The FTC is suing to block Microsoft’s acquisition of Activision Blizzard

The Federal Trade Commission announced Thursday that it has filed an antitrust case against Microsoft to challenge the software maker’s attempt to acquire video game publisher Activision Blizzard.

This isn’t the first time Microsoft has faced competitive pressures. In 1998, the US Department of Justice filed a comprehensive antitrust case against the company. As a result, Microsoft changed some practices related to its Windows operating system business. Regulators in the UK are examining whether the acquisition of Activision Blizzard would reduce competition in the country.

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Microsoft announced plans to acquire Activision Blizzard for $68.7 billion in January, with a goal of completing it by June 2023. The deal has come under pressure from Microsoft’s gaming rivals, such as Sony. Microsoft has repeatedly said it won’t be the world’s leading games provider if the deal goes through, and it has promised to offer popular Call of Duty games on gaming platforms other than Microsoft’s.

“We continue to believe this deal will expand competition and create more opportunities for gamers and game developers,” said Brad Smith, Microsoft vice chairman and president, in a statement. “We have been committed to addressing competition concerns since day one, including by offering proposed concessions to the FTC earlier this week. While we believed in giving peace a chance, we have full confidence in our case and welcome the opportunity to present our case in court.”

The FTC commissioners voted 3-1 to advance the agency’s administrative appeal, which will go before the FTC’s internal administrative justice judge. The ALJ makes an initial decision after court proceedings. The Respondent or FTC employees acting as “Complaint Counsel” may appeal the original decision to the full Commission for a vote. Thereafter, the defendant could still seek a federal appeals court to review the commission’s order.

“Microsoft has already demonstrated that it can and will withhold content from its gaming competitors,” Holly Vedova, director of the FTC’s competition bureau, was quoted as saying in a statement. “Today, we’re trying to stop Microsoft from taking control of a leading independent games studio and using it to uncompetitively compete in several dynamic and fast-growing gaming markets.”

In the statement, the FTC said Activision Blizzard has brought its games to a variety of devices regardless of their manufacturers, but that could change if Microsoft closes the deal.

Microsoft offers exclusive titles for its Xbox consoles, and in October Phil Spencer, CEO of gaming at Microsoft, pointed out that Sony has its own exclusive franchises, but over time Microsoft has brought games like Minecraft to other devices. He argued that it was important for more people to play company-owned games, not fewer. Microsoft is trying to add subscribers to its Game Pass service, which offers access to hundreds of games.

The FTC claimed that Microsoft, even with its 2021 ZeniMax deal, is proven to be buying games and using the measures to stifle competition from other console-making companies. Microsoft has made ZeniMax games like Starfield and Redfall exclusive after telling European antitrust authorities it has no incentive to stop people from playing the games on consoles other than Xbox, the agency said.

“We want Call of Duty to be enjoyed by more players around the world. This requires COD to be available on multiple platforms following the merger of Microsoft and Activision Blizzard,” said Lulu Cheng Meservey, Activision executive vice president of corporate affairs and communications chief tweet.

The lawsuit marks an important milestone for FTC Chairwoman Lina Khan, who has long signaled aggressive action in the technology space. While her tenure included a lawsuit aimed at blocking Facebook owner Meta from acquiring a virtual reality fitness app developer, the lawsuit aimed at blocking the Microsoft Activision deal is notable for its scale, as it is the largest technology transaction to date.

Khan and her counterpart in the Justice Department’s Antitrust Division, Jonathan Kanter, have said they want authorities to be more comfortable with big swings, adding that a strong track record in court likely means they aren’t challenging enough cases.

Smith anticipated Microsoft’s arguments against blocking the deal in a Wall Street Journal opinion piece published earlier this week, saying it would be a “big mistake.”

“Microsoft faces major challenges in the gaming industry,” Smith wrote, adding that its Xbox console gaming system ranks third behind Sony’s PlayStation and Nintendo Switch. Microsoft also has “no significant presence in the mobile gaming industry,” he said. Drawing attention to Apple and Google, he said that while mobile gaming is a fast-growing and high-revenue segment, these two app store operators earn a “significant portion” of that revenue through their fees to developers.

Activision Blizzard has a place on mobile thanks to its acquisition of King in 2016, which released the game Candy Crush Saga. The Candy Crush franchise has over 200 million monthly active users, Activision Blizzard said in November.

Smith argued Microsoft’s acquisition of Activision would allow the company to compete effectively in the gaming industry, drive innovation, and serve customers. He downplayed concerns raised by competitors like Sony, saying the company is “as excited about this deal as Blockbuster is about the rise of Netflix.”

Activision Blizzard shares hit a session low of $73 per share after the FTC announced its fall. Microsoft had agreed to pay $95 per share.

Activision Blizzard CEO Bobby Kotick told employees in a memo that the claim that the deal was anticompetitive was not based on the facts.

“Put simply, a combined Microsoft ABK will be good for gamers, good for employees, good for competition and good for the industry,” he wrote. “Our players want choice and this gives them exactly that.”

Politico reported last month that the FTC is likely to try to block the deal.

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