FTC sues to block Microsoft’s Activision Blizzard merger

The Federal Trade Commission has filed an antitrust complaint in a bid to block Microsoft’s planned $68.7 billion takeover of Activision Blizzard. The FTC started looking into the deal and its potential impact on the video game market soon after it was announced in January. Evidently, the agency was concerned enough to try and pump the brakes on the buyout. The FTC said that, were the deal to go through, it “would enable Microsoft to suppress competitors to its Xbox gaming consoles and its rapidly growing subscription content and cloud-gaming business.”

“Microsoft has already shown that it can and will withhold content from its gaming rivals,” Holly Vedova, director of the FTC’s Bureau of Competition, said in a press release. “Today, we seek to stop Microsoft from gaining control over a leading independent game studio and using it to harm competition in multiple dynamic and fast-growing gaming markets.”

The FTC’s commissioners voted in favor of the lawsuit along party lines, with the three Democratic members approving it. The lone Republican Commissioner Christine S. Wilson voted against the suit in a closed-door meeting.

“The FTC pointed to Microsoft’s record of acquiring and using valuable gaming content to suppress competition from rival consoles, including its acquisition of ZeniMax, parent company of Bethesda Softworks (a well-known game developer),” the agency said in a press release. “Microsoft decided to make several of Bethesda’s titles including Starfield and Redfall Microsoft exclusives despite assurances it had given to European antitrust authorities that it had no incentive to withhold games from rival consoles.”

While the lawsuit doesn’t necessarily kill the deal, it’s unlikely to be resolved by July, as Politico, which had reported that an FTC bid to block the merger was likely, recently noted. That was the deadline Microsoft and Activision set for closing the deal. If the acquisition hasn’t closed by then, the companies will have to renegotiate the agreement or even walk away from the merger. Regulators in other jurisdictions have been taking a close look at the deal, including in the UK and the European Union (which should complete its investigation by late March). 

Sony is the merger’s most prominent opponent. It has expressed concern that Microsoft would make games such as Call of Duty exclusive to Xbox platforms, which could cost Sony hundreds of millions of dollars a year. However, Microsoft has said it wants to keep Call of Duty on PlayStation and it claims to have offered Sony a 10-year agreement to that effect.

Just ahead of the FTC’s vote, Microsoft said it struck a deal with Nintendo to bring Call of Duty games to the company’s systems if the merger closes. Call of Duty will also remain on Steam as part of a separate pact with Valve.

Microsoft and Activision have been downplaying the significance of the deal in an attempt to appease regulators and push it through. For one thing, Microsoft has claimed that Sony has more exclusive games, “many of which are better quality,” in a filing with the UK’s Competition and Markets Authority (CMA). It also said Activision Blizzard doesn’t have any “must-have” games, despite having some of the most popular titles in the world (including Call of Duty: Modern Warfare II, Overwatch 2 and World of Warcraft) under its umbrella.

The FTC refuted those suggestions in its complaint. The agency claimed that Activision is “one of only a very small number of top video game developers in the world that create and publish high-quality video games for multiple devices.” It noted that between franchises such as Call of Duty, World of Warcraft, Diablo, and Overwatch, Activision has more than 154 million monthly active users.

Microsoft has suggested that the acquisition the deal is more about gaining a foothold in the mobile gaming market, where Activision’s King division is a major player. For instance, Candy Crush Saga has had more than 3 billion downloads.

Ultimately, the FTC believes that the merger would likely harm competition in the video game market. “With control over Activision’s blockbuster franchises, Microsoft would have both the means and motive to harm competition by manipulating Activision’s pricing, degrading Activision’s game quality or player experience on rival consoles and gaming services, changing the terms and timing of access to Activision’s content, or withholding content from competitors entirely, resulting in harm to consumers,” the agency said.

Noting that the FTC is suing to block the merger, Activision Blizzard CEO Bobby Kotick wrote in a note to employees that “This sounds alarming, so I want to reinforce my confidence that this 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.” 

Kotick added that “a combined Microsoft-[Activision Blizzard King] will be good for players, good for employees, good for competition and good for the industry. Our players want choice, and this gives them exactly that.”

“We continue to believe that our deal to acquire Activision Blizzard will expand competition and create more opportunities for gamers and game developers,” Microsoft president Brad Smith wrote on Twitter. “We have been committed since Day One to addressing competition concerns, including by offering earlier this week proposed concessions to the FTC. While we believe in giving peace a chance, we have complete confidence in our case and welcome the opportunity to present it in court.”

Update 12/8 2:58PM ET: Added comments from Bobby Kotick and Brad Smith.