In the EU clash, Microsoft and Sony battled over Call of Duty

The FTC’s Block to Activision Blizzard vs. Xbox GamePass: How Microsoft Gets It Wrong?

The Federal Trade Commission on Thursday sued to block Microsoft’s $69 billion acquisition of Activision Blizzard, challenging one of the largest tech acquisitions in history.

Microsoft argues that the Complaint in this case makes a number of allegations regarding high-performance video game console developers’ exclusivity arrangements with video game publishers. Microsoft knows that SIE requires third-party publishers to agree to exclusive provisions, including preventing them from putting their games on the multi-game subscription service, and understands the effect they have on the industry.

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 merger challenge in the US has dealt a significant blow to Microsoft as it has aggressively courted regulators around the world in hopes of persuading them to approve the deal. The FTC sued to break up Facebook owner Meta in 2020, and it is its biggest challenge to the tech industry since then.

The European Commission will now need to decide how it handles objections to Microsoft’s 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 legislators in Europe agree to the UK’s stance on cloud competition.

Smith has said that a similar 10-year deal is on the table if Sony wants to sign. But PlayStation chief Jim Ryan previously called a Microsoft offer to keep Call of Duty on Sony’s consoles for “several more years” beyond an existing marketing deal “inadequate on many levels.”

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.”

Kotaku spotted that the FTC’s chief administrative judge D. Michael Chappell has now sided with Microsoft’s request for details of Sony’s PlayStation exclusivity deals. Fees or agreements that prevented publishers from placing games on Xbox Game Pass are listed in the request. The decision by the judge comes after Microsoft accused Sony of paying to stop developers from using their content in the game Pass.

As well as Call of Duty, Smith’s tweet alludes to “Xbox games” more generally, though it doesn’t offer specifics on what franchises these may come from.

News of the deal comes as Microsoft is preparing to plead its case to EU regulators today. The closed hearing is expected to be attended by representatives from Microsoft including Brad Smith and Xbox head Phil Spencer, as well as Activision CEO Bobby Kotick, and Sony’s Jim Ryan. Representatives from Google, Nvidia, Valve, Electronic Arts, the European Games Developer Federation, and over half a dozen different national competition watchdogs are also expected to take part, per Reuters.

“We’re more than willing, given our strategy, to address the concerns that others have, whether it’s by contracts, like we did with Nintendo this morning, or whether it’s by regulatory undertakings, as we’ve consistently been open to addressing,” said Smith, in a meeting attended by Bloomberg.

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.

Judge Chappell said the nature and extent of SIE’s agreements were relevant to the allegations of exclusivity among video game developers and publishers.

Sony was granted permission to limit the applicable time for document requests to 2019 instead of Microsoft, as Judge Chappell labeled the Microsoft request excessive.

It’s incredibly rare for details on such exclusivity deals to be made public, but the FTC case could open up some of the secrecy of the games industry in court hearings. In the year 2021, we saw similar details in a court case. That case showed how Microsoft had explored reducing its Xbox store cut to shake up console gaming, how Sony had implemented cross-play platform fees, and that Fortnite was a PS4 cash cow.

It is months before we see new details in the FTC case, with an evidentiary hearing scheduled for August 2nd.