The FTC Challenge to Activision, or What Microsoft is Committed to Growing Gaming Communities (Post WSJ op-ed)

In a Wall Street Journal op-ed Monday, Microsoft’s Smith said an FTC suit to block the Activision deal would be a “huge mistake” and added that the acquisition would allow Microsoft to innovate new features such as the ability for consumer to play the same game on multiple devices, just as they can with streaming TV shows or music.

The FTC’s complaint points to Microsoft’s previous game acquisitions, especially of well-known developer Bethesda Softworks and its parent company ZeniMax, as an example of where Microsoft made some popular game titles exclusive despite assuring European regulators it had no intention to do so.

In an email sent to employees and provided to CNN, Activision CEO Bobby Kotick said the FTC suit may sound “alarming” but he remains confident the deal will close. The facts do not align with the allegation that this deal is anti-competitive, and we believe that we will win the challenge.

The US merger challenge reflects the biggest setback yet for Microsoft as it has aggressively courted regulators around the world in hopes of persuading them to bless the deal. It also marks the FTC’s most significant challenge to the tech industry since it sued to break up Facebook-owner Meta in 2020, underscoring US officials’ vocal promises of a tough antitrust enforcement agenda.

The deal has been scrutinized by officials in the United Kingdom and the European Union. But the FTC complaint marks the first attempt by an antitrust regulator to block the deal outright.

Notably absent in Smith’s tweet is any mention of Sony. While Microsoft has offered Sony a similar 10-year commitment on new Call of Duty games, it so far hasn’t accepted the deal. “We are in contact with Microsoft and have no further comment regarding our private negotiations,” said a Sony spokesperson in a statement to the Financial Times earlier this month.

The company’s corporate vice president of communications, Frank X. Shaw, also tweeted a link to a document titled: “Get The Facts: How Microsoft is Committed to Growing Gaming Communities.”

Sony has been accused by Microsoft of paying developers to keep their content out of the Xbox Game Pass service, and even argued that Microsoft’s acquisition could lead to price rises.

The FTC’s Complaint against Microsoft’s Action against Activision, a Game-Changing Platform for the Competition of Majorana Games

In a closed-door meeting, the FTC voted 3-1 to issue the complaint with the three Democrats voting in favor and the one Republican voting against. A fifth seat on the panel is vacant after another Republican left earlier this year.

“While we believed in giving peace a chance, we have complete confidence in our case and welcome the opportunity to present our case in court,” Smith said.

The FTC’s challenge is being filed in an administrative court, which could be a test case for the Biden mandate to scrutinize big tech mergers.

Antitrust regulators under Biden “have staked out the view that for decades merger policy has been too weak and they’ve said, repeatedly, ‘We’re changing that,’” said William Kovacic, a former chair of the FTC.

The aim is to not allow deals and not accept weak settlements according to a Republican Commissioner who was appointed in 2006 by George W. Bush. But he said trying to block this acquisition could trigger a legal challenge from Microsoft that the company has a good chance of winning.

“It’s evident that the company has been making a number of concessions,” he said. Microsoft is likely to take the FTC to court if it turns down Microsoft’s commitments.

In a complaint on Dec. 8, the FTC said its concern was that Activision’s popular games, including “World of Warcraft” and “Diablo,” potentially would stop being offered on devices that rival Microsoft’s Xbox. It set a hearing before an administrative law judge for August 2023.

The Epic v. Apple Trial: The Case for a More Fair and Fair Game in the Age of Google, Sony, Nintendo, and Microsoft

The aggressive approach to antitrust enforcement has been taken by the Biden administration. The US Department of Justice recently stopped a $2.2 billion merger of Penguin Random House, the world’s largest book publisher, and smaller US rival Simon & Schuster.

Those games aren’t named, though Microsoft has basically announced that The Elder Scrolls VI will only be available on its platforms, and confirmed Starfield will be exclusive.

There is no sensible, legitimate reason for our transaction to be prevented from closing. Our industry has enormous competition and few barriers to entry. We have seen more devices than ever before enabling players a wide range of choices to play games. The tools and engines are free for all to use. There are more distribution options for games than ever before. We believe we will prevail on the merits of the case.

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. 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.

For one thing, Activision Blizzard probably coughed up those details as part of the due diligence around the transaction before Microsoft ever announced it would spend $68 billion on the company. Even if that doesn’t happen, Microsoft has a lot of opposition research. When I brought you the very best and most revealing emails from the Epic v. Apple trial, I came across a 67-page document from Microsoft’s “Gaming Business Planning & Strategy Team” that broke down all of Microsoft’s main competitors in quite a number of ways, going so far as to estimate non-public information like how Sony’s PlayStation Now cloud gaming service was pulling in $359 million in 2019.

As well as Call of Duty, Smith’s tweet alludes to “Xbox games” more generally, though it doesn’t offer specifics on what franchises these may come from.

News of the deal comes as Microsoft is preparing to plead its case to EU regulators today. The closed hearing is expected to be attended by representatives from Microsoft including Brad Smith and Xbox head Phil Spencer, as well as Activision CEO Bobby Kotick, and Sony’s Jim Ryan. Representatives from Google, Nvidia, Valve, Electronic Arts, the European Games Developer Federation, and over half a dozen different national competition watchdogs are also expected to take part, per Reuters.

Smith said that they were more than willing to address the concerns that others had, either by contracts like we did with Nintendo this morning or by regulatory undertakings.

While the CMA is open to behavioral remedies that could involve deals for Call of Duty, it seems to favor structural ones — including a suggestion that involves a partial divestiture of Activision Blizzard in the form of selling off the Call of Duty business. Today’s meeting will highlight the European Commission’s main concerns and any potential remedies Microsoft may need to consider ahead of an April 11th deadline for a final decision.