On Thursday, Microsoft began a weeklong hearing to determine the fate of its proposed $69 billion acquisition of Activision Blizzard. The hearing will determine whether a preliminary injunction should be granted, effectively blocking the deal. Microsoft’s lead attorney, Beth Wilkinson, warned that if the injunction is granted, the deal will not be able to proceed, and it will result in a lengthy legal battle for the company.
The Federal Trade Commission (FTC) filed a lawsuit in December to block the merger, arguing that it would stifle competition in the gaming industry. The deal would combine Microsoft, the owner of Xbox and a game streaming service, with Activision, the creator of popular game titles such as Call of Duty and Candy Crush. Microsoft sees the acquisition as a strategic move to expand its gaming division.
The FTC’s request for a preliminary injunction goes beyond this specific case. The agency was forced to take legal action in federal court because Microsoft and Activision indicated that they could close the deal at any time without further notice before the resolution of the legal challenge in their internal court. The trial in Microsoft and Activision’s internal court is set to begin on August 2, past the July 18 deadline to complete the purchase.
The FTC’s lead lawyer, James Weingarten, argued that the merger would harm gamers. He suggested that Microsoft could make Activision content exclusive to Xbox or degrade the quality of its games on competing consoles. He pointed to Microsoft’s previous acquisition of ZeniMax, the parent company of Bethesda Softworks, where they made one of ZeniMax’s popular titles, Starfield, exclusive to Xbox and Windows despite assuring European competition regulators that they would not limit games on rival consoles.
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In response, Wilkinson emphasized the competition that Microsoft would bring to the gaming industry if the deal is approved, particularly against Sony, which has dominated the console market for nearly 20 years. She argued that Microsoft aims to provide more games on more devices to more people, challenging Sony’s dominance.
Sony, the maker of PlayStation, has emerged as a major opponent to the merger. Gamers in a civil suit also seeking to block the merger cited an internal Microsoft email that they claim shows Microsoft’s intention to put Sony PlayStation out of the market. Wilkinson argued that Sony is opposing the deal to stave off competition. She cited an email from Sony’s PlayStation chief, Jim Ryan, stating that the merger is not about exclusivity and that they will continue to see Call of Duty on PlayStation for many years to come.
Wilkinson also questioned Microsoft’s financial incentive to pursue exclusivity on Activision games since it would mean giving up cross-platform sales. She argued that Xbox, as the smallest player in the market, would not forego the revenue from multi-platform sales as suggested by the government.
The hearing continued with witnesses testifying, including Microsoft CEO Satya Nadella, Activision CEO Bobby Kotick, and Xbox Game Studios CEO Phil Spencer. The outcome of the hearing will determine whether the deal can proceed.
The merger has received approval in several countries, including the European Union, Japan, and China. However, the UK blocked the merger due to concerns about Microsoft’s potential monopoly in the cloud gaming market. The decision was appealed by Microsoft. Competition enforcers in New Zealand also expressed concerns about the deal’s impact on competition in the distribution of video games for cloud gaming services.
The hearing will continue in the coming days, and a decision on the preliminary injunction is expected to be made soon. The outcome will have significant implications for Microsoft’s expansion in the gaming industry and the future of competition in the gaming market.
