Xbox Content and Services Ups Q2 Revenue 32% to $7.1 Billion Following Activision Blizzard Acquisition

Microsoft Jan. 30 reported that its second-quarter (ended Dec. 31, 2023) “Xbox Content and Services” gaming segment revenue topped $7.1 billion, up 32% from $4.75 billion in the previous-year period. The growth was driven in large part by the $75.4 billion Activision Blizzard acquisition completed last October.

Xbox hardware revenue increased 3% driven by a sales mix shift to higher-priced consoles. Six-month gaming revenue increased nearly 32% to $11 billion from $8.4 billion in the previous-year period.

Xbox content and services revenue includes first-party content (such as Activision Blizzard) and third-party content, including games and in-game content; Xbox Game Pass and other subscriptions; Xbox Cloud Gaming; advertising; third-party disc royalties; and other cloud services.

Subscribe HERE to the FREE Media Play News Daily Newsletter!

Microsoft Finally Completes $69 Billion Activision Blizzard Acquisition

Microsoft Oct. 13 announced it has formally closed its $69 billion acquisition of Santa Monica, Calif.-based video game publisher Activision Blizzard — after overcoming a year of regulatory challenges in the U.S. and U.K. that questioned the deal’s impact on competition in the gaming industry.

In Britain, the country’s regulatory agency, the Competition and Markets Authority, on Friday withdrew their objections after Microsoft agreed to allow Activision to license its budding cloud-based gaming to third-party competitors. In other countries, Microsoft agreed to license Activision’s key titles, including Call of Duty and World of Warcraft, to rivals such as Nintendo and Sony PlayStation.

“Today, we officially welcome Activision Blizzard and their teams to Xbox,” Phil Spencer, CEO of Microsoft Gaming, wrote in a blog post. “They are the publishers of some of the most played and most beloved franchises in gaming history across console, PC and mobile. From Pitfall to Call of DutyWorld of Warcraft to OverwatchCandy Crush Saga to Farm Heroes Saga, their studios have pushed the boundaries of gaming for players around the world.”

Spencer said Microsoft would continue to make more branded games available in more places by enabling third party cloud streaming providers and players to stream Activision Blizzard games in the European Economic Area, a commitment made earlier to the European Commission.

“Today we start the work to bring Activision, Blizzard, and King franchises to Game Pass and other platforms,” Spencer wrote. “We’ll share more about when you can expect to play in the coming months. We know you’re excited — and we are too.”

U.K. Regulators Give Preliminary Approval to Microsoft’s $68.7 Billion Activision Acquisition

The U.K.’s Competition and Markets Authority Sept. 22 agreed to give preliminary approval to Microsoft’s $68.7 billion acquisition of video game publishing giant Activision Blizzard. The greenlight marks the last hurdle for Microsoft, which first announced the acquisition in January 2022.

The regulatory agency said Microsoft had addressed it concerns in a restructured merger proposal, which included Microsoft agreeing not to purchase the cloud gaming rights held by Activision, which will instead be sold to an independent third party, Ubisoft Entertainment SA, before the deal is completed.

Ubisoft will be free to offer Activision’s games, which include the “Call of Duty” and “World of Warcraft” franchises, both directly to consumers and to all cloud gaming service providers however it chooses, including for buy-to-play or multigame subscription services, or any new distribution model for providing content that might emerge as the market develops. The deal with Ubisoft also requires Microsoft to port Activision games to operating systems other than Windows and support game emulators when requested, addressing the other main shortcoming with the previous remedies package.

Subscribe HERE to the FREE Media Play News Daily Newsletter!

Earlier this year, the CMA blocked Microsoft from acquiring the whole of Activision due to concerns that the deal would harm competition in cloud gaming in the United Kingdom. After that deal was blocked, Microsoft submitted a restructured transaction in August for the CMA to review.

“The CMA’s position has been consistent throughout — this merger could only go ahead if competition, innovation, and choice in cloud gaming was preserved,” Sarah Cardell, CEO of the CMA, said in a statement.

Cardell said the deal would have been approved far earlier had Microsoft put forward the restructured deal during the agency’s original investigation. She said the case illustrates the costs, uncertainty and delay that parties can incur if a credible and effective remedy option exists, but is not put on the table at the right time.

“Microsoft has now substantially restructured the deal, taking the necessary steps to address our original concerns,” Cardell said in a statement.

Microsoft, Activision File Motion Seeking Halt to FTC Legal Challenges; Extend Transaction Deadline to Oct. 18

Microsoft and Activision Blizzard have filed a motion asking the Federal Trade Commission to drop its legal challenges to the companies’ $69 billion business merger. Citing separate district court and appeals court’s denials of the government’s attempt to stop the transaction, Microsoft and Activision filed the July 18 motion seeking to withdraw the legal proceeding and allow the FTC “to consider whether the public interest warrants further litigation.”

“In light of this thorough airing and the district court’s findings that the FTC failed to raise any serious questions regarding the legality of the merger, there is little reason to believe the ALJ would reach a different conclusion,” the companies said in the filing.

Subscribe HERE to the FREE Media Play News Daily Newsletter!

Separately, Microsoft and Activision extended the deadline for the planned acquisition until Oct. 18. Under the extended agreement, the termination fee Microsoft must pay Activision if the deal fails increases $500 million to $3.5 billion after Aug. 29 and to $4.5 billion after Sept. 15.

U.S. Supreme Court Refuses to Block Microsoft-Activision $69 Billion Merger

An emergency appeal to the U.S. Supreme Court by a group of video gamers seeking to block Microsoft’s pending $69 billion purchase of publishing giant Activision Blizzard (publisher of Call of Duty) has been denied by the high court. An application for injunction ahead of the midnight termination deadline tonight had been submitted to Justice Elena Kagan, who denied it on July 18.

The denial comes on the heels of the Federal Trade Commission’s failed effort to block the deal last week when a federal appeals court judge in San Francisco denied the government’s request. It remains to be seen whether the FTC seeks alternative avenues to block the deal it said would pose an unlevel playing field to video game-playing consumers.

Tonight’s deadline is expected to pass with closing of the deal. An extension will likely be granted to deal with ongoing regulatory concerns in the United Kingdom. Should the deal fail, Microsoft is on the hook to Activision for a $3 billion break-up fee.

Subscribe HERE to the FREE Media Play News Daily Newsletter!

FTC Loses Final Attempt to Stop Microsoft’s Activision Acquisition; U.K. Remains Last Obstacle

On July 14, the U.S. Court of Appeals for the Ninth Circuit denied the Federal Trace Commission’s appeal of a district court decision refusing to issue an injunction in Microsoft’s pending $69 billion acquisition of Activision Blizzard and its “Call of Duty” franchise that dominates the video game market.

The FTC had asked the appeals court for a temporary pause on the July 18 termination date where Microsoft or Activision could walk away from the deal (and Microsoft pays Activision a $3 billion dollar separation fee). Last week, the U.S. District Court in San Francisco denied the FTC’s motion for a preliminary injunction during the federal government’s review process continued, with the trial set to begin on Aug. 2.

In addition, the S.F. court modified its temporary restraining order unless the FTC was able to obtain a stay from the Ninth Circuit Court of Appeals. The FTC did not get that stay, and the restraining order has now expired. The U.K.’s regulatory “Competition and Markets Authority” ruling remains the lone obstacle to consummation of the deal.

Subscribe HERE to the FREE Media Play News Daily Newsletter!

In response to the appeals court decision, U.K. regulators said they would be open to reviewing a restructured deal, extending its final decision from July 18 to Aug. 29, in order to receive “a detailed and complex submission from Microsoft claiming that there are material changes in circumstance.”

Michael Pachter, media analyst with Wedbush Securities in Los Angeles, remains confident Microsoft can operate its Game Pass subscription business in the United Kingdom separately and will receive the CMA’s approval.

Even Sony Interactive Entertainment, a major objector to the deal, has reportedly accepted the reality of Activision Blizzard being owned by one its largest competitors. On July 16, Phil Spencer, CEO of Microsoft Gaming, tweeted that Microsoft and PlayStation had signed a binding agreement to keep Call of Duty on the PlayStation platform.

“The most likely change, if any, could be the extension of the termination date through Aug. 29,” Pachter wrote in a July 17 note. “It is also possible that the $95 per share deal price could be increased to $99 or more to account for the termination fee if the deal is terminated due to an injunction by July 18.”

Federal Court Judge Overrides FTC, Approves Microsoft’s $69 Billion Acquisition of Video Game Publisher Activision Blizzard

A federal court judge in San Francisco July 11 approved Microsoft’s $69 billion deal to purchase video game publisher Activision Blizzard. The decision circumvents efforts by the Federal Trade Commission to block the deal, citing consumer protections.

But in her ruling, U.S. District Judge Jacqueline Scott Corley dismissed those concerns as immaterial.

“For the reasons explained, the court finds the FTC has not shown a likelihood it will prevail on its claim this particular vertical merger in this specific industry may substantially lessen competition,” Corley wrote in the decision. “To the contrary, the record evidence points to more consumer access to Call of Duty and other Activision content. The motion for a preliminary injunction is therefore denied.”

Corley’s decision, following a five-day trial, comes just days before a proposed July 18 termination deadline for the deal was to come due.

Michael Pachter, media analyst with Wedbush Securities in Los Angeles, said that while any emergency appeal by the FTC would likely be denied, the deal still has to be structured to satisfy the U.K. regulators concerned about Microsoft/Activision operations in the U.K., and should still close by next Tuesday.

“The FTC can sue for divestiture, but Activision shareholders will get paid [a $3 billion termination fee],” Pachter said in an email.

XL8 Accepted Into Microsoft for Startups Founders Hub Program

XL8, a Silicon Valley tech company providing AI-powered machine translation technology, on June 27 announced its acceptance into the Microsoft for Startups Founders Hub program. 

The announcement comes just one week after XL8 announced its selection for the Google for Startups Cloud Program.

The company says its selection for the Microsoft program “marks a significant turning point for XL8. This collaboration brings together XL8’s unrivaled expertise in AI-powered machine translation and the extensive resources and support provided by Microsoft’s renowned startup program.”

As part of the program, XL8 gains access to a comprehensive suite of tools, including Azure cloud credits that scale with the company’s growth. These resources, the company says, will enable XL8 “to further enhance its technology, expand its service offerings, and solidify its position as an industry leader.”

“Joining the Microsoft for Startups Founders Hub is a remarkable opportunity for XL8,” said Jay Jinhyung Park, CTO of XL8. “This collaboration will empower us to push the boundaries of AI-powered language translation and drive innovation in the industry. With Microsoft’s support, we are confident that XL8 will continue to revolutionize the way media content is translated, delivering unparalleled accuracy, efficiency, and value to our clients worldwide.”

 

Microsoft Concedes in Video Game Console War, Focusing on Subscription Gaming

Microsoft Corp. may be on the verge of waving the white flag in the video game console wars.

Speaking  May 4 on the Kinda Funny Xcast webcast, Phil Spencer, CEO of Xbox Gaming, said the company’s attempt to win the video game hardware battle against Sony PlayStation 5 and Nintendo Switch is a lost cause. Microsoft launched the Xbox console in 2001.

Spencer didn’t mince words, saying that 90% of gamers are committed to their existing console. And that would be No. 1 PlayStation 5, followed by the Nintendo Switch, according to Circana data.

The concession follows a rough quarterly financial week in which Microsoft reported a 13% decrease in Xbox revenue (including a 5% drop in hardware sales) and a British regulatory agency temporarily blocked Microsoft’s $68.7 billion acquisition of game publisher Activision Blizzard.

Sony, in its most recent financials, reported a record fiscal year for PS5 sales (19.1 million), above a projected 18 million units. In the quarter ended March 31, Sony sold 6.3 million PS5 units alone.

For Xbox Games’ Spencer, the writing on the wall is clear.

“It’s just not true that if we go off and build great games, all of a sudden you’re going to see console share shift [from PS5, Switch] in some dramatic way,” Spencer said on the webcast. “It’s just the truth of the matter when you’re third place in the console marketplace and the top two players are as strong as they are.”

In February, Microsoft announced it would allow its Xbox video games to be played on the rival Nintendo platform.

Video game analyst Michael Pachter with Wedbush Securities in Los Angeles, agrees unit sales of Xbox Series X and Series S trail the PS5 an Switch by “a wide margin.”

“They are doing fine with Game Pass subscriptions, however, and they seem focused on building that business at the expense of their console business,” Pachter said in an email.

Indeed, Xbox Game Pass subscriptions hit a record 120 million monthly active users during the quarter.

“We saw new highs for Game Pass subscriptions, game streaming hours, and monthly active devices,” Microsoft CEO Satya Nadella said on the fiscal webcast.

U.K. Regulatory Agency Blocks Microsoft’s $68.7 Billion Activision Acquisition, Citing Cloud Gaming Concerns

A regulatory agency in the U.K. has blocked Microsoft’s $68.7 billion acquisition of video game publisher Activision Blizzard, citing concerns about the deal’s impact on the growing cloud-based gaming market.

The Competition and Markets Authority, in a report, determined that the merger would result in Microsoft’s 60% to 70% market share in cloud-based gaming would lead to an incentive for company’s Xbox gaming brand to withhold Activision’s branded games such as Call of Duty, Overwatch and World of Warcraft from competitors such as Sony Interactive Entertainment’s PlayStation and substantially weaken competition in the growing market.

“Preventing the merger would preserve the competitive dynamism and level of innovation that exists in the growing cloud gaming market,” read the CMA conclusion.

Video games represent the U.K.’s largest home entertainment sector, generating around £5 billion ($6.3 billion) in revenue in 2022 — more than TV streaming, music streaming, movies and books combined, according to the CMA.

The agency concluded that the merger posed no threat to console gaming, due in large part to PlayStation’s “large and profitable user base” that would not switch to Xbox just for Call of Duty.

“We recognized that Microsoft may have other strategic reasons for wanting to make Call of Duty exclusive to Xbox, but we found that the financial losses of doing so would be so high that they would outweigh these other strategic reasons,” read the conclusion.

Microsoft, in response, said it plans to appeal the decision.

“We have already signed contracts to make Activision Blizzard’s popular games available on 150 million more devices, and we remain committed to reinforcing these agreements through regulatory remedies,” Brad Smith, vice chair/president of Microsoft, said in a statement. “We’re especially disappointed that after lengthy deliberations, this decision appears to reflect a flawed understanding of this market and the way the relevant cloud technology actually works.”

Subscribe HERE to the FREE Media Play News Daily Newsletter!

Activision, in a separate statement, said it also plans to appeal the decision, arguing that report’s conclusions represent a “disservice to U.K. citizens, who face increasingly dire economic prospects.”

Santa Monica, Calif.-based Activision said the decision would make the publisher “reassess our growth plans for the U.K.”

Regardless, last December the U.S. Federal Trade Commission filed an antitrust lawsuit against Microsoft over the proposed acquisition, arguing the deal “would enable Microsoft to suppress competitors to its Xbox gaming consoles and its rapidly growing subscription content and cloud-gaming business.”

The European Union is still evaluating the transaction.