Is the Regulatory Heat Getting to Microsoft Over Activision Deal?
By Greg Kahn
Emerging Tech Exchange
Founder & CEO
Published on June 27, 2023
Two weeks ago, the FTC moved to block Microsoft's bid to acquire Activision Blizzard. It was the latest in a series of regulatory hoops the Redmond software giant has jumped through to close the $68.7 billion deal’s year-and-a-half-old offer.
But is Microsoft’s tenacity — or its patience with M&A government scrutiny? — flagging?
Bloomberg recently reported that Microsoft president Brad Smith huddled with the company’s legal representatives to determine if the company should walk away from Activision after an adverse ruling by regulators in Great Britain.
Meanwhile, Axios had the latest in the ongoing hearings over the FTC’s injunction.
A Microsoft lawyer revealed something of a bombshell in the form of a private email from Sony PlayStation boss Jim Ryan, who has been an obvious critic of the deal. In his email, Ryan said didn’t believe that Microsoft was trying to make “Call of Duty” exclusive to its platforms, contradicting the company’s public complaints.
Ryan opined that Microsoft had “bigger plans” beyond exclusivity of a best-selling game title. He reassured a former Sony executive that “Call of Duty” would continue to be available on PlayStation for many years to come. Ryan is expected to testify at the trial via a pre-recorded deposition.
During the trial, Microsoft game studio chief Matt Booty was questioned about his emails regarding Microsoft's exclusivity strategy. In one email, Booty expressed a strong opposition to bringing Microsoft's games to competing services. However, he later clarified that his frustration stemmed from issues with Nvidia's handling of Microsoft's games on its GeForce Now service, and Microsoft's strategy has since changed.
Another Xbox executive, Sarah Bond, testified about the benefits of the deal, including expanding Activision Blizzard's games to more consoles and services. Microsoft highlighted 10-year commitments to bring games from the publisher to Nintendo and Nvidia GeForce Now.
The FTC argued that these agreements have "loopholes" and raised concerns about Microsoft's double standards in keeping games within its portfolio off of competing platforms.
The FTC questioned Bethesda publishing chief Pete Hines, who confirmed that an Indiana Jones game initially planned for multiple consoles was switched to Xbox-only after Microsoft's acquisition of ZeniMax. Hines cited meeting a licensing deadline and reducing development risks as reasons for the decision.
Microsoft has argued that it evaluates game exclusivity on a case-by-case basis and has no interest in making “Call of Duty” exclusive. The FTC contends that Microsoft can afford to take a loss to harm its competitors. Court filings have also revealed Microsoft's acknowledgement that most of its cloud gaming subscribers primarily use the service on their own Xbox systems to try games before downloading, rather than playing games remotely.
Ultimately, the FTC needs to prove that preventing Microsoft from keeping “Call of Duty” on competing platforms would unfairly harm competitors in the console and cloud gaming markets. Microsoft maintains that even without Call of Duty, PlayStation would still have the majority market share.
Big Tech’s Regulatory Target On Its Back
It’s all reflective of a much more aggressive stance against Big Tech by government administrators.
It’s not just the U.S. and Europe. Even Malaysia is targeting Meta over “harmful content.” Aside from reining in Microsoft’s gaming ambitions, the FTC’s other big legal case involves Amazon.
Right ahead of the July 11 Amazon Prime Day, the ecommerce giant’s major discount sales drive, the FTC has accused Amazon of enrolling customers in Prime memberships without their consent and employing deceptive tactics to hinder the cancellation process.
The FTC alleges that Amazon utilized "dark patterns," manipulative design techniques, to coerce millions of consumers into signing up for auto-pay Prime subscriptions. The complaint emphasizes that the company failed to adequately communicate the monthly cost of membership. Furthermore, it highlights allegations that Amazon's corporate leaders intentionally obstructed changes to the user interface that would have reduced nonconsensual enrollments.
Lina Khan, the head of the FTC, took to Twitter to criticize Amazon's actions, revealing internal terminology like "Iliad Flow" that compared the cancellation process to a brutal war. Although Amazon had made certain adjustments to its cancellation procedures before the lawsuit was filed, the FTC asserts that the company has violated both the FTC Act and the Restore Online Shoppers' Confidence Act.
As government officials face increasing consumer complaints over unfair business practices, all dominant players are finding themselves under the microscope, with potential repercussions that could reshape the way they operate.
Greg Kahn
Emerging Tech Exchange
Founder & CEO
