The companies stated their case for why Microsoft should be allowed to buy Activision for $68.7 billion.
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Kris Holt
·Contributing Reporter
Fri, December 23, 2022
Microsoft has filed a formal response to a Federal Trade Commission antitrust lawsuit that seeks to block it from buying Activision Blizzard for $68.7 billion. It pushed back against the agency's claims that the takeover would harm competition in the gaming industry. The company argued that consumers would benefit. "The commission cannot meet its burden of showing that the transaction would leave consumers worse off, because the transaction will allow consumers to play Activision’s games on new platforms and access them in new and more affordable ways," Microsoft wrote.
The FTC asserted earlier this month that, should the deal close, it "would enable Microsoft to suppress competitors to its Xbox gaming consoles and its rapidly growing subscription content and cloud-gaming business." The agency pointed to Microsoft making some titles from Bethesda (whose parent company ZeniMax it bought last year) exclusive to its own platforms.
In the filing, Microsoft acknowledged that it planned to make three future Bethesda titles exclusive to Xbox and PC. The names of those games were redacted, but Starfield and Redfall will only be available on Xbox, PC and Xbox Cloud Gaming, while the FTC claimed in its complaint that Microsoft plans to make Elder Scrolls VI an exclusive as well.
One of the major sticking points about the deal is the future of Call of Duty. In an attempt to appease regulators, Microsoft has pledged to keep Call of Duty on competitors' platforms for at least 10 years if the acquisition closes, and to bring the blockbuster franchise to Nintendo consoles. Sony hasn't taken Microsoft up on that deal, however.
"The acquisition of a single game by the third-place console manufacturer cannot upend a highly competitive industry. That is particularly so when the manufacturer has made clear it will not withhold the game," Microsoft wrote. "The fact that Xbox’s dominant competitor has thus far refused to accept Xbox’s proposal does not justify blocking a transaction that will benefit consumers."
Microsoft and Activision Blizzard both claim that keeping Call of Duty away from other platforms wouldn't make sense. Activision said in its own filing that making the franchise exclusive "would be disastrous for Xbox," as it would lose billions in game sales and give up "a massive portion of the gamers that Activision has worked so hard to attract and retain." It added that "in a world with nearly unlimited gaming alternatives, making Call of Duty exclusive is not a plausible outcome."
Both companies took issue with the FTC, with Microsoft claiming that its procedures are unconstitutional. "The structure of these administrative proceedings, in which the commission both initiates and finally adjudicates the complaint against Microsoft, violates Microsoft's Fifth Amendment Due Process right to adjudication before a neutral arbiter," Microsoft said in reference to the agency's decision to file the complaint in its own administrative court, rather than in a federal one. The company also argued that hearing the case in the FTC's administrative court "violates Article III of the US Constitution and the separation of powers."
Activision asserted that by disregarding the supposed benefits to consumers and focusing "on supposed harms to Xbox's deep-pocketed competitors," the FTC was straying from the "underlying purpose" of antitrust laws to protect competition instead of competitors. It said the agency was "blinded by ideological skepticism of high-value technology deals and by complaints from competitors" and that it "lost sight of the realities of the intensely competitive gaming industry."
Nevertheless, Microsoft wants to agree on conditions with the FTC and other regulators that will lead to them rubberstamping the deal. “Even with confidence in our case, we remain committed to creative solutions with regulators that will protect competition, consumers and workers in the tech sector. As we’ve learned from our lawsuits in the past, the door never closes on the opportunity to find an agreement that can benefit everyone,” Microsoft president and vice chair Brad Smith said.
"There is no sensible, legitimate reason for our transaction to be prevented from closing. Our industry has enormous competition and few barriers to entry. We have seen more devices than ever before enabling players a wide range of choices to play games," Activision Blizzard CEO Bobby Kotick said in a statement to Engadget. "Engines and tools are freely available to developers large and small. The breadth of distribution options for games has never been more widespread. We believe we will prevail on the merits of the case.”
The deadline for the acquisition to close is in July. If it hasn't done so by then, Microsoft and Activision will need to renegotiate the deal or abandon it — Microsoft would then face a breakup fee of as much as $3 billion. As Axios notes, though, the FTC's antitrust case is set to go before its administrative court on August 2nd. In the meantime, the agency could still seek a preliminary injunction in federal court to stop the deal from closing.
The proposed acquisition is also facing scrutiny from regulators in the UK and the European Union. The jurisdictions' respective competition agencies are expected to issue rulings on the deal in the first half of 2023.
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