What’s happening with Microsoft’s acquisition of Activision Blizzard

Microsoft is attempting to persuade regulators around the world to clear its $68.7 billion acquisition of Activision Blizzard — the biggest deal of its kind the gaming industry has ever seen. Amid concerns about its effect on competition in the industry, and in the face of ardent lobbying against the deal by competitor Sony, the U.S. Federal Trade Commission has said it will attempt to block the deal legally, while the U.K.’s Competition and Markets Authority has also expressed skepticism.

Here’s the latest on Microsoft’s plans to snap up Activision Blizzard.

War of words gets uglier as Sony accuses Microsoft of “harassment” and Activision accuses Sony of “sabotage”

The wrangling over Microsoft’s acquisition of Activision Blizzard has entered a testy phase. In court documents responding to Microsoft’s subpoena of internal Sony documents (see below), Sony’s lawyers have accused Microsoft of “obvious harassment” — in particular for requesting performance reviews of Sony executives. That’s according to Feb. 9 reporting by Axios and Kotaku. “This is not an employment case,” Sony said.

Meanwhile, controversial Activision Blizzard chief Bobby Kotick has come out swinging after a couple of years in stealth mode. Just after telling MSNBC that blocking the deal would turn the U.K. into “Death Valley,” Kotick told the Financial Times that Sony was “trying to sabotage” the deal and that Sony leadership was refusing to return calls from Microsoft and even Activision itself. Of course, Sony and Activision are close partners on the PlayStation version of Call of Duty, among other things. Kotick says the idea that Microsoft would not support Activision games on PlayStation is “absurd.”

Things are clearly getting a little heated as the three biggest governments’ regulators line up against the deal. But, interestingly, analysts at Wedbush Securities reckon it’s all just hot air. In a note to investors (as reported by VGC), Wedbush’s Nick McKay and Michael Pachter said that the U.K.’s CMA, and the other regulators, are maneuvering to look tough and extract concessions from Microsoft because they know they have “a losing legal argument,” and the merger is in fact “close to being approved.” In other words, it’s all a political game of double bluff. It’s enough to make your head spin.

U.K. regulator says the deal could “harm gamers,” but leaves door open for negotiations

On Feb. 8, the U.K.’s Competition and Markets Authority announced it had “provisionally concluded” its investigation into Microsoft’s acquisition of Activision Blizzard, and decided the deal could harm competition in the games market in a way that would have an impact on gamers. The CMA said the deal could weaken the “important rivalry” between Xbox and PlayStation as well as stifling competition in the growing cloud gaming market. It foresaw “higher prices, reduced range, lower quality, and worse service in gaming consoles over time” as a result of the deal.

However, the chair of the investigation, Martin Coleman, also said the CMA had “sent the companies an explanation of how our concerns might be resolved, inviting their views and any alternative proposals they wish to submit.” The provisional nature of the findings, and this effective invitation to Microsoft and Activision to sit at the negotiating table, indicate that the deal is not dead in the water in the U.K. just yet.

In a statement to Polygon, Microsoft’s deputy general counsel Rima Alaily said, “We are committed to offering effective and easily enforceable solutions that address the CMA’s concerns. Our commitment to grant long term 100% equal access to Call of Duty to Sony, Nintendo, Steam, and others preserves the deal’s benefits to gamers and developers and increases competition in the market.”

EU has officially objected to the deal, with U.K. expected to follow

As reports previously suggested it would, the European Commission — the governmental executive of the European Union — has sent a “statement of objections” to Microsoft, outlining its formal opposition to the tech company’s acquisition of Activision Blizzard. That’s according to a Feb. 1 report from Politico. This concludes the Commission’s investigation into the deal, but it also serves as a prelude to negotiations with Microsoft, which may be willing to offer concessions to gain the EU’s eventual approval. “We are listening carefully to the European Commission’s concerns and are confident we can address them,” a Microsoft spokesperson told Politico.

Meanwhile, a Feb. 4 piece in The New York Times reports that Microsoft’s legal team expects the U.K. Competition and Markets Authority to oppose the deal, which is certainly consistent with the CMA’s initial stated concerns. (In a statement to the Times, Microsoft said that it believes it has a strong case in Britain and it has not predetermined, nor been advised by its lawyers, that the merger will be blocked.) Microsoft’s lawyers reportedly think the EU will be the most open to remedies of the three main regulators; if they can strike an agreement there, the thinking goes, it will be easier to talk the FTC and CMA into accepting the deal with compromises. Still, with all three regulators seeming closely aligned, Microsoft faces an uphill battle to get its acquisition through.

FTC reportedly filed suit early to try to head off a settlement approving the deal in Europe

Bloomberg reports that the U.S. Federal Trade Commission filed its lawsuit attempting to block the deal much earlier than expected, as it was trying to head off a potential agreement between European regulators and Microsoft that would see the deal waved through. Political intrigue intensifies!

According to Bloomberg’s sources, the FTC had not expected to file suit until the spring, but did so in December on the very same day it had learned from EU regulators that they were preparing to negotiate a compromise with Microsoft. Apparently the FTC wanted to get ahead of the European Commission, set the terms, and avoid a situation where it could be bounced into rubber-stamping the acquisition.

Microsoft subpoenas Sony as it prepares to defend itself against the FTC’s case

According to Axios’ Stephen Totilo, Microsoft subpoenaed Sony on Jan. 17, asking it to hand over internal information to help it build its defense against the lawsuit the Federal Trade Commission is bringing against its acquisition of Activision Blizzard.

Given the extent to which the FTC’s case, along with other regulators’ concerns, rest on Sony’s complaints that its competitive position will be weakened by its console rival acquiring Call of Duty and other Activision Blizzard games, it seems likely that Microsoft wants some internal data that will help them dispute this claim — perhaps Sony’s release or development schedule, or some sales or engagement data. Sony, for its part, will try to limit how much sensitive information it has to share with its competitor, but by pushing so hard for regulators to block the deal, it did open itself up to this kind of exposure.

Google and Nvidia have reportedly raised concerns about the deal

According to Bloomberg, Google and Nvidia have both echoed Sony in expressing their concerns to the FTC about the potential of the merger to squash competition, strengthening the regulator’s case as it prepares to bring it before the courts in August.

Neither is as direct a competitor to Microsoft in gaming as Sony is, but both have some overlap. Nvidia’s main business is manufacturing graphics cards, but it also has a streaming service, GeForce Now, that is perhaps the closest competitor to Microsoft’s Cloud Gaming initiative. (GeForce Now does not seem to currently carry any major Activision Blizzard games.) Nvidia reportedly does not directly oppose the deal, but stressed the need for open and equal access to Activision Blizzard’s games.

Google’s own streaming service, Stadia, is about to shut down. But the company has a big interest in mobile gaming via its Google Play store and Android operating system, and acquiring mobile behemoth King (Candy Crush) as part of the Activision Blizzard deal will make Microsoft a much bigger player in the space. Most likely, its complaint is just one tech giant trying to curb the influence of another.

Microsoft says it hopes to bring its pro-union approach to Activision Blizzard

On Jan. 6, as reported by The Verge, Microsoft ran an ad in the Washington Post highlighting its acceptance of unions, co-signed by the Communication Workers of America union. “As we enter a new year, we remain committed to creating the best workplaces we can for people who make a living in the tech sector. When both labor and management bring their voices to the bargaining table, employees, shareholders and customers alike benefit,” the note reads. Then it adds: “During 2023, we hope to bring the same agreement and principles to Activision Blizzard, which Microsoft has proposed to acquire.”

This is certainly a pitch to the FTC that Microsoft can improve working conditions at Activision Blizzard, which has shown resistance to a move to unionize among its employees after the dreadful scandal about its workplace culture in 2021. The ad highlights the successful unionization of 300 Bethesda and ZeniMax workers after Microsoft’s acquisition of that company, and concludes by saying, “We aren’t asking the FTC to ignore competition concerns. On the contrary, we believe it’s important to explore solutions that protect competition and consumers while also promoting the needs of workers and economic growth and American innovation.”

Microsoft admits it was wrong to call the FTC “unconstitutional”

As it looks to smooth things over with a skeptical, not to say hostile, regulator, Microsoft has walked back one of the most incendiary claims in its response to the FTC’s lawsuit attempting to block the merger. According to Axios, on Jan. 5 Microsoft revised its filing to remove a claim that the FTC’s structure violates the United States Constitution.

“The FTC has an important mission to protect competition and consumers, and we quickly updated our response to omit language suggesting otherwise based on the constitution,” Microsoft public affairs spokesperson David Cuddy told Axios. “We initially put all potential arguments on the table internally and should have dropped these defenses before we filed. We appreciated feedback about these defenses and are engaging directly with those who expressed concerns to make our position clear.” In other words: sorry, we know that was out of order, we messed up.

FTC says it’s not in “substantive” negotiations with Microsoft

On Tuesday, Jan. 3, the first pretrial hearing for the FTC’s suit attempting to block the merger took place. At that point, FTC lawyer James Weingarten said that the Commission had authorized settlement talks with Microsoft, but that “there are no substantive discussions at this time.”

This sounds like bad news for Microsoft, but “substantive” is the key word here. The two sides are doubtless in contact and Microsoft is almost certain to make a settlement offer — these days, the tech giant is known for taking a collaborative approach with governments and regulators, and it will be keen to close the deal before its offer for Activision Blizzard expires in July 2023. The trial itself is not due to commence until August.

U.K. regulator says it needs more time to investigate the deal

On Jan. 5, the U.K.’s Competition and Markets Authority — which, along with the FTC and the European Commission, is one of three regulators seen as powerful enough to block the deal completely — said it would need more time to complete what it calls “phase two” of its deeper look at the deal.

The CMA originally hoped to conclude its deliberations by March 1, but has moved this deadline back to April 26. However, it says it aims to wrap it up in advance of this date. The CMA has said it is “concerned” by the deal, and seems so far to be quite swayed by Sony’s lobbying. However, in a public consultation, it found that a majority of responses were in favor of the deal (aside from the 500 that “contained abusive content (with no other substantive content), or were blank, unintelligible, stated to be from non-U.K. consumers, or not in English.”

Chile approves the acquisition

On Dec. 29, 2022, Chile’s National Economic Prosecutor’s Office became the latest international regulator to approve the deal. It said it did not think the deal would significantly reduce competition, and it did not think it likely that Microsoft would pull Call of Duty from other platforms including PlayStation (this concern has been at the center of Sony’s objection to the deal).

Here’s a list of all the countries that have approved Microsoft’s acquisition of Activision Blizzard so far:

• Chile
• Brazil
• Saudi Arabia
• Serbia

What happens next?

The next major deadline is the European Commission’s verdict, which is due to be delivered on or by April 11.