Microsoft’s Response to the FTC-Blocking Action to Activision Blizzard: How Can Microsoft Get It Wrong?
Microsoft has filed its response to the lawsuit filed by the US Federal Trade Commission to block the company’s acquisition of Activision Blizzard. You can read the entire document in full below, but first, you have to understand why Microsoft thinks its $68.7 billion acquisition should go through.
The FTC said that Microsoft could try to push players to its other gaming platforms if it wanted to raise prices. Microsoft is a partner in the XBOX Game Pass, a cloud-based gaming service that the FTC said could be affected by the deal.
In an email sent to employees and provided to CNN, Activision CEO Bobby Kotick said the FTC suit may sound “alarming” but he remains confident the deal will close. “The allegation that this deal is anti-competitive doesn’t align with the facts, and we believe we’ll win this challenge,” he said.
The Microsoft deal is also facing scrutiny outside the United States, with the European Union saying it would decide by March 23, 2023, whether to clear or block the deal.
The European Commission will need to figure out how to handle the objections to the Microsoft deal. It reportedly sent its statement of objections to Microsoft earlier this month, issuing a formal antitrust warning against the software giant. The EU hasn’t published those objections publicly yet, and onlookers are waiting to see if lawmakers in Europe take a similar stance to the UK.
Microsoft does not have sufficient knowledge or data to form a belief that Call of Duty’s initial release date was false or that Call of Duty’s launch and typical release schedule were false.
The company’s corporate vice president of communications, Frank X. Shaw, also tweeted a link to a document titled: “Get The Facts: How Microsoft is Committed to Growing Gaming Communities.”
Sony has argued that the Microsoft acquisition could hurt developers and lead to price rises, as well as accusing Microsoft of paying developers to keep their content off its Game Pass service.
The FTC’s Resolution of a Compromise Complaint on Big Tech Mergers: A High-Dimensional View
The FTC voted 3-1 to issue the complaint after a closed-door meeting, with the three Democratic commissioners voting in favor and the sole Republican voting against. A fifth seat on the panel is vacant after another Republican left earlier this year.
Smith said that they have complete confidence in the case, and welcome the chance to present it in court.
The FTC’s challenge — which is being filed in an administrative court — could be a test case for President Joe Biden’s mandate to scrutinize big tech mergers.
Antitrust regulators under Biden “have staked out the view that for decades merger policy has been too weak and they’ve said, repeatedly, ‘We’re changing that,'” said William Kovacic, a former chair of the FTC.
The goal is to “not allow dodgy deals and not accept weak settlements,” said Kovacic, who was a Republican commissioner appointed in 2006 by then-President George W. Bush. He said that blocking this acquisition might prompt a legal challenge from Microsoft that the company has a good chance of winning.
“It’s evident that the company has been making a number of concessions,” he said. “If the FTC turns down Microsoft’s commitments, Microsoft would likely raise them in court and say the FTC is being incorrigibly stubborn about this.”
In a complaint on Dec. 8, the FTC said its concern was that Activision’s popular games, including “World of Warcraft” and “Diablo,” potentially would stop being offered on devices that rival Microsoft’s Xbox. It set up a hearing in August of 2023.
A Closed-door Microsoft Meeting on Competition, Competition, and A Game-Theoretic Approach to Privacy Laws in the Age of Competition
The Biden administration has taken a harder stance on antitrust enforcement. The US Department of Justice recently stopped a $2.2 billion merger of Penguin Random House, the world’s largest book publisher, and smaller US rival Simon & Schuster.
Microsoft confirmed that Starfield will be exclusive to the platforms, and The Elder Scrolls VI will only be available on the platforms.
There is no sensible, legitimate reason for our transaction to be prevented from closing. There are only a few barriers to entry in our industry. We have seen more devices and more options for players to choose from. Engines and tools are freely available to developers large and small. The breadth of distribution options for games has never been greater. We believe we will prevail on the merits of the case.
We are still committed to innovative solutions with regulators to protect consumers and workers in the tech sector. The door never closes on the opportunity to find an agreement that can benefit everyone, just as it has in the past.
For one thing, Activision Blizzard probably coughed up those details as part of the due diligence around the transaction before Microsoft ever announced it would spend $68 billion on the company. Even if that never happens, I think Microsoft also has a lot of opposition research. I discovered a 67-page document from the gaming business planning and strategy team of Microsoft that broke down all of Microsoft’s competitors in quite a number of ways.
Smith refers to “Xbox games” more generally but doesn’t offer specifics on what franchises these may come from.
Today’s closed-door meeting will feature a stack of executives from Microsoft including president Brad Smith, alongside Activision CEO Bobby Kotick. A number of different national competition watchdogs will also be present, with representatives from several companies such as Electronic Arts and Valve.
Smith said that they were more than willing to address the concerns that others have, either by contracts, like we did with Nintendo this morning, or by regulatory undertakings.
While the CMA is open to behavioral remedies that could involve deals for Call of Duty, it seems to favor structural ones — including a suggestion that involves a partial divestiture of Activision Blizzard in the form of selling off the Call of Duty business. Today’s meeting will highlight the European Commission’s main concerns and any potential remedies Microsoft may need to consider ahead of an April 11th deadline for a final decision.