Microsoft warns that pausing Activision merger will lead to downfall

On Thursday, Microsoft opened a week-long hearing that will decide whether its $69 billion bid to buy video game giant Activision Blizzard should be temporarily blocked with a warning: If a federal judge grants the injunction the Federal Trade Commission is seeking, it is won the deal. do not continue.

“If we can’t close on July 18 and the court orders the transaction,” said Microsoft’s lead attorney Beth Wilkinson, “no one can resist that and certainly not us.” She stressed that the FTC’s side of the matter will drag the company into a “three-year administrative nightmare” that will doom the deal.

The argument set the stage for a mini-trial in federal court in San Francisco between Microsoft and the FTC. The agency sued in December to block the merger, arguing it will allow the tech giant to stifle competition in gaming. If approved, the deal will marry Microsoft, owner of the Xbox console and a game streaming service, with Activision, maker of Call of Duty, Diablo And candy crush, as the company charts an aggressive expansion of its gaming business.

The FTC’s suit represents another aggressive move taken by competition regulators to rein in the consolidation of the technology industry. For the agency, his request for a preliminary injunction to pause the deal goes beyond this particular case. The FTC was forced to file a lawsuit in federal court because Microsoft and Activision indicated they could close the deal at any time without further notice before the legal challenge was resolved in internal court. That trial will begin on Aug. 2, following a contractually mandated July 18 deadline to complete the purchase.

“This case is not about whether the deal should go through,” FTC chief counsel James Weingarten said in court Thursday. “This case is about whether the FTC should be given a chance to evaluate the antitrust merits before closing the deal.”

During his opening remarks, Weingarten argued that the merger will hurt gamers. Microsoft, he said, could decide to make Activision content exclusive to Xbox or reduce the quality of its games on competing consoles. He pointed to the company’s 2020 purchase of ZeniMax, the parent company of Bethesda Softworks and maker of The Elder Scrolls, Fallout And Star field, for $7.5 billion. After the acquisition, Microsoft made ZeniMax one of the most popular titles, Star fieldexclusive to Xbox and Windows, despite assuring European competition regulators that it wouldn’t restrict games on rival consoles.

In response, Wilkinson highlighted the competition Microsoft would bring to the games industry, if the deal is greenlit, by challenging Sony’s dominance.

“For nearly 20 years, Sony has been a leader in the console market,” said Wilkinson Stekloff partner and former federal prosecutor. “Sony has big margins and (Microsoft) is looking for an opportunity to move people away from consoles and bring more games to more people on more devices.”

Sony, maker of PlayStation, has emerged as a major opponent of the deal. Appealing to a federal appeals court, gamers in a civil suit also seeking to block the merger cited an internal, redacted Microsoft email that they said was “undisputed evidence that Microsoft intended to kill its main competitor, the Sony PlayStation, turn it off”. from the market.” The message was allegedly sent by Matt Booty, head of Xbox game studios, who testified Thursday, to Tim Stuart, Microsoft’s chief financial officer for Xbox.

However, Wilkinson argued that Sony is against the deal only to avert competition. In an email she quoted from Sony’s PlayStation chief Jim Ryan to former Sony CEO Chris Deering, he stated that the merger “isn’t a game of exclusivity at all,” referring to the possibility of Microsoft making Activision content exclusively for Xbox. “I’m pretty sure we’ll keep seeing Duty on PlayStation for many years,” the post continued. ‘We’ll be fine. We’re more than fine.”

In addition, Wilkinson questioned the financial incentive for Microsoft to pursue exclusivity on Activision games, as doing so would mean abandoning cross-platform sales.

“The government is suggesting that Xbox, which needs this revenue, would somehow lose out as the smallest player in the market,” she told U.S. District Judge Jacqueline Scott Corley. “(Gamers) make it very clear to Xbox that they want to play Duty on different consoles.”

That argument was put to the test when Pete Hines, Bethesda’s head of publishing, took the stand. He was repeatedly questioned by the FTC when Microsoft followed through on its commitments to release ZeniMax’s games on multiple platforms after the company was acquired. On top of Star fieldwhich may contain titles redfall And Older roles 6the FTC said.

Hines indicated that an Indiana Jones game was intended to be a multiplatform title before ZeniMax was purchased by Microsoft in 2021. Prior to the acquisition, Disney signed a licensing agreement with ZeniMax. The entertainment giant preferred the title to be released on as many platforms as possible, but Microsoft had other plans.

When asked by Corley why the deal was changed, Hines replied that it was “about reducing risk” to get the game out on time.

“When you originally negotiated, all of those same considerations were there,” Corley replied.

Hines said Bethesda is a “small independent publisher” and “can’t miss”.

Another victim of Microsoft’s buying spree of game studios include Outer worlds 2, which Booty said may be an Xbox exclusive. He added that Xbox Game Studios CEO Phil Spencer has the final say on exclusivity.

The hearing continues Friday and next week. Witnesses expected to testify include Microsoft CEO Satya Nadella, Activision CEO Bobby Kotick and Spencer.

The merger has been greenlit in several countries, including the European Union, Japan and China, but the UK blocked it over concerns that it could drive the company into a corner in the cloud gaming market in a decision that was appealed by Microsoft. Competition law enforcement officials in New Zealand also said on Tuesday that the deal is “likely to significantly reduce competition due to vertical effects in video game distribution for cloud gaming services.”