Activision Blizzard, Microsoft to Face Toughest Antitrust Probe Yet

One of America’s top young antitrust scholars, FTC chairwoman Lina Khan is reportedly likely to file suit to block gaming’s most valuable merger of all time.

The U.S. Federal Trade Commission is likely to file an antitrust lawsuit against Microsoft over its pending $68.7 billion acquisition of game publisher Activision Blizzard, according to a Wednesday report from Politico.

A filing against the world’s third most valuable company is not guaranteed, and Politico reports that the four FTC commissioners have yet to call a vote on moving forward with a legal complaint or set meetings with Microsoft and Activision Blizzard’s lawyers. But there’s a feeling—at least implied in the Politico reporting—that this may be the landmark case that Biden administration-appointed FTC chairwoman Lina Khan, one of the nation’s most knowledgeable antitrust scholars, has been looking for.

The largest acquisition in gaming ever, the Microsoft-Activision Blizzard deal is set to create a game development and publishing giant, uniting the companies behind “Minecraft”, “Halo”, “Call of Duty”, “Candy Crush” and others, all under one roof. Like many other regulators, Politico reports, the FTC is concerned about how the deal could one day affect distribution of many of Activision Blizzard’s titles, such as “Call of Duty” and “Overwatch,” both of which are currently published on both Microsoft’s systems—Windows and Xbox—and PlayStation consoles.

In several past interviews, Xbox head Phil Spencer has stated that he does not intend to remove “Call of Duty,” which is Activision Blizzard’s best-selling franchise, from PlayStation after the expiration of Activision and Sony’s current deal.

“We’re not taking ‘Call of Duty’ from PlayStation,” Spencer told YouTube celebrity Justin “iJustine” Ezarik and her sister Jenna on their podcast. “That’s not our intent. Our intent is not to do that. As long as there’s a PlayStation out there to ship to, our intent is that we continue to ship ‘Call of Duty’ on PlayStation.”

But many haven’t bought that, including Sony, and regulators in the United Kingdom and the European Union. PlayStation’s top executive, Jim Ryan, reportedly met with EU regulators in Brussels in September, and in early November, those same regulators opened a thorough investigation into the Microsoft-Activision Blizzard deal. The EU regulators must complete their investigation by March 23, 2023.

A separate set of regulators on the U.K.’s Competitions and Markets Authority are also probing the deal and set a deadline of March 1, 2023, to publish a report with its stance on the matter.

The Jacob Wolf Report is a reader-supported venture. Free and paid versions are available. The best way to support us here is by taking out a paid subscription.

Prior to Wednesday’s Politico report, it was mostly expected that the FTC would not challenge the merger, but if it did, the decision would come by the end of November. In the interview with the Ezarik sisters, Spencer expressed confidence on the deal’s ability to go forward unimpeded based on his discussions with regulators.

“We expect that it will close in this fiscal year for Microsoft, which is this crazy thing that ends in June,” Spencer said. “We think in that timeframe it’ll close. I’m pretty confident in the deal closing. As I’m spending time with regulators, I think they’re asking good, honest questions about a big deal.”

If the FTC does file suit, it’ll be the second that Khan pursues in the gaming and gaming-adjacent experiences industry.

The FTC filed another suit in late July seeking to stop the acquisition of Within Unlimited, the creators of virtual reality fitness app “Supernatural,” by Facebook parent Meta, the owners of the virtual reality headset brand previously known as Oculus. Given Meta’s previous acquisition of “Beat Saber” developer Beat Games in November 2019, the FTC is arguing that Meta acquiring “Supernatural” would monopolize the virtual reality fitness landscape.

Nominated by President Joe Biden after the 2020 election, the 33-year-old Khan is one of the youngest leaders among U.S. enforcement agencies and also one of the most renowned. During her time as a student at Yale Law School, Khan wrote a published essay entitled “Amazon’s Antitrust Paradox” — which gained her significant respect among her antitrust law peers and drew the ire of not just Amazon, but many other major tech companies in the U.S.

Many tech journalists and pundits, such as Pivot podcast co-hosts Kara Swisher and Scott Galloway, have speculated that Khan has been searching for her one big case to establish the new course of the FTC. The Microsoft-Activision Blizzard deal, when announced in January, drew attention as a potential target.

But the games industry is widely misunderstood by many regulators, and in addition to Microsoft and Activision Blizzard, there are dozens of publishers worldwide developing AAA game titles. An antitrust argument will be tough to prove, given the view of the rest of the landscape.

Given what many economists suspect is a looming recession, consolidation across all of big business and tech ramped up in 2022, which makes the FTC one of the most important law enforcement agencies in America. In addition to the Facebook lawsuit and a potential Microsoft-Activision Blizzard one, the FTC is also faced with reviewing the Adobe acquisition of Figma, a user experience design app that the major software company said it proposed to acquire in September for $20 billion. Adobe is the creator of a competing app to Figma called Adobe XD.

Thank you for reading The Jacob Wolf Report. This post is public so feel free to share it.

Underscoring the the Microsoft-Activision Blizzard deal is also employee unrest, as Activision Blizzard continues to fight a series of sexual harassment lawsuits, including one from the California Civil Rights Department. Many Activision Blizzard employees have lost all confidence in leadership after reports that CEO Bobby Kotick allegedly knew of sexual harassment allegations within the company but withheld them from shareholders, according to a Wall Street Journal report. The Securities and Exchange Commission is investigating Activision Blizzard and Kotick on whether he in fact did withhold that information, according to the Journal.

Rather than back down, Kotick’s executives have fought tooth and nail in court, mostly unsuccessfully, to stop those cases. Kotick recently hired former Substack vice president of communications Lulu Cheng Meservey, who has antagonized critics and former employees on social media (The Jacob Wolf Report is a partnered publication of Substack). Cheng Meservey‘s also pushed back on unionization as several of Activision Blizzard’s studios, such as Raven Software and Blizzard Albany, have moved to unionize.

Despite its own past issues with sexual misconduct, many employees at Activision Blizzard I’ve spoken with view the Microsoft deal as vital to the future of the company’s culture. Spencer, in particular, is one of gaming’s most respected executives, and many believe Microsoft will work to correct Activision Blizzard’s mistakes once it has time to evaluate and potentially replace existing leadership, assuming a deal gets done.

But now, with a potential FTC complaint looming, it’s unclear if Microsoft will even get that far.