(Bloomberg) -- Microsoft Corp.'s best chance to win approval for its $69 billion Activision Blizzard Inc. deal from US regulators is to persuade the Biden administration to accept a settlement in which the Xbox maker pledges it won't withhold its popular titles from rivals.
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That's a very long shot given Biden's antitrust enforcers aren't fond of such agreements -- especially after this month's Ticketmaster blowup put the spotlight back on a failed 2010 Justice Department settlement with Live Nation Entertainment Inc.
Antitrust officials in the UK and Australia have raised concerns the takeover would give Microsoft an overwhelming advantage in cloud gaming, a nascent industry. That's an area of particular sensitivity for Federal Trade Commission Chair Lina Khan, who earlier this year sued to block Meta Platforms Inc. from acquiring a popular fitness app to gain an edge in the fledgling virtual reality market.
Although Khan hasn't commented specifically on the Activision deal, she said at an October conference that the FTC is focusing on ways digital platforms use mergers to maintain their dominance during periods of technical transitions.
"Right now we are seeing that period of technological transition -- be it in the context of the cloud or voice assistants or virtual reality," Khan said. "We have to be especially vigilant across the board, but particularly in the merger context."
Microsoft announced in January it planned to buy game publisher Activision Blizzard, which has developed popular franchises like Call of Duty and World of Warcraft. The acquisition would be the company's largest ever and one of the 30 biggest deals of all time. Although Brazilian antitrust officials cleared it, other competition regulators, including the UK and the European Union, have raised concerns that Microsoft could withhold popular titles from rivals, particularly from Sony Group Corp.'s Playstation.
Microsoft said it has offered a proposal that would keep Call of Duty on the Playstation for the next 10 years. But that kind of a settlement might not placate regulators, said Bloomberg Intelligence analyst Jennifer Rie.
"This is a deal that needs behavioral concessions and the FTC is not accepting behavioral concessions," Rie said. "They don't have any other choice but to sue."
The FTC declined to comment.
Microsoft said in a statement it's "prepared to address the concerns of regulators, including the FTC, and Sony to ensure the deal closes with confidence." Microsoft pointed out that it would still trail Sony and market leader Tencent Holdings Ltd. in the gaming market after the takeover has been completed.
The Biden administration's antitrust officials have taken an aggressive tack with companies seeking to merge, often rejecting proposed settlements in favor of lawsuits. The Justice Department has filed a record 10 merger challenges since June 2021. The FTC also has blocked two major deals that sought regulatory approval based on pledges the merged company would play nice with its rivals -- Nvidia Corp.'s purchase of Arm Ltd. from SoftBank Group Corp. and Lockheed Martin Corp.'s bid to buy Aerojet Rocketdyne Holdings Inc.
Then there's the furor over Live Nation's Ticketmaster unit after its botched launch of Taylor Swift concert ticket sales last week. The ticketing giant merged with Live Nation in 2010 after the Justice Department blessed its offer to license Ticketmaster's software to other companies and pledge not to retaliate against venues that chose alternate ticketing vendors. Some lawmakers and advocates are now calling to unwind that merger, saying regulators should never have approved it in the first place.
Microsoft's Activision Blizzard deal also features another aspect that has piqued the interest of regulators -- major technology platforms using acquisitions to dominate emerging industries, in this case cloud gaming. Several tech companies launched forays into subscription gaming services using cloud technology including Microsoft, Sony, Alphabet Inc.'s Google and Amazon.com Inc. --although few have broken into the mainstream and, in September Google announced it would shut down its Stadia service.
Microsoft's Xbox Game Pass, which includes cloud gaming in its Ultimate package, leads the market with more than 25 million subscribers. In part, that's because Microsoft's dozens of game studios provide a direct channel of content. Activision Blizzard is expected to add enormously to the subscription service's value proposition.
UK regulators, who must also approve the acquisition, have highlighted concerns about cloud gaming as one of the main reasons they extended their review through March 2023. The deal could "tip or significantly increase concentration" of cloud gaming in Microsoft's favor before rivals have a chance to develop, the UK's Competition and Markets Authority said.
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