Microsoft, Activision File Motion Seeking Halt to FTC Legal Challenges; Extend Transaction Deadline to Oct. 18

Microsoft and Activision Blizzard have filed a motion asking the Federal Trade Commission to drop its legal challenges to the companies’ $69 billion business merger. Citing separate district court and appeals court’s denials of the government’s attempt to stop the transaction, Microsoft and Activision filed the July 18 motion seeking to withdraw the legal proceeding and allow the FTC “to consider whether the public interest warrants further litigation.”

“In light of this thorough airing and the district court’s findings that the FTC failed to raise any serious questions regarding the legality of the merger, there is little reason to believe the ALJ would reach a different conclusion,” the companies said in the filing.

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Separately, Microsoft and Activision extended the deadline for the planned acquisition until Oct. 18. Under the extended agreement, the termination fee Microsoft must pay Activision if the deal fails increases $500 million to $3.5 billion after Aug. 29 and to $4.5 billion after Sept. 15.

U.K. Regulatory Agency Blocks Microsoft’s $68.7 Billion Activision Acquisition, Citing Cloud Gaming Concerns

A regulatory agency in the U.K. has blocked Microsoft’s $68.7 billion acquisition of video game publisher Activision Blizzard, citing concerns about the deal’s impact on the growing cloud-based gaming market.

The Competition and Markets Authority, in a report, determined that the merger would result in Microsoft’s 60% to 70% market share in cloud-based gaming would lead to an incentive for company’s Xbox gaming brand to withhold Activision’s branded games such as Call of Duty, Overwatch and World of Warcraft from competitors such as Sony Interactive Entertainment’s PlayStation and substantially weaken competition in the growing market.

“Preventing the merger would preserve the competitive dynamism and level of innovation that exists in the growing cloud gaming market,” read the CMA conclusion.

Video games represent the U.K.’s largest home entertainment sector, generating around £5 billion ($6.3 billion) in revenue in 2022 — more than TV streaming, music streaming, movies and books combined, according to the CMA.

The agency concluded that the merger posed no threat to console gaming, due in large part to PlayStation’s “large and profitable user base” that would not switch to Xbox just for Call of Duty.

“We recognized that Microsoft may have other strategic reasons for wanting to make Call of Duty exclusive to Xbox, but we found that the financial losses of doing so would be so high that they would outweigh these other strategic reasons,” read the conclusion.

Microsoft, in response, said it plans to appeal the decision.

“We have already signed contracts to make Activision Blizzard’s popular games available on 150 million more devices, and we remain committed to reinforcing these agreements through regulatory remedies,” Brad Smith, vice chair/president of Microsoft, said in a statement. “We’re especially disappointed that after lengthy deliberations, this decision appears to reflect a flawed understanding of this market and the way the relevant cloud technology actually works.”

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Activision, in a separate statement, said it also plans to appeal the decision, arguing that report’s conclusions represent a “disservice to U.K. citizens, who face increasingly dire economic prospects.”

Santa Monica, Calif.-based Activision said the decision would make the publisher “reassess our growth plans for the U.K.”

Regardless, last December the U.S. Federal Trade Commission filed an antitrust lawsuit against Microsoft over the proposed acquisition, arguing the deal “would enable Microsoft to suppress competitors to its Xbox gaming consoles and its rapidly growing subscription content and cloud-gaming business.”

The European Union is still evaluating the transaction.

Microsoft to Enable Xbox Games Play on Rival Nintendo Platform

Microsoft Feb. 21 announced it would allow its Xbox video games on the rival Nintendo platform. Brad Smith, vice chairman and president of the software giant, made the announcement of the 10-year partnership between the two gaming companies on social media.

Key to the deal would be the availability of Activision titles on Nintendo, including all “Call of Duty” titles, one of the all-time most-popular game franchises. Microsoft is currently facing some pushback from regulators in Europe and the U.S. regarding its $68.7 billion acquisition of Activision.

Smith and a reported 18 executives from Microsoft and Activision were set to meet Feb. 21 with European Union regulators, according to Reuters. Representatives from Sony Interactive Entertainment. Google and Entertainment Arts (EA), which all oppose the merger, are also set to attend.

Wall Street investment firm Deutsche Bank Feb. 16 issued a note underscoring the importance key video game franchises play in the current gaming market.

“December quarter results for the major U.S. video game publishers demonstrated that, across the industry, consumer spending patterns are getting weaker overall, and users are increasingly gravitating towards the biggest franchises and the most well known IP,” analyst Benjamin Soff wrote.

In its most-recent fiscal period, Activision reported a 43% uptick in video game license revenue to $3.75 billion, from $2.5 billion in the previous-year period — led by “Call of Duty.”

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Video Game ‘Call of Duty: Modern Warfare II’ Tops $1 Billion in Sales After 10 Days

Activision’s newest video game, Call of Duty: Modern Warfare II, continues to smash franchise sales records, topping $1 billion in worldwide revenue in the first 10 days of its release on Oct. 28, according to the game publisher. The tally tops the previous franchise record of 15 days set in 2012 by Call of Duty: Black Ops II. Modern Warfare II also broke the franchise’s 72-hour sales record of $800 million.

Activision said player engagement has exceeded more than 200 million hours and over 1 billion matches across PlayStation, Xbox and PC platforms since the title’s release.

“The incredible momentum driving Modern Warfare II [sales] is a direct reflection of the energy and passion of the Call of Duty community,” Johanna Faries, GM of Call of Duty, said in a statement.

Activision releases Call of Duty: Warzone 2.0 on Nov. 16.

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Activision Sheds 800 Jobs Amid Record Sales, Earnings

Video game maker Activision Blizzard on a Feb. 12 earnings call with analysts confirmed rumors of big job cuts – rumors first floated last week in a Bloomberg report.

Executives on the call revealed plans to slash 8% of the company’s 9,600-employee workforce, despite “record” sales of $7.5 billion in 2018, up from $7.02 billion in 2017. Earnings per share, too, were a record $2.35, compared with $0.36 in 2017.

In an earnings release issued earlier in the day, CEO Bobby Kotick said that “while our financial results for 2018 were the best in our history, we didn’t realize our full potential. To help us reach our full potential, we have made a number of important leadership changes. These changes should enable us to achieve the many opportunities our industry affords us, especially with our powerful owned franchises, our strong commercial capabilities, our direct digital connections to hundreds of millions of players, and our extraordinarily talented employees.”

But on the afternoon earnings call, COO Coddy Johnson revealed some 800 of those employees would soon be gone, mostly in non-developmental roles.

“Our restructuring plan sheds investment and less productive non-strategic areas of our business and will result in a net headcount reduction of approximately 8% while also driving a significant increase in investment, focus and capabilities around our biggest franchises,” he said on the call, according to a transcript provided by Seeking Alpha.

The publisher began notifying those who are being laid off across its various divisions, which include Activision, Blizzard and King.

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At the same time, Activision promised a 20% spike in the number of developers working on marquee game franchises such as Call of Duty, CandyCrush, Overwatch,  WarcraftHearthstone and Diablo over the course of 2019.

“We have worked with our new business unit leaders to undertake a comprehensive examination of our business to determine the changes we need to make to improve execution and capitalize on the substantial long-term growth opportunities for our company,” Johnson said on the call. “We determined that we need to refocus our best resources on our biggest opportunities and to remove an unnecessary level of complexity and duplication that is built up in certain parts of the business.

“We have, therefore, developed a clear plan for this year to refocus and reinforce the foundation for growth. This refocus includes initiatives developed by our new business unit leaders, each of whom has demonstrated the ability to combine creative excellence with the commercial focus on profitable growth.

“First, we are investing more in development for our biggest internally owned franchises across upfront releases, in-game content, mobile and geographic expansion. Second, we are deprioritizing initiatives that are not meeting our expectations and reducing certain non-development and administrative-related costs across our business. Third, we are integrating our global and regional sales and go-to-market partnerships and sponsorships capabilities across the business, enabling us to better leverage talent, expertise and scale on behalf of our business units.”

For the year ended Dec. 31, 2018, Activision Blizzard’s net revenues from digital channels were a record $5.79 billion.

For the quarter ended Dec. 31, 2018, Activision Blizzard’s net revenues were a record $2.38 billion, up from $2.04 billion for the fourth quarter of 2017. Net revenues from digital channels were a record $1.79 billion. Earnings per diluted share were a record $0.84, as compared with loss per share of $0.77 for the fourth quarter of 2017.

Activision Blizzard generated $1.79 billion in operating cash flow for the year ended Dec. 31, 2018, as compared to $2.21 billion for 2017.

Comcast, Activision Team for ‘Call of Duty’ Multiplayer Early-Play Promotion

Comcast and Activision are partnering to provide gamers with a chance to play the Call of Duty: Black Ops 4 multiplayer before its official release Oct. 12.

Xfinity and Activision made the announcement at the annual Electronic Entertainment Expo (E3) in Los Angeles.

Starting June 14 and continuing through the end of August, people online can enter a sweepstakes for a chance to play Call of Duty: Black Ops 4 multiplayer at select Xfinity stores in Washington D.C., Boston, Philadelphia, Houston, Seattle, Chicago, Indianapolis and Atlanta.

“This year, Xfinity has elevated the consumer experience by offering Call of Duty fans a chance to play Black Ops 4 through the Xfinity store sweepstakes before its official release on Oct. 12,” said Tyler Michaud, VP, product management at Activision, in a statement. “Gamers will get a sneak peek at the engaging gameplay and depth of content that makes Black Ops 4 a blast to play together with your friends, and we thank Xfinity for the continued support in celebrating gamers throughout the U.S.”

In each location, Xfinity plans special events. For instance, professional basketball player Gordon Hayward (Boston Celtics) will join players at the new Cambridge Xfinity store event in Boston, where he will play Call of Duty: Black Ops 4 alongside the city’s sweepstakes winners. Hayward will also partner with Xfinity on other gaming and esports initiatives throughout the year.

“Fast internet is a must-have for every gamer and as a longtime Xfinity customer, I can vouch for the speed and seamless gameplay it delivers,” said Hayward in a statement. “I’m excited to team up with Xfinity to bring early access of Call of Duty: Black Ops 4 to fans and I can’t wait to join my fellow gamers in Boston.”

Call of Duty: Black Ops 4 is part of a top-selling series that’s had more than 200 million players and more than 15 billion hours played, according to the companies.

“Multiplayer features gritty, grounded combat, along with new levels of customization and tactical gameplay, and a variety of new weaponry, maps and modes,” according to a press release. “’While Zombies’ mode debuts an entirely new and unprecedented experience that’s the biggest Day One offering in franchise history — with three fully-featured Zombies experiences at launch. Black Ops 4 also delivers Blackout – the new battle royale-style experience that combines Black Ops’ signature fast, fluid, guns-up combat, with fierce new levels of survival competition across iconic Black Ops settings re-imagined at a colossal scale in an experience that only Black Ops could deliver.”

“We’re excited to partner with Activision and Call of Duty in an even bigger way for fans this year,” said Todd Arata, SVP of brand marketing at Comcast, in a statement. “Xfinity is proud to offer our Internet customers this special opportunity to get in early and play what is no doubt one of the world’s most anticipated video games of the year, plus it reinforces our Internet speed and capabilities that maximize the gaming experience.”

For official rules and regulations, as well as a complete list of locations, visit Dates for the promotion vary by location.

This marks the second consecutive year Xfinity has partnered with Activision to provide its Internet customers with early access to one of the world’s best-selling video game franchises.

Analyst Calls Appeals Court’s Gambling Decision ‘Dangerous Precedent’ for Online Video Games

Last week, the Ninth Circuit Court of Appeals in San Francisco overturned a lower court ruling that found free-to-play online video games don’t constitute gambling under Washington state law.

Specifically, the appeals court ruled in favor of the plaintiff, who had spent $1,000 on “coins” on a virtual casino slot game to extend play. Players are provided a number of free coins daily but can purchase additional coins to extend play within a 24-hour period.

That payment option, according to the appeals court, held “intrinsic value,” and constituted gambling under state law.

To Michael Pachter, media analyst at Wedbush Securities in Los Angeles, the decision has ramifications for free-to-play online video games that allow players additional turns for a fee.

Activision’s King Casino generated nearly $2 billion in revenue in 2017, including a $1 billion in the U.S. Most of the revenue coming from the purchase of “boosters” in games, which accelerate the solving of the particular game or extending play.

Zynga generated $850 million in revenue, with an estimated $400 million coming from the purchase of time-saving options.

“Should the Circuit Court’s decision be applied in other states, these companies may face a series of lawsuits,” Pachter wrote in an April 2 note.

The analyst expects the latest decision to be appealed by a “more rationale” court that does not render value on virtual video game pieces.

“However, until that happens, there is some risk that Activision and Zynga will see increased legal risk to their ongoing operations in Washington state,” Pachter wrote. “Should other states decide to cite the [lower court] decision as precedent, we may see an uptick in legal activity elsewhere.”