Monday, December 12, 2022

FTC Sues Microsoft to Block Activision Blizzard Purchase

Federal Trade Commission (via Hacker News):

The Federal Trade Commission is seeking to block technology giant Microsoft Corp. from acquiring leading video game developer Activision Blizzard, Inc. and its blockbuster gaming franchises such as Call of Duty, alleging that the $69 billion deal, Microsoft’s largest ever and the largest ever in the video gaming industry, would enable Microsoft to suppress competitors to its Xbox gaming consoles and its rapidly growing subscription content and cloud-gaming business.

In a complaint issued today, 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). 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.

Tom Warren and Jay Peters:

“We continue to believe that this deal will expand competition and create more opportunities for gamers and game developers,” Brad Smith, Microsoft’s vice chair and president, said in a statement to The Verge.


Microsoft offered Sony a 10-year deal on new Call of Duty games last month, but Sony hasn’t yet accepted the offer. A similar deal was agreed upon between Nintendo and Valve, though. It could see Call of Duty heading to Nintendo consoles if the Activision Blizzard deal is approved.

John Gruber:

We’ll see how it plays out, but my gut feeling is that this is a mistake on the FTC’s part. The video game industry is incredibly competitive today. Yes, Xbox and PlayStation are the only two high-end consoles, but the Switch is quite arguably Nintendo’s most successful platform ever. And it’s not like Sony is some shrinking violet and lacks for its own exclusive titles. Exclusive titles are a big part of competition. It’s also the case that the dominant players in console and PC gaming are not the dominant players in mobile gaming (Apple and Google).

Florian Mueller:

I’m even more disappointed in what’s going on now, with the FTC wasting resources and losing credibility only because of some decision makers’ desire to be seen as boldly anti-Big Tech. And it isn’t even really anti-Big Tech because Microsoft’s proposed acquisition of Activision Blizzard (NASDAQ:ATVI) has the potential to contribute enormously to a level playing field in mobile app distribution, ultimately benefiting the little guys.


In yesterday’s analysis of the complaint, I explained that the FTC hasn’t lied here--but it is fair to say that the FTC, which is hard pressed to find any argument for blocking a totally lawful and even procompetitive merger, has misled a lot of people into thinking that Microsoft walked back on a promise on which the clearance of a previous game studio acquisition depended.

Microsoft published a document (PDF) that explains what exactly happened around that acquisition: Microsoft kept its word.


Update (2022-12-26): Florian Mueller:

Yesterday, Insider Gaming reported something that could play quite a role in the various regulatory reviews of Microsoft’s acquisition of Activision Blizzard King. According to unnamed Sony-internal sources, PlayStation chief Jim Ryan said at an employee Q&A Microsoft’s Xbox Game Pass offering doesn’t worry him in the slightest[…]

Update (2023-04-26): Florian Mueller:

What is at stake now after the UK Competition & Market Authority’s unbelievable decision (summary (PDF)) to block Microsoft’s acquisition of Activision Blizzard King (ABK) is not just the credibility of that particular regulatory agency and its leadership. The more fundamental question that will have to be answered now is whether the rule of law is intact.

See also: Hacker News.

Update (2023-06-13): David Shepardson:

The FTC said Microsoft and Activision had signaled the deal could close as soon as Friday and asked a federal judge to block any final agreement before 11:59 p.m ET June 15.

Update (2023-06-15): Florian Mueller:

The FTC case places the emphasis on a vertical input foreclosure theory relating to videogame consoles. That one has been rejected by the regulators in charge of 40 countries. Even the UK CMA dropped that one after it made a mathematical mistake that was quite unbelievable and doomed that theory of harm.

The FTC complaint does also mention cloud gaming, so the FTC will try to somehow convince the United States District Court for the Northern District of California that the CMA decision weighs in favor of a TRO and a PI. But cloud gaming as more of an afterthought in the FTC's original December 2022 complaint, and they now had to bring a federal complaint consistent with the one they filed with their in-house court.

Update (2023-06-23): Stephen Totilo (via Hacker News):

In an appeal to the U.S. 9th Circuit Court, lawyers representing a group of gamers suing to block the deal over antitrust concerns point to a purported internal Microsoft email they describe as “uncontroverted evidence that Microsoft had the intention to put its main competition, the Sony PlayStation, out of the market.”

Update (2023-07-11): Tom Warren (Hacker News):

A California judge is allowing Microsoft to close its acquisition of Activision Blizzard after five days of grueling testimony. Microsoft still faces an ongoing antitrust case by the Federal Trade Commission, but Judge Jacqueline Scott Corley has listened to arguments from both the FTC and Microsoft and decided to deny the regulator’s request for a preliminary injunction.

4 Comments RSS · Twitter

I find it baffling that people are pro MS bid on ActiBlizzKing.

I’m really not convinced by Florian’s argument that a “clash of titans” (in combination with necessary app marketplace legislation) is what will bring about change in mobile ecosystems, and especially not convinced that this acquisition is at all beneficial towards bringing forth such change.

Valve, Epic, and Microsoft already run viable game stores. The titans *already* exist. If Fortnite isn’t enough to convince a critical mass of users to download the Epic Games Store on their phone, nothing will be. Microsoft’s acquisition of Activision Blizzard is instead about publisher and studio consolidation by a platform holder. They want people purchasing Xbox games and paying for Game Pass subscriptions¹.

Florian argues that the “video game industry is fragmented,” but game publishers and studios are trending toward consolidation, and this merger is a further step in that direction. Look at the sheer number of studios Microsoft and Embracer Group have acquired over the past few years.

Finally, he argues that “if there is any market in which Microsoft has huge market power, it's certainly none of the markets in which Activision Blizzard King is active.” I’m… not sure where he’s getting this idea from? Microsoft holds incredible power in the non-mobile gaming industry; outside of the mobile market, nearly all games run on Sony, Nintendo, or Microsoft platforms².

From Microsoft’s perspective, even if someone buys Call of Duty on Steam, that user has (likely) paid for a Windows license, and thus Microsoft already has their foot in the door. The Microsoft/Xbox store and a Game Pass subscription are a click away³.

The 10-year deal on Call of Duty games is largely irrelevant because they’ve already tipped their hand with ZeniMax: Bethesda’s titles are extremely popular, and Starfield not coming to PlayStation is a significant setback for Sony. Among certain demographics, Bethesda’s titles will be *the* deciding factor between purchasing a PS5 or an Xbox Series X/S console.


¹The Xbox Series S was explicitly designed with the intention of gaining market share in emerging markets with Game Pass subscriptions, game streaming, and (to a lesser degree) digital purchases. That’s why it lacks an optical drive and why it is relatively under-powered compared to the Series X and PS5.

²Stadia was a failure, I’ve heard very little about Amazon Luna, and GeForce Now is intended to link to an existing Steam or Epic Games Store library. There is a small but growing number of Steam Deck owners, but many of those users are using the Steam Deck to complement an existing Steam library they play on their PC, and many of the titles in those libraries are Windows-only games running on Linux via Proton.

³This is why so many of their exclusive games are now available on both Windows and Xbox consoles, compared to the era where their exclusive titles were only available on the Xbox 360. (The other reasons likely have to do with the poor margins on console hardware, and how similar the last two generations of console hardware are to PCs.)

Reading from Florian’s other linked article:

> If one doesn't know some additional facts and doesn't interpret the FTC's wordings very carefully, it inaccurately sounds like Microsoft had reneged on its commitments to the European Commission:
>> “12. Microsoft’s past conduct provides a preview of the combined firm’s likely plans if it consummates the Proposed Acquisition […] during its antitrust review of the ZeniMax purchase that Microsoft would not have the incentive to withhold ZeniMax titles from rival consoles. But, shortly after the EC cleared the transaction, Microsoft made public its decision to make several of the newly acquired ZeniMax titles, including Starfield, Redfall, and Elder Scrolls VI, Microsoft exclusives.”
> All that the FTC actually says is that Microsoft denied an economic incentive to make titles exclusive. The FTC does not say--but it misleads people into concluding--that Microsoft didn't honor its commitments.

Is the argument here that there is some legal distinction between the *incentive* to make these titles platform exclusives, versus simply doing it? If so, I’m baffled that anyone involved came to the conclusion that Microsoft somehow didn’t have an incentive to make ZeniMax titles platform exclusives. The incentive seems obvious to me… Bethesda’s games are extremely popular and highly anticipated, so people *will* base their console purchase decision on which platform has these games, and most people can’t afford to buy into more than one platform. Given the length of console generations, convincing someone to buy an Xbox locks them into Microsoft’s store for years, unless Sony can somehow convince a buyer that they’re missing out on enough exclusive titles to justify spending another $400 on a PS5 (a tall order going into a recession).

He argues that Sony is no better wrt exclusive titles, but the difference is that historically Sony’s exclusive titles are from in-house studios, and their recent acquisitions have been individual studios, not two massive game publishers (ZeniMax and Activision Blizzard).

But maybe there’s some legal aspect to this that I don’t understand.

> As I already explained yesterday--but what is even more important now in light of the actual complaint--Microsoft has published a document (PDF) that shows the only actual promise was not to turn then-existing titles into exclusives--and that promise was kept as I had already shown in another post based on a table I found in a UK filing.

Turning existing titles into exclusives is unheard of, so the promise effectively amounts to nothing.

> I also mentioned this--and showed a tweet by famous (and now Sony-exclusive) game developer Hideo Kojima--in another recent post.

This is simply false. Kojima is not Sony-exclusive; his one post-Konami title (the excellent Death Stranding) was available on the PC less than 12 months after release on the PS4, and of his two upcoming projects, one is in collaboration with Xbox Game Studios, and the other will likely be a one-year timed exclusive on the PS5.

In fact, most of Sony’s “exclusive” titles eventually make their way to the PC (see God of War, Uncharted, The Last of Us, and Horizon Zero Dawn).

> As an app developer who has been impacted by the mobile app store tyranny, I'm extremely disappointed to see the FTC ignore (for litigation purposes) the procompetitive dimension of the deal with a view to mobile app stores.

Again, even if this is somehow procompetitive for mobile app stores (I’m not sure how it is), it’s part of an alarming trend of studio and publisher consolidation in the non-mobile game industry. Is it anticompetitive? I don’t know. But no one in the game industry wants this. We all want mobile platforms to be cracked open, but this isn’t the way to do it.

Anyways, apologies/thanks for letting me holler about this at length in your comments.

I think the most disingenuous thing is trying to frame it as a "mobile app store" issue. It's much broader than that, if anything it's about the console wars.

I wonder if Florians previous work for Microsoft is influencing his thinking.

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