Microsoft Corp’s recent agreement to license the cloud gaming rights to all Activision Blizzard Inc (NASDAQ:ATVI) titles to Ubisoft on an exclusive global basis outside of the European Economic Area could be sufficient to eliminate anticompetitive concerns of UK’s Competition and Markets Authority (CMA), according to Wedbush Securities analysts in a note to clients.
Under its original order, the CMA noted that the acquisition of Activision would give Microsoft an unfair competitive advantage in the cloud gaming market— namely that its ownership of Activision games would unfairly benefit Microsoft’s Game Pass service by allowing that service to release the games to cloud gaming subscribers at the same time as the games were to be otherwise released on consoles and PC.
"This likely means that after the Ubisoft license is executed, Microsoft will still be allowed to release games on Game Pass within the UK and EU (and Norway, Liechtenstein and Iceland), but may do so only if those games are nonexclusive to Game Pass," the analysts wrote.
They believe the impact on Microsoft from this agreement is minimal, as even if Ubisoft enters into a deal with Sony to put Activision titles on PlayStation Plus, it is highly unlikely that more than 25% of Microsoft’s estimated 8 million Game Pass subscribers will shift their allegiance to PlayStation Plus.
Meanwhile, for Ubisoft, analysts at Wedbush argue the Microsoft deal is mildly positive as Ubisoft will pay a minimum of $15 million to 20 million a year over a 15-year term for the rights, which they estimate are valued between $50 million and $100 million per year.
The analysts have an ‘Outperform’ rating on Activision Blizzard while reducing their 12-month target price on the stock to $95 per share from $95.99.
Shares of Activision Blizzard edged a penny lower to $91.65 but have gained 19% year to date.
Contact Sean at sean@proactiveinvestors.com