Microsoft Wins Big in Activision Blizzard Acquisition Case

A federal judge struck down the FTC's request for a preliminary injunction in the agency’s case against the tech and gaming giants' $68.7 billion deal.

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The path now seems clear: As early as a week from now, Microsoft could be the new owner of Call of Duty publisher Activision Blizzard.

On Tuesday, Northern California federal judge Jacqueline Scott Corley struck down a request for a preliminary injunction from the U.S. Federal Trade Commission in the agency’s case against the tech and gaming giants, paving the way for the duo’s $68.7 billion deal to move forward.

Now, after 18 months of back-and-forth sparring with international regulators, Microsoft and Activision Blizzard seem more than likely to complete the largest transaction in gaming history.

The ruling came after five days of testimony in a San Francisco court that included some of the most high-profile executives in gaming and tech. Among the headliners in the case were Microsoft CEO Satya Nadella, Activision Blizzard CEO Bobby Kotick, Xbox head Phil Spencer and PlayStation president Jim Ryan.

The central question in the case: Is the multi-billion-dollar deal for Microsoft to acquire Activision Blizzard anticompetitive—i.e., does it present potential for consumer harm for gamers?

Ultimately, Judge Corley believed not, citing a deal proposed by Microsoft to Sony to keep Call of Duty, in particular, on PlayStation for at least the next 10 years, and another deal similar in nature between Microsoft and Nintendo to bring Call of Duty to the Nintendo Switch.

“Microsoft’s acquisition of Activision has been described as the largest in tech history,” Judge Corley wrote in her ruling. “It deserves scrutiny. That scrutiny has paid off: Microsoft has committed in writing, in public, and in court to keep Call of Duty on PlayStation for 10 years on parity with Xbox.

“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.”

Just minutes after the U.S. federal court ruling, Microsoft and the U.K. Competition and Markets Authority (CMA) announced a pause in their case in which British regulators have attempted to stop the deal. Later in the day, CNBC reported that the two parties had agreed to “a small divestiture to address the regulator’s concerns”about cloud gaming.

Per the initial terms signed in January 2021, Microsoft and Activision Blizzard must close the $68.7 billion acquisition by July 18, or Microsoft will owe $3 billion to Activision Blizzard in a breakup fee. But that seems all but moot now, with the two remaining obstacles to the deal ostensibly removed.

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The American ruling is a big win for Microsoft, which has made it abundantly clear over the past five years that it wants to become the dominant player in the gaming space.

“We're grateful to the court for swiftly deciding in our favor,” Xbox head Spencer said in a tweet on Tuesday. “The evidence showed the Activision Blizzard deal is good for the industry and the FTC’s claims about console switching, multi-game subscription services, and cloud don’t reflect the realities of the gaming market.”

The second-most-valuable company in the world, Microsoft has rebounded from a poor performance with the Xbox One generation by focusing emphatically on software instead of hardware. In June 2017, the company launched Game Pass, a subscription service that provides no-additional-cost access to thousands of games, both those developed by Microsoft-owned studios and many others from partners.

Microsoft has focused on acquisitions in the gaming space to bolster its library of franchises. In March 2021, it acquired ZeniMax, the parent of Fallout and Skyrim developer Bethesda Softworks and Doom creator id Software. Then, amid employee unrest at Activision Blizzard and a multitude of lawsuits regarding alleged systemic sexual harassment at the California publisher, Microsoft swooped in and made what amounts to the biggest merger-and-acquisition offer in gaming history.

A key point in the FTC’s case revolved around how Microsoft has handled the aftermath of the ZeniMax deal. Specifically, Microsoft will not release popular upcoming Bethesda titles Starfield or Skyrim sequel The Elder Scrolls VI on PlayStation, opting instead to limit distribution to Xbox consoles and Microsoft Windows computers. Redfall, the latest release from ZeniMax subsidiary Arkane Austin, did not publish on PlayStation, either. Past Bethesda games were distributed across all platforms prior to the acquisition.

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But the FTC’s case was flimsy at best, according to many critics.

The agency argued, for example, that the Nintendo Switch isn’t a competitor to the Xbox Series X/S or the PlayStation 5, which, while true in terms of technological capability, is not true in terms of consumer habits. According to VGChartz, the Switch outsold the Xbox Series X/S and the PlayStation 5 in both 2021 and 2022. The PlayStation has surpassed the Switch in 2023 so far, but the current generation Xbox consoles still lag behind both of their competitors.

The FTC’s case also relied on a seemingly very narrow view of competition—as a dozen of other competitors exist in the AAA game publishing and development space. So while the Microsoft–Activision Blizzard deal certainly increases Microsoft’s foothold in that space, the risk for consumer harm is limited.

Pulling for the FTC was PlayStation, which over the past 18 months since Microsoft and Activision Blizzard announced their deal has repeatedly played hardball with Microsoft while testifying in public and private sessions to regulators in the U.S., Europe and the United Kingdom. While Microsoft has offered Sony a 10-year deal to guarantee Call of Duty release on PlayStation consoles, Sony has refused to accept that deal.

Despite PlayStation’s best attempts to block, Microsoft convinced the federal judge that it will remain true to its word: Call of Duty will remain on PlayStation.