The UK’s competition watchdog has said Microsoft’s revised offer to buy the Call of Duty maker Activision Blizzard “opens the door” to the deal being cleared.
The Competition Markets Authority (CMA) said the updated deal appeared to address concerns it had raised.
Under the new proposals, Microsoft will not buy the cloud gaming rights owned by Activision Blizzard.
Its original $69bn (£59bn) deal was blocked by UK regulators.
Earlier this year, the CMA prevented Microsoft from taking on the whole of Activision over concerns that the deal would harm competition in cloud gaming in the UK.
Microsoft then submitted a restructured deal for the competition watchdog to look at last month.
Under the new offer, Microsoft agreed to transfer the rights to stream Activision games from the cloud to the French video games publisher Ubisoft for 15 years.
The sale to Ubisoft of this portion of Activision’s business will mean the cloud streaming of games like Call of Duty, Overwatch and World of Warcraft will not come under Microsoft’s control.
In a statement on Friday, the CMA’s chief executive, Sarah Cardell, said: “The CMA’s position has been consistent throughout – this merger could only go ahead if competition, innovation, and choice in cloud gaming was preserved.”
A consultation will be opened before a final decision on the deal is taken.
This latest update is likely to come as a big relief for those bosses at the top of Microsoft and Activision who have pushed hard, and risked reputations, to get this deal over the line.
Microsoft’s plan to buy Activision Blizzard – the largest takeover in the history of the gaming industry – was originally announced in January last year.
However, it has proved controversial and received a mixed response from regulators around the world.
The deal was passed by regulators in the European Union in May, while the US competition watchdog recently saw its attempt to pause the purchase rejected by an appeals court.
Given that the takeover looked like it would collapse earlier this year, the fact that it is now on the verge of approval is some achievement.
However, in its latest announcement, the CMA’s Ms Cardell said: “It would have been far better… if Microsoft had put forward this restructure during our original investigation.
“This case illustrates the costs, uncertainty and delay that parties can incur if a credible and effective remedy option exists but is not put on the table at the right time.”
Sony also objected to the deal originally, concerned that Microsoft could stop major games being made available to its own PlayStation business.
The CMA said that with extra protections, the move would mean that gamers have the opportunity to access Activision’s games in many different ways, including through the cloud-based multigame subscription services.
It added that while it still had “limited residual concerns”, the revised deal “keeps the cloud distribution of these important games in the hands of a strong independent supplier, Ubisoft, rather than under the control of Microsoft”.
Ms Cardell told the BBC’s Today programme that this was “not a tweak”, but a “fundamentally restructured deal”.
The agreement brings to a close the first “test case” for the CMA – and how competition rules work in the UK – since it gained extra powers after Brexit.
Microsoft still hopes the merger will boost demand for its Xbox console and its gaming subscription business.
Its vice chairman and president Brad Smith said it was “encouraged” by this positive step.
“We presented solutions that we believe fully address the CMA’s remaining concerns related to cloud game streaming, and we will continue to work toward earning approval to close prior to the 18 October deadline.”
Microsoft hopes the CMA will make a final decision on the revised bid next month – after the consultation closes on 6 October. Without its approval, the deal cannot go ahead globally.
Activision said that the preliminary approval was “great news” for its future with Microsoft.
“We look forward to working with Microsoft toward completing the regulatory review process,” it added.
It may take some time for players to notice what this all means. But with Microsoft taking control of such a major slice of gaming real estate, business strategists and games makers at the company are pondering what they can do with access to some of the biggest franchises in gaming.
Although any big announcements on what games or updates might be next are yet to be made, one expert told the BBC that the deal placed Microsoft in a “unique position”.
Gareth Sutcliffe, senior games analyst at Enders Analysis, pointed out that it will bring Activision’s studio solely for mobile games in-house for Microsoft.
“It’s ultimately about covering all games imaginable with one subscription. Microsoft can now cover every different platform – mobile, consoles and PC.
“It’s all about the transfer of knowledge [from Activision’s team],” he added, while Microsoft will hope Activision continues the successes of its games like Candy Crush.