FTC sues to block Microsoft’s $69bn Activision Blizzard deal

Proposed acquisition would be one of the 30 biggest takeovers of all time but US agency says competition will be harmed

Gaming accessories at a Microsoft store in New York. The US government is reportedly motivated by concerns over continued consolidation in the technology industry. EPA

The US Federal Trade Commission is seeking to block Microsoft’s $69 billion acquisition of Activision Blizzard, saying the tie-up between the Xbox maker and popular gaming publisher would harm competition.

The commission voted 3-1 in favour of the complaint, which was filed in its in-house court.

Regulators said Microsoft’s ownership of Activision could hurt other players in the $200 billion gaming market by limiting rivals’ access to the company’s biggest games.

The transaction would turn Microsoft into the number three gaming company, behind Tencent and the Sony Group.

“Microsoft has already shown that it can and will withhold content from its gaming rivals,” said Holly Vedova, director of the FTC’s Bureau of Competition.

“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.”

In its complaint, the agency said if Microsoft gained control of Activision’s content, it would have the ability and increased incentive to “withhold or degrade Activision’s content in ways that substantially lessen competition — including competition on product quality, price, and innovation”.

“This loss of competition would likely result in significant harm to consumers in multiple markets at a pivotal time for the industry,” it said.

An FTC official said the agency was concerned that Microsoft could deny access, delay availability or degrade the quality of Activision Blizzard’s most popular titles to rival platforms.

Those concerns relate not only to consoles, but also to subscription services and cloud-based gaming, two markets still in development, the official said.

Microsoft’s proposed Activision Blizzard deal is the company’s largest and one of the 30 biggest acquisitions of all time. The transaction would give Microsoft some of the most popular video game franchises, such as Call of Duty and World of Warcraft.

The Xbox maker already owns the Halo franchise and Minecraft virtual-world-building game.

However, Microsoft president Brad Smith said the company continued to believe that the deal would expand competition and create more opportunities for gamers and game developers.

He said the company was committed to addressing competition concerns and that it offered concessions to the FTC earlier this week.

“We have complete confidence in our case and welcome the opportunity to present our case in court,” Mr Smith said.

Activision shares fell by 1.5 per cent to $74.76 after falling as much as 3.9 per cent earlier. Microsoft shares rose 1.2 per cent to $247.40.

In a letter, Activision Blizzard chief executive Bobby Kotick assured employees he was confident that the deal would be closed.

“The allegation that this deal is anticompetitive doesn’t align with the facts, and we believe we will win this challenge,” Mr Kotick said.

He added that the combined company would be “good for players”, despite a regulatory environment that he said was “focused on ideology and misconceptions about the tech industry”.

The FTC scheduled its in-house trial to begin on August 2, 2023. In previous merger challenges in the agency’s in-house court, the judge issued an initial decision between seven and 12 months after the trial began, said Jennifer Rie, an analyst for Bloomberg Intelligence.

This would probably put a decision by FTC administrative law judge D. Michael Chappell in early 2024. After that, Microsoft or the FTC staff litigating the case can appeal his ruling to the agency’s commissioners.

Microsoft and Activision have said the deal will close by June 30, the end of Microsoft’s current fiscal year. The FTC would need to separately sue in federal court if it wants Microsoft to put off closing the deal until after the trial is over.

In its release announcing the lawsuit, the FTC cited Microsoft’s decision to make two coming titles by newly acquired unit Bethesda Softworks exclusive to Microsoft’s platforms despite assurances the company gave to EU regulators that it had no incentive to withhold games from rival consoles.

The lawsuit is part of an effort by FTC chairwoman Lina Khan to more aggressively police mergers, particularly those by the biggest technology platforms.

Since President Joe Biden appointed her to lead the agency in June 2021, the FTC has blocked mergers between Lockheed Martin and Aerojet Rocketdyne Holdings, as well as Nvidia’s bid to buy SoftBank Group’s Arm.

The FTC heads to federal court Thursday in San Jose, California, in an effort to block Meta Platforms from buying a virtual reality start-up.

Although Brazilian antitrust officials cleared the Microsoft-Activision deal in October, other competition regulators, including UK and EU agencies, have also raised concerns. Those two bodies are not set to issue decisions on the deal until next year.

On Tuesday, Microsoft announced a deal to bring Call of Duty to the Steam PC gaming platform and Nintendo consoles.

The company said it had also offered a proposal that would keep Call of Duty on Sony’s PlayStation for the next 10 years, but the Japanese electronics company has so far rebuffed efforts to work out a resolution.

Sony has fiercely objected to the Activision acquisition, primarily because of concerns the US technology company could make content such as Call of Duty exclusive to its own gaming services.

“There has been one game industry participant that is really been raising all the objections, and that is Sony, and they have been fairly public about the things that don’t meet their expectations,” Xbox chief Phil Spencer said in an interview on Tuesday.

“From where we sit, it is clear they are spending more time with the regulators than they are with us to try to get this deal done.”

Joost van Dreunen, a video games expert who teaches at New York University’s Stern School of Business, said antitrust authorities had become sceptical of pledges, particularly by technology platforms, about future behaviour.

Mr van Dreunen provided comments on the deal to UK competition officials.

“I don’t think it is ultimately enough for the FTC to go on,” he said of Microsoft’s pledge.

The Redmond, Washington, technology company sought to placate possible labour concerns about the merger by reaching an agreement with the Communications Workers of America, which also represents employees in the gaming industry.

In the pact, Microsoft pledged to take a neutral approach if employees expressed interest in joining a union.

The company also said it would stop using non-competition or confidentiality clauses to bar workers from talking about discrimination or harassment as part of a settlement or separation deal.

The FTC has publicly raised concerns about the use of non-competition clauses and the impact of mergers on labour conditions.