The Federal Trade Commission (FTC) has filed a lawsuit to block Microsoft’s planned acquisition of Activision Blizzard.
Back in January, Microsoft announced its plans to buy Activision Blizzardbut according to a press release issued by the American watchdog (opens in new tab)the FTC claims that Microsoft’s proposed acquisition of the Call of Duty publisher would “allow Microsoft to stifle competitors from its Xbox gaming consoles and its burgeoning subscription content and cloud gaming business.”
The redacted complaint (opens in new tab) itself claims that the merger would “significantly reduce competition or lead to the creation of a monopoly in multiple markets”. In layman’s terms, it could give Microsoft control over certain markets due to a lack of competition.
Not only does the FTC fear that the acquisition will create “a greater incentive to use.” [Microsoft’s] control of Activision titles to disadvantage Microsoft’s competitors,” but the complaint also addresses concerns about Microsoft’s potential to manipulate markets over the long term by adjusting Activision’s prices. Microsoft has already announced plans to increase the price of Xbox exclusives in 2023.
The suit is a critical hurdle in Microsoft’s acquisition of Activision Blizzard, and it could eventually put an end to the proposed purchase.
Much ado about everything
In recent years, Microsoft has significantly loosened the company’s wallet; the offer of an eye-watering US$68.7 billion for the Call of Duty publisher is just the tip of the iceberg. The lawsuit brought forward by the FTC highlights Microsoft’s more recent acquisitions as a cause for concern should the proposed acquisition of Activision Blizzard go ahead.
“Microsoft’s past behavior provides a preview of the combined company’s likely plans should it complete the proposed acquisition. [of Activision-Blizzard]despite all the guarantees the company can offer regarding its plans,” the complaint reads.
The acquisition of triple-A studio Bethesda’s parent company, ZeniMax, is used as an example. It was a highly controversial purchase, but the FTC is referring to how Microsoft told the European Commission (EC) that they “would not have the incentive to withhold ZeniMax titles from rival consoles”.
But shortly after the EC approved the transaction, Microsoft announced its decision to purchase several of the newly acquired ZeniMax titles, including Star fieldRedfall and Older roles 6Exclusive to Microsoft.”
This means that despite Microsoft’s commitments to the EC, and with press starfield to become a platform seller as the first Bethesda creation under Microsoft, the studio’s upcoming titles won’t debut on rival consoles PS5 or Nintendo switch finally.
We continue to believe that our deal to acquire Activision Blizzard will increase competition and create more opportunities for gamers and game developers.December 8, 2022
A united front
Microsoft president Brad Smith has publicly responded to the lawsuit Twitter (opens in new tab)specifically addressing the FTC’s concerns about Microsoft’s potential use of the merger as a major market disruptor that could cut off their competitors at source.
“We continue to believe that our deal to acquire Activision Blizzard will increase competition and create more opportunities for gamers and game developers,” he said.
“While we believe in giving peace a chance, we have complete confidence in our case and welcome the opportunity to take it to court,” Smith said in a follow-up. Tweet (opens in new tab).
Activision Blizzard has also publicly responded to the lawsuit, declaring CEO Bobby Kotick News a letter to employees (opens in new tab) and addressing some of the claims in the lawsuit.
“I want to reinforce my confidence that this deal will be closed,” Kotick says, echoing Smith’s sentiment. “The claim that this deal is anti-competitive does not match the facts and we believe we will win this challenge.”
Kotick then seems to indirectly address the FTC and express his confidence in the merger:
“We believe these arguments will win despite a regulatory environment focused on ideologies and misconceptions about the technology industry.”
What’s next for Microsoft?
After a vote, the FTC agreed three to one (opens in new tab) that it would take Microsoft to court. However, the lawsuit should not be taken as a surefire sign that the deal will not be completed. While these can cause a general delay in the procedure, they are not a foregone conclusion.
The FTC’s concerns are not the first either. Earlier this year, Microsoft faced similar concerns (opens in new tab) from the UK-based Competition and Markets Authority, which claimed the merger could hurt Sony by withholding key titles from the rival console. This shows that it’s not just the FTC that Microsoft is suspicious of, as the proposed purchase is being carefully scrutinized by international regulators.
As for the FTC filing, Microsoft will have a chance to defend its position in court. At the time of writing, no hearing dates have been announced.