Lina Khan’s FTC is fighting with Microsoft over the Activision Blizzard deal

December 9, 2022:

The Federal Trade Commission (FTC) is suing to block Microsoft’s massive $69 billion acquisition of video game giant Activision Blizzard, saying it will harm competition in the gaming market.

The move is FTC chair Lina Khan’s biggest yet against a Big Tech company in her year-and-a-half tenure. Since Khan’s surprise appointment to chair the consumer protection and competition agency in June 2021, many have waited to see which Big Tech merger Khan would go after, believing it was not a matter of if she would block a merger but when and which one.

The deal will be closely watched by media and tech companies that would like to snap up smaller players but have been wondering how aggressive the Biden administration would be about this mega-merger. Biden’s Justice Department has already stopped a much smaller merger this fall, by successfully suing to block book publisher Random House from buying rival Simon & Schuster.

Microsoft managed to avoid most of the scrutiny and criticism that its Big Tech peers have endured over the last several years, and there was a sense that it already had its big reckoning and learned its lesson back in the late ’90s and early 2000s, when an antitrust lawsuit from the Department of Justice nearly broke up the company. Then Microsoft decided to make the biggest acquisition in its history as well as the history of gaming in general and became impossible to ignore.

The FTC’s suit notes that Microsoft has a track record of buying gaming companies and making some of their titles exclusive to Microsoft’s platforms, including the Xbox console and Game Pass, its game subscription streaming service. It argues that Activision makes some of the world’s most popular games and that Microsoft could make them more expensive or harder — if not impossible — to play on competitors’ platforms.

“Microsoft has already shown that it can and will withhold content from its gaming rivals,” Holly Vedova, director of the agency’s bureau of competition, said in a statement. “Today we seek to stop Microsoft from gaining control over a leading independent game studio and using it to harm competition in multiple dynamic and fast-growing gaming markets.”

For its part, Microsoft says the acquisition will make competition better and be great for consumers, a line that its president, Brad Smith, repeated today in response to the lawsuit.

“We continue to believe that our deal to acquire Activision Blizzard will expand competition and create more opportunities for gamers and game developers,” Smith tweeted. He added that Microsoft tried to make concessions to the FTC to avoid a lawsuit, which his company intends to fight and believes it will win.

Smith and Microsoft have been increasingly vocal about various peace offerings they have floated to placate Washington, most of them centered around Call of Duty, Activision’s blockbuster game franchise. The company has repeatedly said it would continue to license Call of Duty to other platforms — notably Sony, which also has a game console with exclusive game licenses. And this week, Microsoft announced a plan to bring Call of Duty to Nintendo’s Switch consoles.

Microsoft has some basic logic in its favor when it comes to Call of Duty: It would be enormously costly if it cut off a huge part of the game’s user base after buying it. Which is the same reason that AT&T didn’t prevent other distributors from selling HBO subscriptions when the telecom company owned what used to be called WarnerMedia.

But in the press release announcing the move, the FTC focused on Microsoft’s track record with Bethesda, a game developer it bought for $7.5 billion in 2021. “Microsoft decided to make several of Bethesda’s titles including Starfield and Redfall Microsoft exclusives despite assurances it had given to European antitrust authorities that it had no incentive to withhold games from rival consoles,” the FTC said.

This isn’t the FTC’s only battle with big tech. The agency inherited and then re-upped the Trump administration’s antitrust suit against Meta, and then created a new fight with the same company by trying to block Meta’s acquisition of a virtual reality game developer last July (the trial began on Thursday). But while Khan is best known for her critiques of Amazon, the FTC took no action against Amazon’s $8.5 billion merger with MGM.

Given the agency’s limited resources, Khan has to pick her battles. Microsoft and a $69 billion merger is almost as big a battle as it gets.

Peter Kafka contributed reporting to this article.

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