Microsoft Response to FTC Lawsuit: Activision Acquisition Expands Video Game Access to More Consumers

Microsoft has responded to the Federal Trade Commission’s lawsuit seeking to block the software giant’s $69 billion acquisition of Activision Blizzard, publisher of the popular “Call of Duty” video game franchise.

The FTC, earlier in December after a 3-1 vote said the mega merger would enable Microsoft to suppress competitors to its Xbox gaming consoles and its rapidly growing subscription content and cloud-gaming business.

Microsoft, in a Dec. 22 legal filing, countered that the acquisition would in fact expand consumer access to Activision’s portfolio of video games.

“The acquisition of a single game by the third-place console manufacturer cannot upend a highly competitive industry,” Microsoft wrote in the filing. “That is particularly so when the manufacturer has made clear it will not withhold the game. The fact that Xbox’s dominant competitor has thus far refused to accept Xbox’s proposal does not justify blocking a transaction that will benefit consumers.”

That competitor is Sony Interactive Entertainment, whose PlayStation 5  has been the top-selling video game console since the the PlayStation brand inception. Sony contends the deal would favor the Xbox console and Xbox Game Pass streaming service over PlayStation, putting the latter at a competitive disadvantage.

Bloomberg earlier this month reported that Microsoft was willing to let Sony sell the “Call of Duty” franchise titles on its PlayStation streaming service. While the FTC trial is set to take place in 2023, the merger is also getting antitrust pushback from regulators in the U.K. and the European Union.

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Analyst: U.S. Government Gave Microsoft Roadmap to Circumvent Activision Antitrust Concerns

On the heels of the Federal Trade Commission’s complaint against Microsoft’s $69 billion acquisition of video game publishing giant Activision Blizzard citing antitrust concerns, the government laid out a potential roadmap for Microsoft to appease regulators, according to Wedbush Securities analyst Michael Pachter.

The government, in its complaint, alleged Microsoft, which sells the Xbox video game console, published titles, in addition to branded online gaming platforms, could manipulate Activision’s pricing of its games across the Xbox ecosystem, degrade the quality of Activision games or player experiences offered on competitor consoles, i.e. Sony PlayStation 5, change the terms or timing of access to Activision content, and/or withhold Activision content from other consoles altogether.

Activision video game franchises include some of the biggest ever, including Call of Duty, Crash Bandicoot, Guitar Hero, Tony Hawk’s, Spyro, Skylanders, World of Warcraft, StarCraft, Diablo, Hearthstone, Heroes of the Storm, Overwatch and Candy Crush Saga.

Pachter contends that if Microsoft were to make the aforementioned changes, consumers would be indeed harmed. As a result, the analyst believes the software giant, in a binding legal obligation, could simply agree not alter the competitive landscape going forward.

“If Microsoft enters into a consent decree agreeing to address each of the FTC’s concerns, the case would be considered moot and the judge would be required to dismiss it,” Pachter wrote in a note to investors.

U.S. Government Seeks to Block Microsoft’s $69 Billion Acquisition of Video Game Giant Activision Blizzard

Consolidation within the lucrative video game industry has been put on hold.

The Federal Trade Commission Dec. 8 announced it is seeking to block technology giant Microsoft Corp. from acquiring video game developer Activision Blizzard, alleging that the $69 billion deal, Microsoft’s largest ever and the biggest in the video gaming industry, would enable the software behemoth to suppress competitors to its Xbox gaming consoles and its rapidly growing subscription content and cloud-gaming business.

The 3-1 vote, with Commissioner Christine S. Wilson voting against the complaint, is significant considering Xbox rival, Sony’s PlayStation 5, remains the biggest selling game console since its launch.

In a complaint, the FTC pointed to Microsoft’s record of acquiring and using gaming content to suppress competition from rival consoles, including its acquisition of ZeniMax, parent company of Bethesda Softworks (a well-known game developer). Microsoft decided to make several of Bethesda’s titles, including Starfield and Redfall, Microsoft exclusives despite assurances it had given to European antitrust authorities that it had no incentive to withhold games from rival consoles, i.e. Sony PlayStation.

“Microsoft has already shown that it can and will withhold content from its gaming rivals,” Holly Vedova, director of the FTC’s bureau of competition, said in a statement. “Today we seek to stop Microsoft from gaining control over a leading independent game studio and using it to harm competition in multiple dynamic and fast-growing gaming markets.”

Microsoft’s Xbox Series S and Series X are one of only three types of high performance video game consoles when including Nintendo. Importantly, Microsoft also offers a video game content subscription service called Xbox Game Pass, as well as a cloud-based video game streaming service, according to the complaint.

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Activision is one of only a very small number of top video game developers in the world that create and publish high-quality video games for multiple devices, including video game consoles, PCs and mobile devices. It produces some of the most popular video game titles, including Call of DutyWorld of WarcraftDiablo and Overwatch, and has millions of monthly active users around the world, according to the FTC. Activision currently has a strategy of offering its games on many devices regardless of producer.

But that could change if the deal is allowed to proceed. With control over Activision’s blockbuster franchises, Microsoft would have both the means and motive to harm competition by manipulating Activision’s pricing, degrading Activision’s game quality or player experience on rival consoles and gaming services, changing the terms and timing of access to Activision’s content, or withholding content from competitors entirely, resulting in harm to consumers.

In a public letter to its Santa Monica, Calif.-based employees, Activision CEO Bobby Kotick said he believes the transaction first announced in January will close.

“The allegation that this deal is anti-competitive doesn’t align with the facts, and we believe we’ll win this challenge,” Kotick wrote.

In the most recent fiscal quarter, overall consumer spending on video games, hardware and accessories dipped 5% to $12.34 billion, from $12.98 billion in the previous year period.

Kotick said he believes that a combined Microsoft-Activision would be good for players, employees, competition and the industry.

“Our players want choice, and this gives them exactly that,” he wrote. “We believe these arguments will win despite a regulatory environment focused on ideology and misconceptions about the tech industry.”

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.