On The Evidence, The Judge Was Right To Allow Microsoft’s Acti-Blizz Deal

As many will know, Judge Jacqueline Scott Corley recently denied the Federal Trade Commission’s request for a preliminary injunction to halt Microsoft’s acquisition of Activision-Blizzard. The decision is obviously a divisive issue. After all, at $68.7 billion, the deal is the largest in video game history. However, after hearing the arguments from the involved parties, it’s hard to disagree with the Judge on this one.

First, let’s look at what Judge Corley said in her decision not to grant the preliminary injunction. She praises the FTC for its scrutiny in this case and acknowledges Microsoft’s commitments to keeping Call of Duty on PlayStation and bringing the series to Switch to the Commission. She then gives the court’s ruling:

“This Court’s responsibility in this case is narrow. It is to decide if, notwithstanding these current circumstances, the merger should be halted—perhaps even terminated—pending resolution of the FTC administrative action. For the reasons explained, the Court finds the FTC has not shown a likelihood it will prevail on its claim this particular vertical merger in this specific industry may substantially lessen competition. To the contrary, the record evidence points to more consumer access to Call of Duty and other Activision content. The motion for a preliminary injunction is therefore denied.”

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As we can see, Judge Corley is essentially saying that she doesn’t feel the merger will lessen competition in the video game industry. It’s always important to question market consolidation in big tech. The knock-on effects of a large merger on the price of goods, consumers and the ease at which new business can enter a market can be far-reaching, but – contrary to the views of some of my fellow writers – Microsoft has made a strong case that the merger might not be so anti-competitive after all.

During the case, the government (as well as Sony) became fixated on the issue of Call of Duty. The Commission feared that Xbox, with an exclusive Call of Duty, would become an unassailable market player. As Judge Corley pointed out, the focus on this topic won multiple concessions from Microsoft, which is positive.

The topic of video game exclusivity was a contentious one throughout the hearings. Microsoft’s CEO Satya Nadella notably said he has “no love” for console exclusives, but argued that Sony, as the market leader in console sales, has “defined the market competition using exclusives.” Of course, console exclusives have been around as long as consoles have existed, so you can’t really blame Sony for creating that culture. Still, it’s worth noting for means of potentially holding Microsoft accountable in the future.

When Sony purchased Bungie, it was explicitly stated that Bungie would remain a “multiplatform developer,” and the news that its upcoming online shooter Marathon won’t be PlayStation exclusive suggests that they’re sticking to that promise. Point being: companies can “play nice” when it comes to exclusives. Exclusivity is not something that’s going to go away and a decade-long agreement regarding Call of Duty seems reasonable. Of course, Call of Duty isn’t the only game in Activision-Blizzard’s catalogue. What of Diablo and Overwatch? Well, with Diablo 4 and Overwatch 2 released fairly recently, that’s clearly not an issue for the foreseeable future.

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So, the crux of the government’s case isn’t too strong. Exclusivity as a core argument isn’t robust because it’s so ingrained in industry culture and also because it’s arguably not wholly anti-consumer. Yes, consumers won’t be able to access every potential product but equally, console manufacturers need to create high-quality exclusives to market their products, giving said product its own identity.

The FTC’s case was further weakened by Microsoft agreeing to bring Call of Duty to Nintendo Switch, a platform the game isn’t currently on. As Judge Corley pointed out, the availability of Call of Duty is actually being broadened by the acquisition rather than restricted, if concrete agreements can be worked out.

What about market control? Well, it’s common knowledge that both the PlayStation and Nintendo Switch outsell the Xbox globally. There’s no denying that Microsoft is one of the biggest corporations in the world, and could easily outspend Sony if it wished (something that Matt Booty explicitly stated in a 2019 email), but looking at respective games company revenues, Xbox has a lot of catching up to do with Sony.

Going by TweakTown, PlayStation earned $24 billion in 2022, Xbox earned $15 billion and Nintendo also earned $15 billion. Activision-Blizzard, meanwhile, brought in $7.5 billion. Going by these numbers, the combination of Xbox and Activision-Blizzard would only be on par with PlayStation revenue-wise. There’s no denying that Microsoft’s acquisitions could cut into PlayStation’s revenue long-term, as gamers may be tempted by the growing Xbox roster, but even then it would take an almighty swing for Xbox to existentially threaten Sony’s console.

Between the exclusivity and market share arguments, we’re not really seeing evidence that’s compelling enough to block the acquisition. One noteworthy point made by the FTC was in the area of cloud gaming, which suggests that as cloud gaming evolves and eventually eclipses console gaming (hard to fathom right now, I know), Microsoft will be significantly ahead of the competition and will now have Activision-Blizzard’s library to boot. This is a valid concern. Microsoft has invested more resources into cloud gaming than its competition. However, as this scenario doesn’t reflect the current market, it’s difficult to block the deal over this hypothetical concern (though that is basically what the United Kingdom’s CMA did a few months ago).

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The FTC appealed Judge Corley’s decision, arguing that the Judge focused too much on Microsoft’s agreements regarding Call of Duty and ignored the Commission’s advice regarding the potential exclusivity of Activision-Blizzard’s other games. This appeal was swiftly turned down by the appeals court.

Meanwhile, in the United Kingdom, the CMA released a surprise statement saying it was now open to negotiating with Microsoft regarding the deal, after having previously blocked it. It’s been reported that the CMA is looking for some level of divestiture from Microsoft as a precondition for approving the acquisition.

Momentum appears to be on Microsoft’s side as July 18 looms. I’m all for busting up monopolies and pursuing big tech more aggressively, but I can’t help but feel that the FTC has chosen the wrong target in this case. A big deal is always cause for concern, but there isn’t anything here that’s going to result in concrete anti-consumer or anti-competitive practices. Let’s hope this doesn’t set a bad precedent for when a bigger antitrust case arises in the industry.

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