In recent weeks, Microsoft has accused Sony, its main rival in video games, of misleading regulators. Her lawyers showed British officials gaming consoles, including an Xbox. The head of a major syndicate acquired by Microsoft spoke on behalf of the company before the Federal Trade Commission.
The actions are part of a campaign by Microsoft to face intense scrutiny over its $69 billion acquisition of video game publisher Activision Blizzard, the largest consumer technology deal since it bought AOL Time Warner two decades ago, and much larger than Elon Musk’s last $44 purchase. Billion dollar. Twitter.
Microsoft’s goal is simple: to convince skeptical governments around the world to agree to the massive acquisition. The purchase must be given its blessing by 16 governments, which puts Microsoft under the most regulatory pressure it has faced since the antitrust battles of the 1990s. And in three key places – the United States, the European Union and Britain – regulators have begun deep reviews, with the European Commission announcing this month that it would open an in-depth investigation into the deal.
Whether Microsoft succeeds in gaining regulatory approval to buy Activision, which makes games like Candy Crush and Call of Duty, will send a message about Big Tech’s ability to expand in the face of growing concerns that the industry giants are too powerful. If Microsoft, whose public affairs operations have spent the past decade building up the company’s bland reputation, can’t pull off a huge deal, then can anyone?
“If this deal had taken place four years ago, it wouldn’t have been of any use,” Microsoft president Brad Smith said in an interview. “If one cannot do something easy, we will all know that you cannot do something difficult.”
Google, Meta, Amazon and Apple have all faced mounting accusations that they are monopolies, and regulators have tried to block some of their smaller deals. In July, the Federal Trade Commission sued Meta, Facebook’s parent company, to prevent it from buying Inside, a virtual reality startup. Last month, Britain forced Meta to sell Giphy, an image database it bought in 2020 for $315 million.
At the center of regulators’ concerns about the Activision deal is whether it violates antitrust laws by giving Microsoft massive power in the video game industry. They worry Microsoft might pull Activision games away from competitors like Sony or use it to get an unfair leg as more games are streamed online.
Mr. Smith said Microsoft is open to formally agreeing to place limits on its business practices to resolve antitrust concerns. But the United States and other countries increasingly see such promises as insufficient unless the company divests part of its business.
William Kovacic, former head of the Federal Trade Commission, said Microsoft’s deal with Activision will show whether the tech giants can navigate the new environment. “It’s a basic test,” he said.
The road ahead seems long. Of the 16 governments that reviewed the agreement, only Saudi Arabia and Brazil agreed to it. Microsoft said it expects Serbia to approve the deal soon.
Most important regulators seem skeptical of the tech giants. The FTC is led by Lina Khan, a legal researcher and a prominent critic of Amazon. The European Commission fined Google for violating antitrust rules and opened an investigation into Microsoft’s cloud service. In Britain, the Competition and Markets Authority has become increasingly hostile to corporate deals.
The Competition and Markets Authority said in a statement that it would announce its results on the deal in the “new year”. The European Commission said its investigation was “ongoing”. The Federal Trade Commission declined to comment on the deal.
When Microsoft finalized the $26 billion purchase of professional networking service LinkedIn in 2016 — at the time of its largest acquisition — the deal required just six government approvals.
Mr Smith said the Activision deal was “significantly more resource intensive”.
Getting approval for the acquisition is critical for Microsoft. Games became its most important consumer business, with annual sales of over $15 billion largely under the Xbox brand. Microsoft CEO Satya Nadella’s compensation is related in part to the growth of Game Pass, a Netflix-like gaming subscription service. Microsoft agreed to pay Activision up to $3 billion if the deal fell through.
Activision also needs to complete the sale. It was in trouble a year ago, with the stock price plummeting as it dealt with revelations of sexual misconduct and worker turmoil.
Activision CEO Bobby Kotick said in an interview that he has “a high degree of confidence that regulators will consider evaluating the industry.” “I have no reason to believe that we will ultimately not succeed in the deal,” he added.
Microsoft’s deal for Activision was revealed on January 18th. During a meeting with reporters, Mr. Nadella said the acquisition will benefit gamers by providing “more options so they can play any game on any platform.” Courts regularly consider whether a merger will benefit consumers.
Several senators have asked the Federal Trade Commission to closely study the impact of the buyout on workers. The Communications Workers of America, who were organizing at Activision, also publicly questioned the deal. Ms. Khan, chair of the Federal Trade Commission, has taken a closer interest in examining how mergers affect workers.
Mr. Smith asked lawmakers and government leaders for advice on addressing workers’ concerns.
In June, Microsoft entered into an agreement with the CWA, promising not to oppose unionization at Activision. Chris Shelton, the union’s president, said in an interview that the negotiations involved “more lawyers than a lawyer’s meeting.” The concessions turned the union into supporters of the deal.
Last month, Mr. Shelton met with Ms. Khan and praised Microsoft’s commitment to remaining neutral in union campaigning and said the deal should be approved.
“The FTC told me, ‘A lot of companies promise a lot of things, and then never deliver,’” he recalled. He said he told the agency the agreement was solid and in writing.
A FTC spokesperson said agency officials did not offer any opinions on the deal or the business agreement at the meeting.
Microsoft has been less successful in neutralizing Sony’s opposition, making the PlayStation console. Sony has argued that Microsoft may pull Call of Duty from PlayStation to lure gamers to Xbox.
Microsoft denied that it would do so. “The first call Satya and I made after the deal was announced was to the CEO of Sony to say, ‘Hey, we’re going to keep Call of Duty on your platform,'” said Phil Spencer, Head of Games at Microsoft.
Sony did not appease. In filings in Brazil, the company argued that Call of Duty was such a powerful game franchise that Microsoft could use it to hurt competitors. Two people familiar with the matter said the company hired a consulting firm to set up meetings on Capitol Hill. Her arguments were cited repeatedly in a decision by the British regulator in September to pursue a deeper investigation.
Microsoft accused Sony of misleading the regulator, saying it “exaggerated Call of Duty’s importance to its viability.”
“Maintaining and growing the existing Call of Duty business is very central to the economics of the deal,” Mr. Spencer said.
In a statement, Sony Interactive Entertainment CEO Jim Ryan said it was “not true” that his company misled regulators. He said that Microsoft was “a tech giant with a long history of dominating industries” and that “it’s very likely that the options available to players today would disappear if this deal went ahead.”
Microsoft said on November 11 it offered Sony a 10-year deal to keep Call of Duty on PlayStation. Sony declined to comment on the offer.
Last month, Mr. Spencer and other Microsoft executives brought Xbox, PlayStation, Nintendo Switch and other devices to a meeting with regulators in London, where they showed off Call of Duty and other games to illustrate a dynamic market, as did the insiders. visit said.
Regulators are also worried about what the deal might mean for the future, when cloud computing will allow people to stream high-end games to various devices, including mobile phones.
In September, the UK regulator expressed concern that the combination of Activision’s game library with Microsoft’s cloud computing prowess would give Microsoft an “unparalleled advantage” over its game streaming competitors. Microsoft argued that it had “no advantage” because its streaming was not supported by Azure cloud technology.
In its annual report this year, Microsoft said its live streaming product “uses” Azure. The company said that although its game servers shared data centers with Azure, the hardware was different.
A person familiar with the agency said more than 10 Federal Trade Commission employees are reviewing the deal in the United States. They interviewed the executives, including Mr. Nadella and Mr. Smith, in the late summer and fall.
In a sign that the FTC may be pursuing a legal challenge to the deal, two people said it recently asked other companies to file sworn statements to express their concerns.