Microsoft battles US government over $68.7 billion Activision Blizzard acquisition

3 mins read
Microsoft battles US government over $68.7 billion Activision Blizzard acquisition

Microsoft filed a formal response to the Federal Trade Commission’s (FTC) allegations that the $68.7 billion Activision Blizzard acquisition is illegal and should be stopped on Thursday.

After years of escaping the political wrath directed at huge tech peers like Amazon and Google, the software company now appears to be on a collision path with US authorities empowered by President Joe Biden’s push to crack down on anti-competitive activity.

According to the FTC, the transaction may violate antitrust rules by stifling competitors to Microsoft’s Xbox game system and its expanding Xbox Game Pass subscription business.

The disagreement revolves around Microsoft’s competition with Sony for popular Activision Blizzard franchises such as the military shooter game Call of Duty.

Microsoft’s response to the FTC attempts to mitigate Xbox’s role in the industry, describing itself as the “third-place manufacturer of gaming consoles” behind Sony and Nintendo, and one of just many publishers of popular video games with “next to no presence in mobile gaming,” where it is trying to make gains.

On Thursday, Activision Blizzard filed its own counter to the FTC lawsuit, criticizing the FTC’s “unfounded assumption” that Microsoft would desire to keep Call of Duty off competing platforms. Its CEO, Bobby Kotick, believes the company will triumph.

The disagreement might be a challenging test for Biden-appointed FTC Chair Lina Khan, who has vowed to boost antitrust enforcement. Earlier in December, the FTC voted 3-1 to file the lawsuit trying to halt the acquisition, with Khan and two other Democratic commissioners voting in favor and the sole Republican voting against.

The transaction is also being scrutinized in the European Union and the United Kingdom, where probes are not expected to be concluded until next year.

The FTC complaint cites Microsoft’s 2021 acquisition of well-known game developer Bethesda Softworks and its parent firm ZeniMax as an example of how Microsoft is making some upcoming game releases exclusive to Xbox despite reassuring European regulators that this was not the case.

Microsoft responded to the FTC’s assessment on Thursday, saying it told European regulators it would “approach exclusivity for future game titles on a case-by-case basis, which is exactly what it has done.”

According to the FTC’s lawsuit, top-selling franchises like Call of Duty are crucial because they establish a base of devoted players who are attached to their preferred console or streaming provider.

“With control of Activision’s content, Microsoft would have the ability and increased incentive to withhold or degrade Activision’s content in ways that substantially lessen competition — including competition on product quality, price, and innovation,” the FTC lawsuit says. “This loss of competition would likely result in significant harm to consumers in multiple markets at a pivotal time for the industry.”

Microsoft has indicated that it will forcefully defend the case in court, backed by high-profile corporate attorney Beth Wilkinson, while still leaving the door open to a settlement.

“Even with confidence in our case, we remain committed to creative solutions with regulators that will protect competition, consumers, and workers in the tech sector,” said Microsoft’s president, Brad Smith, in a statement Thursday. “As we’ve learned from our lawsuits in the past, the door never closes on the opportunity to find an agreement that can benefit everyone.”

Microsoft’s last major antitrust dispute came more than two decades ago when a federal judge ordered the company’s dissolution due to anti-competitive behavior relating to its dominating Windows software. On appeal, the verdict was overturned, but the court imposed other fines on the company.

The FTC’s decision to refer the complaint to its in-house Administrative Law Judge D. Michael Chappell rather than seek an urgent federal court injunction to prevent the merger may delay the case until August when the first evidence hearing is set. Microsoft’s agreement with Activision Blizzard calls for it to pay the video game company a breakup fee of up to $3 billion if the deal cannot be completed by July 18.

The case’s timing and trajectory may change depending on how regulators in the United Kingdom and Europe vote on the merger next year. If Microsoft receives approval in Europe, it may be able to use that to try to speed up the process in US courts.

A group of individual video gaming players filed a lawsuit in federal court in San Francisco this week to halt the merger on antitrust grounds.

According to their attorney, Joseph Alioto, the plaintiffs, who are all fans of Activision Blizzard’s Call of Duty franchise and other popular titles such as World of Warcraft, Overwatch, and Diablo, are particularly concerned about how the consolidation will affect future game quality, innovation, and output.

“When there’s a lack of competition, the quality necessarily goes down,” Alioto said. “By eliminating Activision, it gives such a strong position to Microsoft that they can do whatever they want.”