FTC sues to block Microsoft’s $75bn acquisition of Activision Blizzard

The US Federal Trade Commission will sue to block Microsoft’s $75bn acquisition of video game maker Activision Blizzard over concerns the deal would harm competitors to its Xbox consoles and cloud-gaming business.

The antitrust watchdog voted 3-1 to issue the complaint, it said on Thursday. It is the latest in a number of hurdles for the transaction, which is also being scrutinised by the UK Competition and Markets Authority and the European Commission.

“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,” Holly Vedova, director of the FTC’s bureau of competition, said in a statement.

The Activision deal would be Microsoft’s largest ever acquisition and would make it the third-biggest gaming company in terms of revenues, behind China’s Tencent and Japan’s Sony.

Activison shares closed 1.5 per cent lower, while Microsoft’s shares were up about 1.2 per cent.

The action is one of the biggest tests yet for FTC chair Lina Khan, who has vowed to crack down on Big Tech’s market power. She is among the progressive antitrust officials appointed by president Joe Biden in a bid to tackle anti-competitive conduct in corporate America.

In a press release, the FTC highlighted that Activision was among the few video game developers that produces and publishes top video games including Call of Duty and World of Warcraft for several devices such as computers, consoles and mobile phones. The deal would change that, the watchdog alleged.

“With control over Activision’s blockbuster franchises, Microsoft would have both the means and motive to harm competition by manipulating Activision’s pricing, degrading Activision’s game quality or player experience on rival consoles and gaming services, changing the terms and timing of access to Activision’s content, or withholding content from competitors entirely, resulting in harm to consumers,” the FTC said in its release.

Call of Duty, the blockbuster game that has brought in $30bn in lifetime sales for Activision, has been a particular focus. Microsoft has said that the blockbuster game will continue to be available on other companies’ game consoles after the deal, rather than becoming exclusively available through its Xbox as some feared. On Wednesday Microsoft signed a 10-year deal to bring Call of Duty to Nintendo platforms for the first time in almost a decade.

Brad Smith, Microsoft president, said that the company has been “committed since Day One to addressing competition concerns, including by offering earlier this week proposed concessions to the FTC. While we believed in giving peace a chance, we have complete confidence in our case and welcome the opportunity to present our case in court.”

In a letter to staff, Bobby Kotick, Activision chief executive, expressed his “confidence that this deal will close” and said that a claim that the deal was “anti-competitive doesn’t align with the facts, and we believe we’ll win this challenge”.

He also criticised “a regulatory environment focused on ideology and misconceptions about the tech industry”.

The FTC will bring the complaint in its in-house court, which will be presided over by an independent administrative law judge within the agency, rather than in federal court. Enforcement actions often cannot be challenged in the federal courts until the internal proceedings have concluded.

The FTC’s vote was split down ideological lines, with Christine Wilson, the sole Republican commissioner, voting against issuing the administrative complaint.

Last December, the FTC objected to another big tech tie-up, Nvidia’s $40bn purchase of chip designer Arm, which would be the largest semiconductor chip merger in history. The commission said at the time its lawsuit to block the deal would send a “strong signal” that it would “act aggressively” on takeovers that could stifle future innovation. The companies later abandoned the deal.

Additional reporting by Kana Inagaki and Tim Bradshaw