Microsoft Responds to FTC Attempt to Block Activision Blizzard Deal

Microsoft on Thursday filed its response to US regulators’ antitrust case trying to stop the software maker from buying a video game publisher Activision Blizzardand said the deal will not harm competition.

The Federal Trade Commission’s challenge to its proposed $68.7 billion acquisition is the biggest government setback Microsoft has dealt with at home since it challenged the Justice Department over Windows’ dominance of the operating system market two decades ago started.

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Under President Donald Trump, Google’s umbrella group Alphabet, Apple, Amazon and Facebook’s parent company Meta faced inquiries from US competition authorities. This allowed Microsoft to go about its business and continue to expand with acquisitions through the election of President Joe Biden, even after Biden’s appointee, technology critic Lina Khan, took over the FTC. But then Microsoft revealed its plan to buy Activision Blizzard. On Dec. 8, the FTC argued that the transaction violated federal law.

“While we have faith in our case, we remain committed to finding creative solutions with regulators that protect competition, consumers and workers in the technology sector,” said Brad Smith, Microsoft president and vice chairman, in a statement transmitted to CNBC would. “As we have learned from our past lawsuits, the door never closes on the opportunity to find a settlement that benefits everyone.”

To ease government opposition to the deal, Microsoft has offered concessions.

In October, Phil Spencer, CEO of Microsoft’s gaming division, said Microsoft was committed to bringing Activision Blizzard’s Call of Duty games to Nintendo consoles for a decade and keeping the games on Valve’s Steam game store . Microsoft also offered to co-sign a 10-year contract Sony Release Call of Duty games on PlayStation consoles on the same day they reach Microsoft Xbox consoles. “Sony refuses to do business,” Microsoft said in its filing.

Activision Blizzard hasn’t made its new games available through subscription services like Microsoft’s Game Pass, and the acquisition would make playing Activision Blizzard’s games more affordable, Microsoft said.

“The acquisition of a single game by the third-placed console maker can’t turn a highly competitive industry on its head,” Microsoft said in its response. “This is especially true when the manufacturer has made it clear that they will not hold back the game. The fact that Xbox’s dominant competitor has so far refused to accept Xbox’s offer does not justify blocking a transaction that benefits consumers.”

Microsoft said that after spending nearly a year investigating the deal and reviewing millions of documents from Activision Blizzard and Microsoft, the FTC has not produced any evidence that Microsoft is trying to rip the game series off PlayStation. Ensuring the games get widespread distribution is good for Microsoft’s business, the company said.

In its own response to the FTC’s lawsuit, Activision Blizzard said, “If Xbox withheld Call of Duty from Sony’s PlayStation or other platforms that compete with Xbox, Xbox would immediately forego billions of dollars in lost game sales, and a massive chunk of it.” spin-offs that Activision has worked so hard to attract and keep.”

Outside the US, Brazil has given the OK to go ahead with the deal, while the UK is reviewing it.

Activision Blizzard and Microsoft both dismissed the FTC’s claims.

The FTC said in its lawsuit that Microsoft promised the European Commission that it would have no motivation to stop people from playing games from ZeniMax, a game publisher Microsoft acquired in 2021, on consoles other than the Xbox, but after As part of the European Commission’s ZeniMax deal, the company announced it would make some ZeniMax games exclusive.

“The European Commission agrees that it was not misled by publicly stating on the day after the complaint that Microsoft had no ‘commitments’ to the European Commission,” Microsoft said, “nor has the European Commission relied on any statements from Microsoft, via Microsoft, are abandoning ZeniMax’s future distribution strategy for the games.'”

The case will be presented to FTC Administrative Judge Michael Chappell. Activision Blizzard and Microsoft both said the FTC’s procedures violate their right to due process under the Fifth Amendment of the US Constitution.

Activision Blizzard said in its filing that the FTC “in an attempt to invent highly manipulated relevant product markets — including a ‘high-performance console’ market limited to Xbox and PlayStation consoles, as well as individual markets for multi-game subscriptions and… cloud gaming to support his conclusive damage theories.”

Members of the public sent more than 2,100 emails to the UK’s Competition and Markets Authority in response to a statement from the authority detailing three ways the deal could reduce competition. Around 75 percent of the emails expressed support for the takeover, the agency said on Wednesday.

If the deal goes through, Microsoft would be “the world’s third largest gaming company by revenue behind Tencent and Sony,” Spencer said in a conference call the day the deal was announced.

In the months since, two groups of Activision Blizzard employees have voted to form unions. Microsoft committed to efforts that would make it easier for employees to choose to join or form a union.

“There is no reasonable, legitimate reason for preventing the completion of our transaction,” Activision Blizzard CEO Bobby Kotick said in a statement provided to CNBC. “Our industry has tremendous competition and few barriers to entry. We’ve seen more devices than ever before that give players a wide range of games to choose from. Engines and tools are freely available for large and small developers. The breadth of game distribution options has never been so widespread. We believe we will prevail on this.”

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