two exceptions are Red Dead Redemption in 2018 in Grand Theft Auto 5 in 2013. if Microsoft can make Call of Duty exclusive to Xbox that would be a real game changer, it would be blatantly anti-competitive in an effort to appease the concerns of Anti-Trust authorities, Microsoft committed to making Call of Duty and some other high value Activision video games available to Nintendo and Sony devices for at least the next 10 years. In March of 2023, it looked like things were going well. UK Regulators concluded that the sales that Microsoft would lose by making Call of Duty exclusive to Xbox would outweigh any benefit of such an action.

Therefore, the merger would not decrease competition within the gaming console market. So problem solved, right? Not exactly. It's important to note that Microsoft's 95 per share bid for Activision represented a 12 billion premium, a company's market cap at the time the deal was announced. The fact that they were willing to pay so much must be that they see some synergies and bring the two companies together.

One of the biggest projects that Microsoft is working on right now is Xbox Cloud Gaming With Cloud gaming, the actual game processing occurs on remote servers instead of on the user's local hardware. The gameplay is streamed to the user's device over the Internet while cloud gaming is still in its infancy, it has the potential to revolutionize the video game industry. Currently, to play most AAA video games like Call of Duty or Halo you have to spend many hundreds of dollars on a console or thousands of dollars on a powerful gaming. PC With cloud gaming, your device needs minimal computing power.

So long as you have a strong internet connection, you can play these games on any device a Chromebook a Mac a smartphone or even some Smart TVs a 1080p resolution and 60 frames per second. The reason that Microsoft wanted to buy Activision wasn't to get a monopolistic position in the console Market It was instead to bolster their game library for their emerging cloud gaming offering, which could eventually be worth tens or even hundreds of millions of dollars foreign to data compiled by. The Verge Microsoft is the largest player in cloud gaming by far, holding at least 60 and possibly up to 70 percent of global market share. After Google shut down their Stadia Cloud gaming offering, there are only four major players of the space: Microsoft Nvidia Sony and Amazon To make a successful cloud gaming offering, you need two things: video games and a lot of computing power.

Microsoft has a huge Advantage Because they are the only company in the world that has both of these things at scale, Microsoft is one of the biggest cloud computing companies with hundreds of data centers around the world serving their Enterprise clients. They can leverage their existing Cloud infrastructure to power their cloud gaming platform. They already own a large number of game studios and have relationships with third-party Publishers. This puts them in a good position to create the technology to support a cloud gaming service and fill it up with an adequate library of games.

Amazon and Google both have significant cloud computing capabilities, but neither of them are video game companies. To make your respectable cloud gaming offering, they would have to license the rights to hundreds of games from independent Publishers which would cost billions of dollars. When Google came to this realization, they shut down Stadia. Amazon's Luna cloud gaming service is a niche offering with a small number of mostly kid-focused games.

Their lack of AAA titles makes it highly unlikely that they could ever become a dominant player. Nvidia has a similar problem. Their Cloud offering Nvidia GeForce now only allows you to play compatible games you already own. Nvidia does not have their own library of games to offer, consumers, making their offering far less desirable.

Microsoft's cloud gaming platform is currently in beta mode and is available to Xbox game pass subscribers, which costs 15 per month. It offers consumers over 300 games including AAA titles like Halo Infinite. Not only do you not need to buy an expensive gaming PC you don't even need to buy the games. This creates an extremely compelling value proposition.

Last year, PlayStation announced their own cloud service called PlayStation Plus Premium. While they have an impressive catalog of games, it is not as technically sophisticated as Xbox. For example, you can only stream games on a PlayStation console or PC it doesn't work on Macs smartphones or Smart TVs The advantages that Microsoft has allowed them to secure early dominance in the cloud gaming industry with an estimated 60 to 70 market share. The main fear was not that they would make Call of Duty exclusive to the Xbox console, but instead that they had failed to make it available to other competing Cloud platforms.

UK Regulators Ultimately concluded that Microsoft's commitment to license Call of Duty to competitors for the next 10 years fails to address the monopolistic potential in cloud gaming. Specifically, it did not sufficiently cover different cloud gaming business models, and it would create standardized terms and conditions in which games are available, which may be inadequate to the rapidly evolving cloud gaming. Market. The point is, even if Microsoft legally commits to supplying Call of Duty to Sony and other competitors, they could still find ways to make it as hard as possible for their competitors to integrate those games into their own cloud services while technically meeting the terms of the agreement.

This could potentially be done by giving subpar technical support or failing to address compatibility issues between Activision games and rival cloud gaming platforms. It also does not cover potential new cloud gaming services that do not yet exist. in the absence of the merger, Activision has a clear commercial incentive to work with all cloud gaming platforms to get the greatest number of Gamers possible playing their games. Given how dominant Microsoft already is in cloud gaming, giving them so much more power risks turning the company into to a monopoly which will eventually have the power to raise prices at the expense of Gamers.

Also, the benefits of Gamers of allowing the merger to go through seems minimal. Microsoft will still be able to license Call of Duty and other games from Activision just like everybody else, and there will be a Level Playing Field amongst all platforms foreign. The proposed merger between Activision and Microsoft could have been extremely advantageous for both entities, with Activision standing to gain a 12 billion dollar premium over their Market valuation. Thus, it's not surprising that all efforts were made to ensure the successful completion of the deal.

However, it was particularly noteworthy how Activision attempted to sway public sentiment through a strategic use of social media. As expected, Sony Xbox's main competitor and the most vocal critic of the merger, was busy lobbying Global Regulators to Halt the merger process. It also became apparent early on that the United Kingdom posed the most significant hurdle in securing regulatory approval. As soon as these two facts became apparent, Activision's Chief Communications officer Lulu Chung Messervi has been tweeting insults against both Sony and the Uk.

She tweeted that Sony's campaign to protect its dominance by blocking our merger can't overcome the facts. She also tweeted a meme which appears to compare Sony to a bicyclist who falls off his bike. Perhaps her most controversial tweet aimed against Sony was this one on March 8, 2023. According to her, the CEO of Sony Interactive Entertainment told Activision Representatives quo I don't want a new Call of Duty deal I just want to block your merger on Guo.

The purpose of Messrivi publishing this tweet was to show that Sony is being unreasonable. They're not interested in coming to a compromise. They just want to block the deal to hurt Microsoft. This statement came from a closed-door meeting between representatives of Sony and Activision and the Sony CEO almost certainly did not intend for his comments to be made public on its face.

The quote does look bad, however, it was likely taken out of context. Sony's concerns were likely the same as the UK Regulators. Even if Microsoft convinced the selling Call of Duty on Xbox for the next 10 years, Microsoft could potentially still use other means to make it more difficult for Sony to integrate Activision games onto their own cloud gaming platform. Following the UK's decision to block the deal, Master V's tweets became even more melodramatic.

She said the Competition and Markets Authorities report is a major setback for the UK's Ambitions to become a tech Hub This report is also a disservice to UK citizens who face increasingly dire economic prospects and we will need to reassess our growth strategy in the UK Global Innovators large and small will take note that despite all this rhetoric, the UK is closed for business on their face. Master V's comments are absurd. The UK is likely headed towards a recession, but this is caused by the Bank of England's rate hikes as well as the high energy prices due to the war in Ukraine. Approving the Activision merger will do nothing to solve these issues.

Her threat to decrease investment in the country appears to be a bluff. Activision currently employs about 500 people in the UK, which is a drop in the bucket on the national scale. Also, there's no reason to believe that any of them would be laid off as a result of the merger being blocked. Activision will continue to operate business as usual.

And finally, the idea that the UK is closed for business doesn't hold water. If anything, the fact that they block what would have become the largest video game merger in history due to legitimate competition concerns is a good thing for the country's Tech sector. It sends a signal to smaller cloud gaming companies. said they are committed to maintaining a Level Playing Field by not letting Microsoft Corner the market.

It appears to be a growing Trend that companies are using social media to publicly air their dissatisfaction with Regulators over the past two years. Coinbase CEO Brian Armstrong has been prolifically treating against the SEC which has been taking an increasingly hard line against the crypto industry. In March of 2023, Coinbase received a so-called Wells notice which informed Coinbase that the SEC will bring enforcement action against them imminently. In most cases, if a company receives a Wells notice, they would have their lawyers deal with it behind closed doors.

Coinbase took a completely different approach. They orchestrated a PR campaign designed to criticize the SEC. They also argued that the unfriendly regulatory framework in the U.S will cause the country to lose 1 million crypto jobs over the next seven years. This claim comes from a pro-crypto research firm which seems oblivious to the current crypto winter.

Coinbase even went so far as to create the stand with Crypto Nft Collection to try to drum up public support. The lawyers at the SEC and the UK's competition markets Authority don't care about Twitter antics of the companies they're investigating. Legal issues are decided by lawyers and judges in the courtroom, not by public sentiments on Twitter All this begs the question: Why do companies like Coinbase and Activision engage in these aggressive PR campaigns with exaggerated and misleading claims about the economic impact of regulators. They are attempting to influence politicians to pass laws favorable to their own business interests.

That's why Brian Armstrong Goes to Washington DC So often, while I'm not trying to draw an equivalence between Coinbase and FTX Sam Bankman Freed also spent copious amounts of time in Washington trying to ingratiate himself to politicians. Unfortunately for coinbase, there's an old saying in Texas that if you fool me Can't Get Fooled Again with U.S lawmakers Fresh Off The humiliation of being tricked by Sam Binkmann Freed. It is extremely unlikely that they will come to the rescue of yet another crypto exchange under SEC scrutiny. Similarly, the UK government didn't fall for Activision's PR campaign to try to get their anti-competitive merger through.

Alright guys, that wraps it up for this video. What do you think about the failed Activision Microsoft merger? Do you think it's a good idea for corporations to spar with Regulators on Twitter let us know in the comments section below. As always, thank you so much for watching and we'll see you in the next one. Wall Street Millennial Signing out.

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