Feds are likely to contest Microsoft’s $69 billion acquisition of Activision

Feds are likely to contest Microsoft's $69 billion acquisition of Activision

Three sources with knowledge of the situation have told Bloomberg that the FTC is likely to bring an antitrust action to stop Microsoft’s $69 billion merger of video game giant Activision Blizzard, owner of the hit games Call of Duty and Candy Crush.

The Federal Trade Commission’s (FTC) boldest move yet under Chair Lina Khan to curb the influence of the world’s major technology giants would be a lawsuit. Having gone through its own tough regulatory antitrust battles around the world more than two decades ago, Microsoft has positioned itself as a white knight on antitrust issues in the tech sector.

Two of the persons familiar with the matter stressed that a lawsuit contesting the acquisition was not a certain conclusion and that the four commissioners of the FTC had not yet voted out a complaint or met with lawyers for the companies. According to the same sources, though, FTC officials evaluating the transaction are skeptical about the corporations’ claims.

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People familiar with the inquiry have claimed that while it is still ongoing, much of the groundwork has been laid, including depositions of Microsoft CEO Satya Nadella and Activision CEO Bobby Kotick. The people, who spoke on the condition of anonymity because they were discussing a sensitive issue, said the agency may move forward with a case as soon as next month.

The FTC is particularly concerned about the potential for Microsoft to gain an unfair advantage in the video game business if it were to acquire Activision. When compared to Sony Interactive Entertainment’s dominant PlayStation console, Microsoft’s Xbox comes in at number three. But Sony has emerged as the deal’s main opponent, arguing to the FTC and other regulators that it would be severely disadvantaged if Microsoft made popular games like Call of Duty exclusive to its platforms.

The Federal Trade Commission said they couldn’t say anything.

Sony claims the transaction will hurt its ability to compete, leaving customers with fewer gaming options and developers with fewer places to publish games, in a statement submitted to the UK’s Competition and Markets Authority in October and published Wednesday. Sony characterized Microsoft as a “Tech Titan scooping up irreplaceable content at incontestable sums ($68.7 billion) to tip competition to itself,” while Microsoft rebutted the claims.

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Microsoft has accused Sony of making self-serving remarks in order to protect its number one position in gaming, according to a statement made by the UK regulator on Wednesday. To paraphrase Microsoft’s CEO, “the concept that the incumbent market leader, Sony, with clear and durable market power, could be foreclosed by the smallest of the three console competitors, Xbox, because of losing access to one title is not plausible.”

Microsoft claims it has assured PlayStation owners that Call of Duty would continue to be accessible on the platform and that the game is not the must-have that Sony claims it is. Microsoft further claims that Sony would not be harmed if the game were added to the Xbox service, as it is not currently available on any subscription service.

Feds are likely to contest Microsoft's $69 billion acquisition of Activision
Feds are likely to contest Microsoft’s $69 billion acquisition of Activision

Two of the persons familiar with the situation also claim that Google is an opponent of the merger, but on a lesser scale. According to the people, Activision has claimed that Microsoft has intentionally lowered the quality of its Game Pass subscription service when used with Google’s Chrome operating system and that Microsoft’s ownership of Activision would give it even more motivation to do so.

Google is closing down Stadia, its own online gaming service, proving once again that it is a marginal player in the gaming industry. However, it is the subject of antitrust investigations in many jurisdictions for its practices in the casino industry and is therefore not likely to be a friendly adversary. Epic Games, the developers of Fortnite, are currently in court, claiming that Google is violating the law by excluding Fortnite from the Google Play store for mobile devices. Epic has recently claimed that Google paid Activision $360 million to prevent the launch of Epic’s rival app store on Android devices.

Google’s official spokesperson remained silent.

Microsoft has reportedly offered to licence Call of Duty for the next decade to Sony in exchange for continued Playstation support. That an offer had been made was first published in the New York Times. Sony did not react to a request for comment on Wednesday, so it is unclear how the company felt about the offer.

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However, according to two people familiar with the review, the FTC’s concerns go beyond Call of Duty, as it is attempting to ascertain how Microsoft could use future, unannounced products to bolster its gaming business.

Anticompetitive repercussions from this purchase are ludicrous, as has been repeatedly noted. Activision spokeswoman Joe Christinat said, “This merger will help gamers and the US gaming industry, especially as we confront more severe competition from abroad.” We will continue to engage with regulators around the world to clear this deal, but we are prepared to go to court to protect it if necessary.

Activision denies Epic’s accusations as well. What Epic is saying is complete bullshit, Christinat stated. To reiterate, “we have given papers and testimony that establish that Google never asked us, forced us, or made us agree not to compete with Google Play.”

Microsoft’s spokesman David Cuddy stated, “We are prepared to address the concerns of regulators, including the FTC, and Sony, to ensure the purchase closes with confidence.” Even when the merger is finalized, we’ll be third after Sony and Tencent in the market. However, the combined strengths of Activision and Xbox will be to the benefit of players and developers alike.

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The FTC is under no legal obligation to take any action at this time. Because of the recently started comprehensive probes by regulators in Europe and the UK, the companies were unable to consummate the purchase before Spring. That means the FTC would likely file suit in its own internal administrative court.

First, the agency challenges the deals in federal court to get a temporary injunction blocking the arrangements until the trial in the agency’s internal court. However, a temporary injunction would be difficult to get if there was no imminent danger of the merger happening.

The transaction must be finalized by July of next year or the parties can renegotiate the terms. If the companies face an administrative lawsuit that isn’t resolved by July, they may be forced to abandon the deal. Such a lawsuit could be filed later this year or in January.

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