The unexpected happened. The FTC made official its intention to scuttle Microsoft’s purchase of Activision and now it is feared that the deal will be cancelled. What’s going on with the biggest commercial move in video game history? Let’s review it.
Last week and prior to The Game Awards 2022, the United States Federal Trade Commission (FTC) shocked the gaming world by announcing that it would sue Microsoft to bring the company and its intentions to buy Activision-Blizzard to court. The decision was made after a vote involving 4 commissioners, 3 from the Democratic party against the acquisition and 1 Republican in favor. Holly Vedova, Director of the FTC’s Office of Competition stated: “Today, we seek to prevent Microsoft from gaining control over a leading independent game studio and using it to harm its competition in multiple markets that are dynamic and fast-growing. ”.
The news did not go down well with Microsoft and Xbox as it took place days after the brand announced the agreement to guarantee the launch of Call of Duty on Nintendo and Steam consoles for the next 10 years, thus proving that there is no intention of make the franchise exclusive.
The 3 best-known faces of the agreement reflected the impact of the decision: Phil Spencer with a serious and upset face during The Game Awards, where Xbox presented nothing; the infamous Bobby Kotick calling the incident “alarming” and Brad Smith, president of Microsoft, declaring that they tried to give peace a “chance” but now is the time to fight in court.
For its part, the FTC pointed out that its concern is that Microsoft obtains an advantage that harms its competitors in the market for consoles, video game services and gaming in the cloud. According to the regulator, Activision-Blizzard-King and its video game offering is successful thanks to its availability on multiple platforms and in terms of an acquisition it would open the possibility for Microsoft to make it exclusive to the Xbox ecosystem. There is simply no trust in Microsoft and fear that it will become a market monster that will monopolize the video game industry.
WHAT HAPPENS WITH THE PURCHASE OF ACTIVISION?
The purchase of Activision-Blizzard-King closed at almost $70 million is an unprecedented event in the video game industry. At the same time, it is among the largest in the digital technology sector and this made it inevitable that it would be on the regulators’ radar. Yes, the opposition of Sony and PlayStation played an important role in warning the commercial authorities that until now saw gaming as uncharted territory, but there are other details to take into account that today represent a heavy burden for Microsoft and that are worth considering.
At the outset, it is important to note that the FTC’s lawsuit by itself does not mean that the purchase will be blocked. In fact, the regulator does not have that authority to do so, but boy can it hinder the case and try to bring it to that end that few want. Despite the scandalous headlines, it should be noted that, until now, the North American regulator has the lawsuit in its own administrative court, not in a federal court, as indicated by an Axios report.. At the same time, the FTC hasn’t sought a preliminary injunction so it doesn’t tie Microsoft’s hands, nor has it sought to ensure the current status of anything involving the Activision purchase, basically, it’s using its power and resources to to corner the Xbox company and force it to generate important agreements and commitments in exchange for approving the deal before fighting in court.
Unfortunately, this decision has also changed the perspective for the future as a report by Gamesindustry.biz indicated that the FTC’s hearing before the administrative judge will be in August 2023 but what is concluded from it could be appealed by any of the parties leading it to the corresponding court and even follow the path to the Supreme Court, so there is a long way to go.
There are factors that are working against Microsoft. First, the moment. It seems that if this had happened in the days of Call of Duty Vanguard and in the midst of the Activision labor scandal, the result would have been different and the most passable path for the Xbox company. Today, Call of Duty Modern Warfare II is an overwhelming success with millions of users and millions of dollars flowing, a simple detail that allows the FTC to support the idea that the franchise is very important to the industry, contradicting Microsoft that committed the mistake of saying that both the IP and its audience “were not special” at the same time that Sony defined it as “exceptional”.
“Democratic senators expressed their support for the regulator and called for the blocking of the Activision purchase as they believe it will harm the industry, workers and consumers”
Then, there is the political factor and it is a fact that the acquisition has already fallen into that swampy, unstable terrain with reserved results. Following the publication of the FTC statement, Democratic Senators Elizabeth Warren and Bernie Sanders expressed their support for the regulator and called for the blocking of the Activision purchase as they believe it will harm the industry, workers and consumers, but said position found immediate response from the Communications Workers of America union, which assured that only through the acquisition will Activision’s labor problems be solved and, at the same time, accused the FTC of only thinking about the business, that is, consumers and Sony | PlayStation, not so in the workers.
These statements must be taken within the political context of the United States, since the Joe Biden administration has fought for the reconstruction of the middle class, putting pressure on the working environment of large companies and promoting, in the most discreet but sufficient way possible, the formation of unions. At this time, the big technology and entertainment companies are seen as the devil and the federal government thinks that there is no other way than to keep them at bay because their freedom of action has resulted in harm to the working class and consumers. In the end, we find ourselves once again in the eternal duel between economic liberalism and the regulatory force of the State and proof of this is that the regulator did not even accept a meeting with Microsoft to discuss the issue.
The foregoing made the FTC, led by Lina Khan, find sufficient justification and motivation to initiate the process against Microsoft and stop, with the intention of blocking, the purchase of Activision. Precisely, the regulator is relying on the entire history of monopoly attempts by the company over the years within the computer sector, in addition to having taken the painful situation of Ticketmaster as a flag, pointing out that the agreements and agreements were useless. commitments made in 2010 for the approval of its merger with Live Nation because, 12 years later, the company is a monopoly that cannot be stopped.
DESPITE EVERYTHING, THE OUTLOOK IS POSITIVE FOR MICROSOFT
We know that the alarms are going off and that there is a possibility that the purchase will be blocked, but this is only for technical and legal reasons since, up to now, the environment and conditions are still favorable for Microsoft.
The bet at this moment on the part of the FTC is that Microsoft exhausts itself and the obstacles are so many that the company reconsiders if it is worth buying Activision-Blizzard or in that case if it is viable to have the company and its franchises being tied to the commitments to accept before the authorities.
Specialists believe that the Xbox company has the upper hand as the FTC’s intention is unsubstantiated. In this regard, lawyer Richard Hoeg told Gamesindustry.biz that the regulator would have to show in court how the hell Nintendo Switch is doing to stay and be successful without Call of Duty and with a small representation of Activision games. In the same way, it would be seen on shaky ground when pointing to the Xbox brand as a threat since it is third in the console sector, seventh in PC and non-existent in mobiles.
The perspective on the conflict appeals to the FTC’s negative track record in its attempts to block mergers, resulting in tremendous defeats in court. Recently, the regulator experienced its own scandal by ensuring that Xbox’s decision to make exclusive Bethesda games such as Starfield and Redfall demonstrated the true plans and assured that Microsoft did not comply with what it had “agreed” before the European Commission when it bought ZeniMax.
The organization of the Old Continent did not take long to clarify this detail and indicated that the company had not entered into any agreement or commitment. Referring to the official text, there is an unclear idea regarding what was already in Bethesda’s multiplatform plans and what would happen next. Microsoft may have been ambiguous on purpose to get away with it, but it was the regulator’s job to point out that detail and the reality is that it did not, showing that the authorities do not really know where they stand in terms of video games.
Despite all this confusion, there is no final decision and the possibilities are still there to reach an agreement to close the deal. For this reason, Microsoft launched a new offer to Sony in which it guarantees 10 years of Call of Duty on PlayStation consoles, but this time it ups the ante with an important modification: the Activision franchise could be offered and exploited in its entirety on PlayStation Plus, something that until now was unthinkable.
AN UNEXPECTED ALLY
In the midst of all the scandal and speculation, an unexpected ally emerged for Microsoft, which officially sent its position in favor of the purchase of Activision to the CMA of the United Kingdom, opting for anonymity and naming itself as “market participant A”. . Everyone agreed that this “participant” is none other than Epic Games, which has already waged its battle against Apple and was able to crack the structure of the powerful Cupertino company to lay the foundation for changes that will put an end to the absolute dominance of its platform online.
According to the document, this participant calls for attention to an immanent detail in the video game industry: it is dynamic, its market and its businesses are dynamic as well. In this regard, they consider that the purchase of Activision is positive for consumers, it will result in greater market options and lower prices without compromising quality or affecting the current order, and they even remind the regulator that their job is to ensure the well-being of consumers and failing to protect the status quo that is currently favorable to Sony | PlayStation and it is the same Japanese company that wants to avoid changes that will come one way or another.
It is a fact that we will not see the arrival of Activision-Blizzard-King content to the Xbox ecosystem as we imagined in January of this year when the acquisition was announced. The biggest deal in the history of video games has been stopped by the regulators and although Microsoft has everything to gain, many opinions agree that what comes next depends entirely on the company since dealing with the regulators requires resources, effort and time to fight. in the tribunals. In the end, it all comes down to the decision that Microsoft makes by putting everything in the balance and seeing if it is worth continuing to seek approval and if it does come, how much will it benefit them given the conditions that it would have to assume before the authorities.