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Microsoft sued by FTC over Activision Blizzard buyout

Federal Trade Commission seeks to block $68.7B deal

Image of green grid and shapes with the words Activision Blizzard superimposed over the top Illustration: James Bareham/Polygon

The U.S. Federal Trade Commission is suing Microsoft over its planned $68.7 billion acquisition of Activision Blizzard, saying that the deal “would enable Microsoft to suppress competitors to its Xbox gaming consoles and its rapidly growing subscription content and cloud-gaming business.”

In a news release, the FTC said that Microsoft has a record of “acquiring and using valuable gaming content to suppress competition from rival consoles,” pointing to the company’s $7.5 billion acquisition of ZeniMax Media, the parent company of Bethesda Softworks. The FTC noted Microsoft’s plan to keep next year’s Starfield from Bethesda Game Studios and Redfall from Arkane as Microsoft exclusives. Those games will be available on Xbox platforms and Windows PC, and the company’s Game Pass subscription service.

“Microsoft has already shown that it can and will withhold content from its gaming rivals,” said Holly Vedova, director of the FTC’s Bureau of Competition, in a news release. “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.”

The FTC points to the Xbox Series S and Series X as “one of only two types of high performance video game consoles” on the market — the other, Sony’s PlayStation 5, is not mentioned in its statement. The commission also points to Microsoft’s Game Pass service as another cornerstone of the company’s gaming business, for which Sony and other console competitors do not have an equivalent.

The commission also notes that Activision Blizzard is “one of only a very small number of top video game developers in the world that create and publish high-quality video games for multiple devices.” The publisher controls a wide number of properties, including Call of Duty, Warcraft, Overwatch, and Diablo. The proposed deal would also include mobile gaming giant King, which Activision Blizzard owns.

“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.

Microsoft’s Phil Spencer, head of Xbox, has said that his company plans to keep multiplatform games like Call of Duty on all existing platforms, including PlayStation, after Microsoft’s acquisition of Activision Blizzard would conceivably close. In recent months, Spencer has pointed to the example of Minecraft, which Microsoft acquired in 2014 for $2.5 billion, which remains on a variety of non-Xbox devices. Spencer and Microsoft have committed publicly to bringing Call of Duty specifically to PlayStation and Nintendo devices for at least another 10 years.

But the FTC pointed to Microsoft’s assurances to European antitrust authorities and regulators being in conflict with its decision to bring Bethesda Softworks’ games exclusively to Xbox and PC — and to Game Pass — next year.

“We continue to believe that this deal will expand competition and create more opportunities for gamers and game developers,” Microsoft’s vice chair and president Brad Smith said in response to the FTC’s action. “We have 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.”

“The FTC’s job is to protect consumers, not competitors,” said Lulu Cheng Meservey, executive vice president of corporate affairs and chief communication officer at Activision Blizzard. “This vote departs from precedent but the law hasn’t changed. Any claim the deal is anticompetitive ignores facts; the deal benefits gamers and the industry, especially given competition from abroad. We look forward to proving our case in court and closing our deal with Microsoft.”

Update: Activision Blizzard CEO Bobby Kotick said in an internal note to employees on Thursday that he expects the deal to close and that the company will “win this challenge.” Kotick called the FTC’s position as reflecting “a regulatory environment focused on ideology and misconceptions about the tech industry.” Here’s the note in full:

Team,

I wanted to provide a brief update on our pending merger with Microsoft. This week the U.S. Federal Trade Commission (FTC) announced its decision to challenge the deal. This means they will file a lawsuit to block the merger, and arguments will be heard by a judge.

This sounds alarming, so I want to reinforce my confidence that this deal will close. The allegation that this deal is anti-competitive doesn’t align with the facts, and we believe we’ll win this challenge.

Thanks to the hard work by all of you every day, we’re on a strong path, bringing epic joy to players around the world with what I believe are the greatest games in the industry. At the same time, the competitive landscape is shifting, and, simply put, a combined Microsoft-ABK will be good for players, good for employees, good for competition and good for the industry. Our players want choice, and this gives them exactly that. You can read more about the specifics on those points in this update we recently shared with you.

We believe these arguments will win despite a regulatory environment focused on ideology and misconceptions about the tech industry.

Thank you for your dedication and creativity.

Bobby

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