Microsoft responds to FTC case seeking to block Activision Blizzard deal, saying it wouldn’t hurt competition

Microsoft on Thursday filed its response to U.S. regulators’ antitrust case attempting to block the software maker from buying video-game publisher Activision Blizzard, saying that the deal will not harm competition.

The Federal Trade Commission’s challenge to the proposed $68.7 billion acquisition stands out as the biggest government pushback Microsoft has dealt with on home turf since facing off against the Justice Department two decades ago over the dominance of Windows in the operating system market.

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Under President Donald Trump, Google’s umbrella company Alphabet, Apple, Amazon and Facebook parent Meta all faced inquiries from U.S. competition officials. That left Microsoft to go about its business and continue expanding with acquisitions through the election of President Joe Biden, even after Biden’s appointee, technology critic Lina Khan, took over at the FTC. But then Microsoft revealed its plan to buy Activision Blizzard. On Dec. 8 the FTC argued that the transaction would violate federal law.

“Even with confidence in our case, we remain committed to creative solutions with regulators that will protect competition, consumers, and workers in the tech sector,” Brad Smith, Microsoft’s president and vice chair, said in a statement provided to CNBC. “As we’ve learned from our lawsuits in the past, the door never closes on the opportunity to find an agreement that can benefit everyone.”

To relieve government opposition to the deal, Microsoft has offered concessions.

In October Phil Spencer, CEO of Microsoft’s gaming unit, said Microsoft had committed to bringing Activision Blizzard’s Call of Duty games to Nintendo consoles for a decade and keeping the games on Valve’s Steam game store. Microsoft has also offered to sign a 10-year agreement with Sony to release Call of Duty games on PlayStation consoles on the same day they reach Microsoft Xbox consoles. “Sony refuses to deal,” Microsoft said in its filing.

Activision Blizzard has not made its new games available through subscription services such as Microsoft’s Game Pass, and the acquisition would make playing Activision Blizzard’s games more affordable, Microsoft said.

“The acquisition of a single game by the third-place console manufacturer cannot upend a highly competitive industry,” Microsoft said in its response. “That is particularly so when the manufacturer has made clear it will not withhold the game. The fact that Xbox’s dominant competitor has thus far refused to accept Xbox’s proposal does not justify blocking a transaction that will benefit consumers.”

Microsoft said that after taking almost a year to investigate the deal and examining millions of documents from Activision Blizzard and Microsoft, the FTC has not shown evidence that Microsoft is looking to yank the game series from PlayStation. Ensuring the games will be widely available is good for Microsoft’s business, the company said.

In its own response to the FTC’s lawsuit, Activision Blizzard said that “if Xbox withheld Call of Duty from Sony’s PlayStation or other platforms that compete with Xbox, Xbox would immediately forgo billions of dollars in lost game sales and cleave off a massive portion of the garners that Activision has worked so hard to attract and retain.”

Outside the U.S., Brazil gave the OK for the deal to proceed, while the United Kingdom has been scrutinizing it.

Activision Blizzard and Microsoft both pushed back on the FTC’s assertions.

The FTC said in its lawsuit that Microsoft had promised the European Commission that it wouldn’t have a motivation to prevent people from playing games from ZeniMax, a game publisher Microsoft acquired in 2021, on consoles other than the Xbox, but after receiving approval for the ZeniMax deal from the European Commission, the company said it would be making some ZeniMax games exclusive.

“The European Commission agrees it was not misled, stating publicly the day after the complaint that Microsoft did not make any ‘commitments’ to the European Commission,” Microsoft said, “nor did the European Commission ‘rely on any statements made by Microsoft about the future distribution strategy concerning ZeniMax’s games.'”

The case will go before the FTC’s administrative law judge, Michael Chappell. Activision Blizzard and Microsoft both said the FTC’s procedures violate their right to procedural due process under the Fifth Amendment of the U.S. Constitution.

Activision Blizzard said in its filing that the FTC “invented highly gerrymandered relevant product markets — including a ‘high-performance console’ market limited to Xbox and PlayStation consoles, as well as individual markets for multi-game subscriptions and cloud gaming — in an attempt to support its conclusory theories of harm.”

Members of the public sent more than 2,100 emails to the UK’s Competition and Markets Authority in response to a statement from the agency describing three ways the deal could lessen competition. Around 75% of the emails expressed support for the acquisition, the agency said on Wednesday.

If the deal does close, Microsoft would be “the world’s number three gaming company by revenue, behind Tencent and Sony,” Spencer said on a conference call on the day of the deal announcement.

In the months since then, two groups of Activision Blizzard employees have voted to form unions. Microsoft has said it’s committed to efforts that would make it easier for employees to decide on whether to join or start a union.

“There is no sensible, legitimate reason for our transaction to be prevented from closing,” Activision Blizzard CEO Bobby Kotick said in a statement provided to CNBC. “Our industry has enormous competition and few barriers to entry. We have seen more devices than ever before enabling players a wide range of choices to play games. Engines and tools are freely available to developers large and small. The breadth of distribution options for games has never been more widespread. We believe we will prevail on the merits of the case.”

WATCH: Gaming to benefit from being largely platform agnostic, says Cowen’s Doug Creutz

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