FTC sues to block Microsoft’s acquisition of Activision Blizzard

The Federal Trade Commission said Thursday it filed an antitrust suit against Microsoft to challenge the software maker’s attempt to take over the video game publisher Activision Blizzard.

This isn’t the first time Microsoft has faced competitive pressure. In 1998, the United States Department of Justice filed a broad antitrust suit against the company. Microsoft changed some practices related to his windows operating system business as a result. Regulators in the United Kingdom are examining whether the acquisition of Activision Blizzard would reduce competition in the country.

Microsoft announced plans to acquire Activision Blizzard in January for $68.7 billion, with a goal of closing by June 2023. The deal is under pressure from Microsoft’s competitors in gaming, such as Sony. Microsoft has repeatedly said it won’t be the world leader in gaming if the deal closes, and it is sworn to provide popular “Call of Duty” games on non-Microsoft gaming platforms.

“We continue to believe this deal will increase competition and create more opportunities for gamers and game developers,” Brad Smith, Microsoft vice chairman and president, said in a statement. “We have been committed to addressing competition concerns since day one, including offering proposed concessions to the FTC earlier this week. While we believed in giving peace a chance, we are confident in our cause and We welcome the chance to take our case in court.”

FTC commissioners voted 3 to 1 to move forward with the agency’s administrative complaint, which will go before the FTC’s internal administrative court. In that process, the ALJ makes a first decision after a trial-like procedure. The defendant or FTC personnel serving as “complaint attorney” may elect to appeal the original decision to the full committee for a vote. After that, the defendant could still ask a federal appeals court to review the commission’s order.

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

FTC is suing Microsoft over proposed Activision deal

In the statement, the FTC said Microsoft has a criminal record, including hers 2021 ZeniMax deal, of buying games and using the moves to stifle competition from other companies that make consoles. Microsoft made ZeniMax games like Starfield and Redfall exclusive after telling European antitrust regulators it had no reason to stop people from playing the games on consoles other than the Xbox, the agency said.

The FTC said Activision Blizzard has been bringing its games to different devices regardless of their manufacturers, but that could change if Microsoft finalized the deal. Microsoft could adjust prices or degrade the experience on competing hardware such as Sony PlayStation consoles, or prevent Activision Blizzard consoles from reaching consoles other than Microsoft’s Xbox systems, the agency said.

Microsoft does offer titles that are exclusive to the Xbox, and in October Phil Spencer, CEO of gaming at Microsoft, pointed out that Sony has its own set of exclusive franchises, but that Microsoft has brought games like Minecraft to other devices over time. He argued that it’s important that more people, not less, play games that the company owns. Microsoft is trying to add subscribers to its Game Pass service that provides access to hundreds of games.

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“We want more players around the world to enjoy Call of Duty. That requires COD to be on different platforms following the merger of Microsoft + Activision Blizzard,” said Lulu Cheng Meservey, Activision’s Executive Vice President of Corporate Affairs and Communications in a tweet.

The lawsuit is a major milestone for FTC Chair Lina Khan, who has long signaled aggressive action on technology. While her tenure included a lawsuit to block the Facebook owner meta of acquiring a developer of virtual reality fitness apps, the lawsuit to block the Microsoft-Activision deal is notable for its magnitude as the largest technology transaction to date.

Khan and her Justice Department antitrust counterpart, Jonathan Kanter, have said they want the agencies to feel more comfortable taking big swings, adding that a high number of court victories likely means that they don’t fight enough cases.

Smith discussed Microsoft’s arguments against blocking the deal in a Wall Street Journal op-ed published earlier this week and said it would be a “massive mistake”.

“Microsoft faces huge challenges in the gaming industry,” Smith wrote, adding that its Xbox console gaming system ranks third behind Sony’s PlayStation and the Nintendo Switch. Microsoft also has “no meaningful presence in the mobile gaming industry,” he said. He drew attention Apple and Googlesaying that while mobile gaming is a fast-growing, high-revenue segment, these two app store operators receive a “significant portion” of that revenue through their developer fees.

Activision Blizzard has a place on mobile devices thanks to its 2016 acquisition of King, which publishes the Candy Crush Saga game. The Candy Crush franchise has over 200 million monthly active users, Activision Blizzard said in November.

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Smith argued that purchasing Activision would enable Microsoft to compete effectively in the games industry, drive innovation and help customers. He downplayed the concerns of competitors like Sony, saying the company is “as excited about this deal as Blockbuster was about the rise of Netflix.”

Activision Blizzard shares hit an all-time low of $73 per share after the FTC announced its case. Microsoft had agreed to pay $95 per share.

Bobby Kotick, the CEO of Activision Blizzard, told employees in a memo that the claim that the deal is anti-competitive is inconsistent with the facts.

“Simply put, a combined Microsoft ABK will be good for players, good for employees, good for competition and good for industry,” he wrote. “Our players want choice, and this gives them just that.”

Politics reported last month that the FTC would likely try to block the deal.

This is the latest news. Check back later for updates.

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