Microsoft appeals to regulators with new app policies so they don’t kill $69 billion Activision deal

Microsoft appeals to regulators with new app policies so they don’t kill $69 billion Activision deal

Microsoft CEO Satya Nadella speaks at the company’s annual shareholder meeting in Bellevue, Wash, on Nov. 30, 2016.
Jason Redmond | AFP | Getty Images

Microsoft announced several commitments about operating digital storefronts in a way that might help it appear more friendly to outside developers.

The company wants to strike a more open tone than its highly valued peers as regulators and politicians look for ways to limit anticompetitive practices. The company released a set of app store “principles” on Wednesday designed as a point-by-point rebuke of the app store policies from rivals like Google and Apple that have drawn scrutiny from legislators and regulators around the world.

Those principles are also designed to ease regulators’ fears about Microsoft’s impending acquisition of video game giant Activision Blizzard and allow the transaction to go through.

Microsoft announced the move three weeks after revealing its intent to acquire video-game publisher Activision Blizzard for $68.7 billion. Activision Blizzard releases games in the Call of Duty, Candy Crush, Diablo and World of Warcraft franchises, and the deal would bring up Microsoft’s collection of game studios to 30 from 23.

The deal would be the largest ever by a U.S. technology company if Microsoft can complete it. But regulators and elected officials in recent years have shown more willingness to push back on highly valued technology companies’ transactions. In the United Kingdom last year, the Competition and Markets Authority ordered Facebook owner Meta Platforms to divest GIF website operator Giphy.

“I expect this deal to be closely scrutinized to ensure that it won’t harm American workers or competition,” Jerry Nadler, chair of the U.S. House Judiciary Committee, wrote in a tweet about Microsoft’s planned deal. But Microsoft has emphasized that the deal would make it the third largest gaming company by revenue, behind Tencent and Sony.

While Microsoft endured its own antitrust pressure in the 1990s and 2000s thanks to its Windows dominance, under Nadella lawmakers and competition watchdogs have paid less attention to it and spent more time looking at Meta, as well as Amazon, Apple and Google parent Alphabet.

For example, pending bills in the U.S. House and Senate have the potential to limit how Apple and Google can run their mobile app stores. Brad Smith, Microsoft’s president and vice chair, dubbed the Senate’s Open App Markets Act “important legislation” in a tweet last week.

Smith set out a series of principles in a blog post. He said Microsoft won’t use non-public information from its app store to compete with other developers’ programs.

He said the company allow all developers to access its app store if they comply with the company’s standards, that it will apply store marketing rules consistently and that it won’t provide advantages of its apps or partners’ apps over others. Windows users will still be able to use other app stores and side-load apps downloaded from the internet, he said.

And developers won’t have to use Microsoft’s payment system for in-app payments. Microsoft announced in September that with the launch of Windows 11, the Store app for Windows won’t require developers to split revenue with Windows when developers are using their own payment systems.

The changes seem to speak to concerns that app developers have raised against Apple and Google, which are targeted by the Open App Markets Act. The bill, which recently passed with strong bipartisan support out of the Senate Judiciary Committee, would prevent app stores with more than 50 million U.S. users from discriminating or imposing certain restrictions on developers that rely on their services for distribution. For example, the bill would prevent such app store operators from punishing developers for offering their apps at different prices elsewhere and prevent them from requiring developers to use the platform’s payment system as a term for distribution.

Last year Microsoft dropped the percentage it keeps from sales of video games through its Windows app store from 30% to 12%, making it more competitive with rival Epic Games. A document that became public through Epic’s lawsuit against Apple last year showed that Microsoft executives were discussing a proposal to make a similar change to revenue share for games that people buy through its store on Xbox consoles.

Microsoft’s app store for Windows debuted with the introduction of Windows 8 in 2012, more than three years after Apple launched its App Store for the iPhone. Microsoft has offered a digital marketplace on Xbox since 2005.

Some of the new rules won’t immediately apply on Microsoft’s current Xbox app store.

“Emerging legislation is not being written for specialized computing decvices, like gaming consoles, for good reasons,” Smith wrote. “Gaming consoles, specifically, are sold to gamers at a loss to establish a robust and viable ecosystem for game developers.” But Microsoft said over time it wants to apply all of the store principles on Xbox as well as Windows.

Gaming has been important for decades for the company behind Windows operating systems and Xbox consoles, and it has taken on a higher priority at Microsoft under Satya Nadella, who replaced Steve Ballmer as CEO in 2014. The company spent $8.1 billion on Elder Scrolls and Fallout publisher ZeniMax Media in 2021 and$2.5 billion on Mojang Synergies, the company behind Minecraft, in 2014.

Microsoft has been signing up people for subscriptions to Game Pass, a service that provides access to hundreds of games. A larger game portfolio might lure more subscribers, and last month, following the ZeniMax deal, Microsoft said it had reached 25 million subscribers, up from 18 million one year earlier.

But Activision Blizzard’s titles aren’t all exclusive to Xbox. The 2021 Call of Duty: Vanguard first-person shooter game is available on PlayStation, as well as Xbox and Windows. Many Call of Duty gamers own PlayStation consoles, and Sony is Activision Blizzard’s largest customer, delivering 17% of total revenue in 2020, according to a regulatory filing.

Phil Spencer, CEO of Microsoft Gaming, said in a tweet that he told Sony executives that Microsoft plans to honor “existing agreements upon acquisition on Activision Blizzard and our desire to keep Call of Duty on PlayStation.”

Smith said on Wednesday that Microsoft would like to make a similar arrangement with Nintendo.

— CNBC’s Lauren Feiner contributed to this report.

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