As Microsoft defends its $69 billion Activision merger, the future of a record tech sector alliance rests with the court

Federal antitrust officials have filed a lawsuit to stop the $69 billion deal, which they claim will hurt Microsoft’s competition with rivals in the game sector like Sony and Nintendo.

A federal judge must now determine whether to block Microsoft from consummating its acquisition of the video game company Activision Blizzard, which could be the most expensive merger in the history of the technology sector.

Federal antitrust officials have filed a lawsuit to stop the $69 billion deal, which they claim will hurt Microsoft’s competition with rivals in the game sector like Sony and Nintendo.

The military commando video game Call of Duty, a single Activision blockbuster property, and whether Microsoft may hurt competition by controlling how it is distributed to gamers could also play a significant role in the judgement.

When the five-day court hearing in San Francisco came to an end on Thursday, U.S. District Judge Jacqueline Scott Corley said, “All of this is for a shooter video game,” with a touch of frustration about the nature of the conflict. We worry about the competition in this single-player shooter video game.

In the court proceedings that ended on Thursday, Microsoft primarily held sway thanks to the testimony of its CEO Satya Nadella and other officials, including veteran Activision Blizzard CEO Bobby Kotick.

The FTC, which upholds antitrust rules, has urged Corley to grant an injunction that would temporarily prevent Microsoft and Activision from consummating the transaction before the FTC’s own court can assess it in an August trial.

Activision and Microsoft have both asserted that such a delay would effectively compel them to break their 17-month agreement. If the transaction doesn’t close by July 18, Microsoft committed to pay Activision a breakup fee of $3 billion.

In a final written defence submitted on Thursday, Microsoft’s main attorney, Beth Wilkinson, argued that the remedy the FTC is requesting is not only unprecedented but deal-killing.

The lawsuit is a crucial test for the FTC’s closer examination of the technology sector under its new Chair Lina Khan, who was appointed by President Joe Biden in 2021 due to her firm position against what she views as monopolistic behaviour by internet firms like Amazon, Google, and Facebook parent Meta. If the FTC loses, it might happen again what happened earlier this year when the FTC’s attempt to halt Meta’s acquisition of a virtual reality fitness startup was rejected by a different judge.

Corley has shown doubt about the FTC’s justifications for opposing the Activision transaction, most notably on Thursday when she interrupted the agency’s main attorney during his closing arguments to demand that he define “exactly what is the harm” to consumers.

Why don’t you try to be a bit more specific? Corley declared. Later, she clarified: “We don’t care about harm to Sony. It is the consumer’s harm.

Sony, the deal’s most outspoken opponent in the gaming industry, has expressed concern to regulators that Microsoft will deny its dominant PlayStation game console access to well-known Activision franchises like Call of Duty or provide a subpar version of those games in an effort to convince players to switch to Xbox instead.

This week, Nadella, Kotick, and other Microsoft witnesses sought to allay such worries by making the case that it was better for businesses to maintain titles like Call of Duty available across many platforms and that doing so would trigger a backlash among gamers.

According to written testimony submitted by Microsoft’s chief financial officer, Amy Hood, before Thursday’s court session, “The possibility of making Call of Duty exclusive to Xbox was never assessed or discussed with me, nor was it even mentioned in any of the presentations to or discussions with the Board of Directors.” On Thursday, Hood sat in the courtroom but was not called to the witness stand.

James Weingarten, the FTC’s main attorney in the lawsuit, attempted to refute Microsoft’s claims that it was unconcerned about making games exclusive on Thursday. Weingarten questioned a financial manager at Microsoft’s Xbox division about the firm’s internal strategy discussions for the acquisition of Activision Blizzard and its $7.5 billion 2021 acquisition of ZeniMax, another leading game developer.

Tim Stuart, the CFO of Xbox, was questioned about the controversy he generated when he stated at an investor conference in 2020, following the first announcement of the ZeniMax transaction, that Microsoft’s long-term strategy was to distinguish its platform by making its games “either first or better or best.”

Stuart stated that there were internal discussions about how the revenue from selling more Xbox systems and subscriptions to Microsoft’s Game Pass monthly subscription service may make up for a decline in sales caused by making titles exclusive to the Xbox.

Since then, Microsoft has made Xbox the only platform for some of ZeniMax’s games, including the upcoming title Starfield. However, Microsoft pledged to establish legally enforceable agreements to keep Call of Duty on other platforms for at least ten years in response to worries about the Activision arrangement. For its Switch console, Nintendo accepted such a deal, while Sony rejected it.

On Thursday, Microsoft and the FTC each presented their concluding arguments. Although Corley did not specify a deadline for issuing the decision, she did note that the case was timely.

While other nations and the European Union have authorised the agreement, another important regulator, the U.K.’s Competition and Markets Authority, is opposed to it.