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Microsoft MSFT announced that it signed a binding agreement with Sony’s SNY PlayStation to keep Call of Duty on PlayStation following its looming $69-billion takeover of Activision Blizzard ATVI.

Microsoft is the manufacturer of the Xbox, which competes directly with Sony’s PlayStation, prompting fears that MSFT might make games exclusive to its own consoles and displace Sony from competition.

The agreement signaled a truce between the two gaming giants after a bruising 18-month battle over the future of Activision content on PlayStation.

Sony had resisted signing a Call of Duty deal with Microsoft after the company first offered a 10-year contract in December 2022. Instead, in filings to regulators, Sony has repeatedly maintained that it fears Microsoft could make Call of Duty exclusive to Xbox or even sabotage the PlayStation versions of the game.

Microsoft Corporation Price and Consensus

Regulatory Pressure Swirls Around Microsoft-Activision Deal

Microsoft's proposed buyout of Activision Blizzard has faced persistent regulatory obstacles in both the United States and U.K. Last week, this Zacks Rank #3 (Hold) company emerged victorious as the U.S. Federal Trade Commission lost its attempt to temporarily block the merger through a court injunction.

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The deal still has to gain approval of U.K. regulators. The agency, Competition and Markets Authority (CMA), was the first global regulator to object to the Activision takeover and its blocking order is now the only remaining legal impediment.

CMA has paused its legal proceedings to block the acquisition in favor of renewed negotiations with Microsoft. The company has agreed to pay Activision a $3 billion break-up fee in the event the tie-up failed to close by that date.

To assuage regulators' concerns, MSFT has signed agreements with Switch console owner, Nintendo NTDOY and Nvidia, promising to keep the game available on the competing platforms for at least 10 years.

Global regulators including those in the EU, Brazil, China, Japan and South Korea have already approved the deal.

Microsoft Ups Ante in Gaming With Upcoming Lineup

The acquisition, if closed, would be the largest in Microsoft’s history and the gaming industry. Adding the Call of Duty and Activision's other game franchises to MSFT’s existing first-party titles including Halo and Forza would catapult the company past Nintendo to make it the second-largest home console maker by revenues behind Sony. It would also put Microsoft behind Tencent and Sony as the third-largest gaming company by global revenues.

Xbox Game Studios recently unveiled new projects specifically created for Xbox, including South of Midnight by Compulsion and Clockwork Revolution by inXile.

Furthermore, MSFT provided updates on the highly anticipated game Fable and shared insights into the future of the Microsoft Flight Simulator franchise. An exciting announcement was also made regarding Sea of Thieves: The Legend of Monkey Island.

In the third quarter of fiscal 2023, gaming revenues declined 4% and 1% at cc. Xbox hardware revenues decreased 30% (down 28% at cc). Xbox content and services revenues increased 3% (up 5% at cc) driven by growth in Xbox Game Pass.

The Zacks Consensus Estimate for gaming revenues in the fiscal fourth quarter is pegged at $3.63 billion, indicating growth of 5.1% year over year.

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