Microsoft’s $70 billion acquisition of Activision Blizzard faced a critical challenge as a weeklong hearing began last week in U.S. District Court in San Francisco. The outcome of this hearing has the potential to determine the fate of the deal, and Microsoft made a bold statement on the opening day, indicating that it might abandon the acquisition altogether if a federal judge grants an injunction to delay the deal’s closing. Beth Wilkinson, Microsoft’s lead lawyer, emphasised the significance of the hearing, stating that its outcome would decide whether the deal proceeds or not. Losing the case could lead to a prolonged administrative process that would ultimately sink the transaction, which Microsoft aims to finalise by July 18.
The hearing revolves around the Federal Trade Commission’s (FTC) argument that Microsoft’s acquisition of Activision, along with its popular games like Call of Duty, would have devastating effects on the video game industry. The FTC seeks a preliminary injunction from Judge Jacqueline Scott Corley, which would prevent Microsoft from completing the deal before the FTC has the opportunity to present its case in court.
The clash between Microsoft and the FTC is seen as a crucial test for global efforts to rein in the power of tech giants. Lina Khan, the chair of the FTC, has been vocal about the influence wielded by big tech companies, highlighting concerns about their anticompetitive practices and the negative impact on consumers.
Microsoft’s bid to acquire Activision Blizzard has faced intense regulatory scrutiny since its announcement in January 2022. Sixteen governments need to review and approve the purchase for it to proceed. In December, the FTC filed a lawsuit to block the acquisition through an in-house court, and in June, it filed a lawsuit in federal court to prevent the deal’s closure. While the European Union approved the acquisition, a British regulator dealt a setback to Microsoft in April by rejecting the bid. The British Competition and Markets Authority cited potential threats to competition in the emerging cloud gaming market. Similar concerns about dominating new technologies have led governments worldwide to block tech deals by Silicon Valley companies.
Anti-competitive or good business?
In court, the FTC’s lead lawyer, James Weingarten, argued that if the deal goes through, the combined company would have the ability and incentive to harm competition in various markets related to consoles, subscription services, and cloud gaming. Weingarten raised the possibility of Microsoft making Activision’s games exclusive to its Xbox console or degrading their quality on other platforms to make Xbox more appealing. The FTC pointed to Microsoft’s past acquisition of ZeniMax Media, where it made certain games exclusive to Xbox, as evidence of this behaviour.
The FTC also expressed concerns about Microsoft gaining an unfair advantage in the cloud gaming market by absorbing Activision’s games. Sony, the maker of the rival PlayStation console, has been critical of the deal, warning that PlayStation gamers could lose access to Call of Duty if Microsoft makes the game exclusive to Xbox. Microsoft denied such intentions and argued that the acquisition would benefit consumers by expanding access to Activision’s games through low-cost options like Xbox Game Pass and partnerships with companies like Nintendo and Nvidia.
The hearing is expected to feature high-profile witnesses, including Satya Nadella, Microsoft’s CEO, Bobby Kotick, Activision’s CEO, and a prerecorded video deposition from Sony’s CEO, Jim Ryan. The outcome of this hearing will be a significant factor in determining the future of Microsoft’s acquisition of Activision Blizzard, and it carries implications for broader efforts to address the power of tech giants.