The first day of a week-long hearing that could determine the outcome of Microsoft’s $70 billion acquisition of video game giant Activision Blizzard opened Thursday with a Microsoft promise: If a federal judge grants an injunction that would delay the closing of the deal, Microsoft could abandon the deal entirely.
“That’s going to decide whether the deal goes forward,” said Beth Wilkinson, Microsoft’s lead counsel. She said a loss could force the company into a “three-year administrative nightmare” that would sink the transaction, which is expected to close by July 18.
That set the stakes up for a hearing in US District Court in San Francisco, where the Federal Trade Commission began laying out its case that Microsoft’s acquisition of Activision — and its popular games like Call of Duty — would be disastrous for the video game industry.
The FTC is asking Judge Jacqueline Scott Corley for a preliminary injunction, which would prevent Microsoft from completing the deal before the FTC has a chance to argue the case in internal court.
The clash is largely seen as a test of whether recent efforts to more aggressively curb the power of tech giants around the world will be successful. FTC chair Leena Khan has argued that large tech companies have too much influence over online commerce and communications, allowing them to engage in anti-competitive practices that harm consumers.
FTC lead counsel James Weingarten told the court on Thursday, “If the deal is completed, the combined company will likely have the ability and incentive to harm competition in various markets related to consoles, subscription services and cloud computing.” ” ,
Mr Weingarten said Microsoft could make Activision’s games exclusive to its Xbox console, or reduce the quality of those on other platforms to make the Xbox more attractive to gamers. He pointed to Microsoft’s $7.5 billion purchase of ZeniMax Media in 2020 and its slate of game studios, after which Microsoft made some of those games exclusive to Xbox. The FTC pointed to an agreement between Disney and ZeniMax to make a game about Indiana Jones for multiple consoles. After Microsoft purchased ZeniMax, the agreement was amended and the game became exclusive to Xbox. It was a sign, the FTC appeared to argue, that Microsoft could make future Activision games exclusive to Xbox, even amending existing deals to do so.
The FTC has argued that incorporating Activision’s games into Microsoft’s portfolio would also give it an unfair edge in the nascent market for cloud gaming.
Sony, which makes rival PlayStation consoles, has been an outspoken critic of the deal, and has said PlayStation gamers could lose access to Call of Duty – a huge franchise that has generated more than $30 billion in lifetime revenue – if Microsoft decided to make the game exclusive to Xbox. Microsoft has denied that it will do so.
Microsoft said the Activision deal would be good for consumers, expanding their ability to play Activision’s games through Microsoft’s Xbox Game Pass, a subscription service, or lower-cost alternatives through platforms from other companies such as Nintendo and Nvidia. to do, with which it has made deals.
Ms Wilkinson also argued that it would be futile for Microsoft to remove Call of Duty and other titles from the PlayStation as the company would lose a substantial portion of the game’s revenue. She said that Sony had become the “chief complainant” in the case, and showed an email from Sony chief executive Jim Ryan suggesting that he didn’t really believe that Microsoft would shelve Call of Duty. Microsoft also pointed to its acquisition of Mojang, which produces Minecraft. This has continued to allow Minecraft to be available on the platform.
In another lawsuit, the FTC has accused Facebook parent company Meta of cutting out nascent competitors when it bought Instagram and WhatsApp. On Wednesday, it sued Amazon over allegations that the company tricked users into signing up for its Prime subscription service. But the FTC has suffered a setback: Its challenge to Meta’s purchase of a virtual reality start-up fell apart this year after a judge refused to block the deal from closing.
The FTC initially challenged Microsoft’s bid for Activision using an in-house court. But that court does not have the legal authority to stop the deal. The FTC asked a federal court to step in this month, saying Microsoft would try to complete the deal despite legal challenges.
Judge Corley’s court hearing could be a pivotal test for the FTC. If Microsoft wins, it will signal that there are weaknesses in the FTC case and could cause the agency to drop its challenge to the deal. But a victory for the FTC would be a sign that its broader challenge has legs, and could put new pressure on Microsoft and Activision to reconsider the multibillion-dollar corporate marriage.
Although most governments around the world, including the European Union, have approved the acquisition, Microsoft suffered a setback in April when a British regulatory authority blocked it. That decision is subject to appeal.
A high-profile list of witnesses is expected to testify before Judge Corley next week, including Satya Nadella, chief executive of Microsoft, and Bobby Kotick, chief executive of Activision. Mr. Ryan, Chief Executive Officer of Sony, will appear via pre-recorded video deposition.