Federal antitrust enforcers have sued to block the $69 billion acquisition that they say will harm competition between Microsoft and gaming industry competitors such as Sony and Nintendo.
But Microsoft has largely had the upper hand in the 5-day San Francisco federal court hearing that’s scheduled to end Thursday, calling in its CEO Satya Nadella and other executives, including longtime Activision Blizzard CEO Bobby Kotick, to testify in favor of the merger.
The Federal Trade Commission, which enforces antitrust laws, has asked US District Judge Jacqueline Scott Corley to issue an injunction that would temporarily block Microsoft and Activision from closing the deal before the FTC’s in-house judge can review it in an August trial.
Both Microsoft and Activision have suggested that such a delay would effectively force them to abandon the deal they signed 17 months ago. Microsoft promised to pay a $3 billion breakup fee to Activision if the deal doesn’t close by July 18.
“The relief the FTC seeks is not only unprecedented but deal-killing,” said Microsoft’s lead attorney, Beth Wilkinson, in a final written defense filed Thursday.
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Sony, the deal’s most vocal opponent in the game industry, has told regulators that it fears Microsoft will deprive its dominant PlayStation game console of popular Activision franchises such as Call of Duty or offer a subpar version of those titles to drive gamers to desert PlayStation for Microsoft’s Xbox system.Nadella, Kotick and other Microsoft witnesses sought to dispel those concerns this week, arguing that it was better for business to keep games like Call of Duty on multiple platforms and that pulling it from PlayStation would lead to a gamer backlash.
“The possibility of making Call of Duty exclusive to Xbox was never assessed or discussed with me, nor was it even mentioned in any of the presentations to or discussions with the Board of Directors,” said Microsoft’s chief financial officer, Amy Hood, in written testimony filed before Thursday’s court session. Hood sat in the courtroom Thursday but hasn’t been asked to take the stand.
But the FTC’s lead attorney in the case, James Weingarten, on Thursday sought to undercut Microsoft’s assertions that it didn’t care much about making games exclusive. Weingarten grilled a financial executive at Microsoft’s Xbox division about the company’s internal strategy discussions for the Activision Blizzard acquisition as well as its 2021 purchase of another top game-maker, Zenimax, for $7.5 billion.
Xbox’s chief financial officer, Tim Stuart, was asked about the stir he caused when he told an investor conference in 2020 after the Zenimax deal was first announced that Microsoft’s long-run plan was to differentiate its platform by making its games “either first or better or best.”
Stuart confirmed there were internal discussions about how a drop in sales from making games exclusive to Xbox could be offset by the money made from selling more Xbox consoles and subscriptions to Microsoft’s Game Pass monthly subscription service.
Microsoft has since made some of Zenimax’s games, such as the upcoming release Starfield, exclusive to Xbox. But in response to concerns about the Activision deal, Microsoft offered to make binding deals to keep Call of Duty on other platforms for at least ten years. Nintendo agreed to such a deal for its Switch console, while Sony has rebuffed it.
Both Microsoft and the FTC are expected to make their closing arguments Thursday.
The deal also faces opposition from another major regulator, the UK’s Competition and Markets Authority, while other countries and the European Union have approved it.