February 29, 2024

The first day of a week of hearings could determine the outcome of Microsoft’s $70 billion acquisition of video game giant Activision Blizzard, with Microsoft promising to walk away from the deal if a federal judge delays its completion with an injunction. Complete deal.

“That will determine whether the deal goes ahead,” said Beth Wilkinson, Microsoft’s top lawyer. She added that losses could force the company into a “three-year administrative nightmare” that would lead to the failure of the deal, which the company hopes to close by July 18.

That set the stage for hearings in U.S. District Court in San Francisco as the Federal Trade Commission begins to lay out its case that Microsoft’s acquisition of Activision and its popular titles such as Call of Duty would be devastating to the video game industry.

The U.S. Federal Trade Commission (FTC) is asking Judge Jacqueline Scott Corley to issue a preliminary injunction preventing Microsoft from closing the deal before the FTC has had a chance to argue the case in its internal courts.

The conflict is widely seen as a test of whether recent efforts to more aggressively curb the power of global tech giants will succeed. Lina Khan, chair of the U.S. Federal Trade Commission, argued that big tech companies wield enormous power over online commerce and communications, enabling them to engage in anticompetitive behavior that harms consumers.

“If this deal goes through, the combined company would have the ability and incentive to harm various markets related to game consoles, subscription services and cloud,” FTC lead attorney James Weingarten said in court on Thursday. competition.” .

Mr. Weingarten said Microsoft could make Activision’s games exclusive to the Xbox console or lower the quality of titles on other platforms to make the Xbox more appealing to gamers. He pointed to Microsoft’s $7.5 billion acquisition of ZeniMax Media and its collection of game studios in 2020, after which Microsoft made some of those Xbox exclusives. The FTC pointed to a deal between Disney and ZeniMax to make an Indiana Jones game for multiple consoles. After Microsoft acquired ZeniMax, the agreement was amended and the game became an Xbox exclusive. The FTC seems to take this as a sign that Microsoft may be making Xbox-exclusive Activision games in the future, or even amending existing deals to do so.

The FTC argued that including Activision’s games in Microsoft’s portfolio would also give it an unfair advantage in the nascent cloud gaming market.

Sony, maker of rival PlayStation consoles, has been an outspoken critic of the deal, saying that if Microsoft decides to do so, PlayStation players could lose access to Call of Duty, a game for life. A sprawling franchise with over $30 billion in revenue. Make the game Xbox exclusive. Microsoft has denied doing so.

Microsoft said the Activision deal would instead benefit consumers, expanding their ability to play Activision games through lower-cost options like Microsoft’s Xbox Game Pass (subscription service), or through platforms from other companies such as Nintendo and Nvidia. Make a deal.

Ms. Wilkinson also thinks it would be absurd for Microsoft to remove Call of Duty and other games from the PlayStation, since the company would lose a significant portion of gaming revenue. She said Sony had become the “lead complainant” in the case, and showed an email from Sony CEO Jim Ryan suggesting he didn’t really believe Microsoft would withhold Call of Duty . Microsoft also pointed to its acquisition of Mojang, the maker of Minecraft. It continues to make Minecraft available across platforms.

In a separate lawsuit, the FTC accused Facebook parent Meta of cutting off nascent rivals when it acquired Instagram and WhatsApp. On Wednesday, it sued Amazon, accusing the company of deceiving users into signing up for its Prime subscription service. But the FTC has also encountered setbacks: This year, the FTC’s challenge to Meta’s acquisition of a virtual reality startup failed after a judge refused to block the deal from completing.

The FTC initially challenged Microsoft’s acquisition of Activision Blizzard through an internal courtroom. But the court has no legal power to block the deal. The FTC this month asked federal court to step in, saying it was concerned that Microsoft would try to close the deal despite legal challenges.

The hearing in Judge Corley’s court could be the decisive test for the FTC. If Microsoft wins, it would indicate a weakness in the FTC’s case and could lead the agency to drop its challenge to the deal. But the FTC’s victory would show that its broader challenge is valid and could put new pressure on Microsoft and Activision to rethink their multibillion-dollar corporate marriage.

While most governments around the world, including the European Union, approved the acquisition, Microsoft suffered a setback in April when British regulators blocked it. The decision is under appeal.

The list of high-profile witnesses expected to testify before Judge Corley next week includes Microsoft CEO Satya Nadella and Activision Blizzard CEO Bobby Kotick. Sony CEO Mr. Ryan will be in attendance via pre-recorded video testimony.

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