FTC Files to Stop Microsoft Buying Blizzard

By Avery Bissett | December 15, 2022
The FTC moved last Thursday to formally block Microsoft’s $69 billion acquisition of Activision Blizzard. This first of potentially many legal moves could dash hopes of Microsoft buying Blizzard. The brief, first-of-its-kind FTC argument also provides insights into how relatively ancient antitrust laws will be applied to future mergers and acquisitions.
“The Proposed Acquisition is reasonably likely to substantially lessen competition or tend to create a monopoly in multiple markets because it will create a combined firm with the ability and increased incentive to use its control of Activision titles to disadvantage Microsoft’s competitors.” -FTC

The Case Against Microsoft Buying Blizzard

Translating the FTC’s legalese, the concern is that Microsoft buying Blizzard will allow Xbox to hamstring competitors in three key markets by withholding or degrading AAA games. The FTC cited Microsoft’s decision to make Bethesda titles like Starfield exclusives as evidence of this.

  • High-Performance Consoles: The FTC created a completely new market limited to the PlayStation and Xbox Series S & Series X
    • Nintendo’s Switch is excluded and considered a mobile gaming device
    • In the FTC’s eyes, Microsoft’s Call of Duty deal with Nintendo is moot
    • Gaming PCs are excluded "due to differences in price, hardware, performance, and functionality"
  • Multi-Game Content Library Subscription Services: More expansive game subscriptions such as Xbox Game Pass, PlayStation Plus Extra, or Ubisoft+
    • The FTC is excluding basic online subscriptions such as Xbox Live Gold or PlayStation Plus Essential
  • "Cloud Gaming Subscription Services": Xbox Cloud Gaming, PlayStation Now and the likes of the soon-to-be-departed Google Stadia

Microsoft’s Options

This opening from the FTC presents Microsoft with several outs, should an administrative judge find the FTC’s case persuasive. Microsoft’s decisions, however, will be heavily influenced by the fast approaching June 2023 deadline and the financial pain both parties would suffer by missing it. 

  • Full Speed Ahead: Microsoft could bet on a judge tossing out the FTC’s complaint in its entirety
    • That the FTC’s filing is an anomaly after decades of lax regulation may give Microsoft confidence
  • Partial Acquisition: Microsoft buying Blizzard can still happen, but parts of Activision Blizzard would have to be spun off
    • If Microsoft is as serious as it claims to be about mobile gaming, this could mean acquiring King and letting legacy franchises like Call of Duty go
  • Having a Babysitter: Microsoft and Activision could complete the deal, but under the condition of no further acquisitions without prior notice
  • Pull the Plug: Instead of Microsoft buying Blizzard, call off the deal to avoid a protracted and potentially unflattering ordeal

A Glimpse at A More Fractured Future

It can’t be understated how important the FTC’s decision is, not only in terms of Microsoft buying Blizzard gaming but the larger gaming landscape. In particular, the FTC’s definition of "high-end consoles" as a distinct market could shape future regulation. Would regulators be able to build on it and narrow market definitions even further, for example, to just a certain console? 

As graduates from the Phoenix Wright School of Law, we will also point out a few other key highlights:
  • Team Nintendo: If Nintendo can stomach the FTC’s less than flattering description of the company’s reliance on “appeal(s) to player nostalgia,” being placed in the mobile market gives it more latitude for future acquisitions in the US
  • Does Exclusivity Still Matter: The FTC makes no mention of cross-platform play, which could torpedo their argument that game exclusives drive console sales
  • Are PC’s Separate: While raising some good points about pricing and hardware, the FTC’s argument that PC’s are not part of the high-end console market due to “functionality” is shaky
  • Numbers Don’t Lie: The FTC’s claim that Microsoft would benefit from subscriptions and console sales by making games exclusives doesn’t seem to match reality
    • Consoles are sold at a loss, subscriber revenue has flagged, and the FTC ignores microtransaction revenue
  • A Peak Behind the Curtain: Many quotes and figures are redacted, which could mean juicy revelations down the road.

Featured image courtesy of Activision Blizzard

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