Earlier this year the UK’s Competition and Markets Authority (CMA) blocked Microsoft’s $69 billion acquisition of Activision Blizzard (makers of Call of Duty amongst other gaming titles) as ‘it would harm innovation and choice for gamers in the fast-growing cloud gaming business’ So, Microsoft have repackaged a deal focused on narrowing their own rights over time in an attempt at addressing the issue.
Under this new deal, Ubisoft would acquire exclusive cloud streaming rights (except for the European Economic Area, EEA) for all Activision games – both current as well as new ones released over the next 15 years, which it would then hold in perpetuity (forever) for these titles. The condition for this is that Microsoft would be compensated with a one-off payment and from a market-based wholesale pricing mechanism - with an option that supports pricing based on usage.
Whilst this all seems reasonably straightforward there’s some negotiation housekeeping that should have been done before this revised proposal was delivered. There’s a need to explore exactly what the nature of the objection(s) were, to go back and revisit the original planning – adjusting the objectives & strategy, and considering if, as a result, new variables should be introduced. This is how it maybe played out with this Microsoft deal:
Always explore the reason that your proposal has been rejected
I hope that Microsoft were peppering the CMA with questions after the first deal was rejected. Be careful not to be lazy and just ask ‘why’ – some people start to go into justification mode which makes it difficult for them to subsequently move later. Better to ask questions such as – ‘Which aspects of this proposal are unacceptable’, ‘What would I need to do to get this deal through’ or ‘Under what circumstances might this be acceptable’.
If we can really drill down on what the true nature of the objections are (they can be hidden), we’re so much more likely to construct something next time that addresses the issues. Sometimes the answer may be a cheaper problem-solving approach rather than a negotiating one.
Be mindful of the issues of precedent
The EEA had already agreed a deal in principle earlier this year, any new deal done outside of this would need to respect the integrity of the tentative EEA agreement (Ubisoft is a French company). If integrity is not respected, the first deal may well unravel, and Microsoft could find themselves right back at square one.
Revise your objectives to address new stakeholders and their issues
When Microsoft went back to the drawing board (planning) after their first proposal was rejected, somebody must have come up with the idea of using Ubisoft as a make weight. Whilst we don’t know the details of the one-off payment or the wholesale pricing mechanism, I would fully expect Microsoft to have had conversations like ‘Just suppose we offered the rights to you for 15 years against a one-off fee of X and a wholesaling pricing of Y – would that be acceptable to you?’ Without specificity, you always leave yourself open to potentially being horribly exposed.
Always consider using the time variable
What’s a problem today is not necessarily a problem tomorrow (even more so in 15 years’ time!). This extended timescale arguably gives competition time to access the current Activision catalogue, it offers greater consumer choice and gives the competition time to consider their strategy for future innovation - of course, a huge amount may well have changed in technology during this time-period. These actions can look, at least on the surface, as setting a more ‘level the playing field’. Microsoft however are probably looking to the long term with heavy investment planned in their cloud-based product development work during this time.
Will the deal go through? I wouldn’t be surprised, especially if they’ve followed the above checklist. If it doesn’t, I’m sure their ‘candy’ will be well and truly ‘crushed’!
Sam Macbeth, 23rd August
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