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.”