FTC sues to block Microsoft's $69B deal to acquire Activision Blizzard, maker of Call of Duty

The Federal Trade Commission has sued to block Microsoft's bid to acquire Activision Blizzard, the maker of video game franchises such Call of Duty and World of Warcraft.

In January, Microsoft, which markets its own Xbox gaming consoles, said it would pay $69 billion for the Santa Monica, California-based game publisher, which also makes games such as Overwatch, Diablo, and Candy Crush.

But the FTC is seeking to prevent the merger arguing that it is anti-competitive and would "enable Microsoft to suppress competitors to its Xbox gaming consoles and its rapidly growing subscription content and cloud-gaming business," the agency said in a news release. The FTC, which approved the action in a 3-1 vote, said a copy of the complaint would be available soon.

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Regulators cited Microsoft's 2020 acquisition of ZeniMax, the parent company of Bethesda Softworks, as an example of how the software giant can suppress competition. Two of Bethesda's upcoming games, Starfield and Redfall are expected to be Microsoft exclusives – meaning the games would not be available, at least initially, on Sony PlayStation or Nintendo consoles. That is despite Microsoft's assurances to European regulators "that it had no incentive to withhold games from rival consoles," the FTC said.

“Microsoft has already shown that it can and will withhold content from its gaming rivals,” said Holly Vedova, director of the FTC’s bureau of competition, in a statement. “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.”

Microsoft President Brad Smith tweeted a response to the FTC: "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."

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Microsoft seeks to soften regulator concerns of Activision Blizzard deal

Ahead of an expected decision, Microsoft had recently been ramping up its public defense of the Activision Blizzard deal. Smith noted that Microsoft's Xbox head Phil Spencer had announced Tuesday a 10-year deal to bring Call of Duty to Nintendo consoles.

"Our acquisition will bring Call of Duty to more gamers and more platforms than ever before," Smith said. "Any day @Sony wants to sit down and talk, we'll be happy to hammer out a 10-year deal for PlayStation as well."

Acquisitions can help video game companies build a roster of video games playable on their specific console – and only on their system in some cases. For instance, Sony has seen PlayStation sales driven by the Spider-Man and God of War games. In 2019, Sony paid $229 million for Insomniac Games, which is currently working on Marvel's Spider-Man 2, a PlayStation 5 exclusive due in 2023.

Microsoft has games such as Halo Infinite and Forza Horizon 5 playable only on Xbox. Exclusive games also help tech giants' online game streaming services, too. Microsoft's Xbox Game Pass, a Netflix-like game service, generated about 15% of Xbox gaming revenue in 2021, The Verge reported Spencer saying at an October tech conference held by The Wall Street Journal. The service generated $2.9 billion in 2021, the Australian tech site TweakTown reported in October, citing documents Microsoft submitted to Brazilian regulators assessing the Activision Blizzard deal. (Sony has its own PlayStation Plus subscription service, too.)

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In a closed door session, the three Democratic commissioners voted in favor of blocking the deal with the sole Republican voting against the measure. A fifth seat on the panel is vacant after another Republican left earlier this year.

The FTC’s suit could be a test case for President Biden’s mandate to scrutinize big tech mergers.

Microsoft in recent weeks has accused Sony of misleading regulators and making its case to officials, The New York Times reported two weeks ago.

“It’s evident that the company has been making a number of concessions,” William Kovacic, a former chair of the FTC, told the Associated Press. “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.”

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. But he said trying to block this acquisition could trigger a legal challenge from Microsoft that the company has a good chance of winning.

“The allegation that this deal is anti-competitive doesn’t align with the facts, and we believe we’ll win this challenge,” Activision Blizzard CEO Bobby Kotick said in a message to employees Thursday.

Contributing: The Associated Press.

Follow Mike Snider on Twitter: @mikesnider.

This article originally appeared on USA TODAY: Microsoft acquisition of Activision Blizzard challenged by FTC suit