What you need to know
- Microsoft is trying to purchase Call of Duty-maker Activision-Blizzard for $69 billion dollars.
- The United States Federal Trade Commission is trying to block the deal, and has applied for a federal injunction that overlaps with the deadline for the deal closing.
- Today, federal Judge Corley issued a final decision on the injunction: the deal can close.
- Timelines for what happens next now is uncertain. Read on for some analysis.
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Over the past couple of weeks, the FTC and Microsoft have come to blows in federal court over the big Xbox merger with Activision-Blizzard-King (ABK). The ABK deal would give Microsoft control over Call of Duty, World of Warcraft, Diablo, Candy Crush, Hearthstone, and various other mega-franchises as Xbox tries to boost its prospects in the gaming market against players like Apple, Google, and PlayStation.
Sony and PlayStation lead Jim Ryan has been a huge opponent of the deal, working across global regulators to get the deal blocked. The European Union delivered the first major blow against that effort, approving Microsoft's merger with remedies forcing Microsoft to support competitors in the cloud gaming market — something Microsoft had always offered to do regardless. The UK CMA, backed by the U.S. FTC, blocked the deal a few weeks ago — Microsoft can theoretically close around the United Kingdom, though, given the UK's decreased relevance in global affairs and the video game market in general. However, the United States is one market that Microsoft cannot close around.
As such, the U.S. Federal Trade Commission (FTC) has led an ideological crusade against the deal, despite all logic to the contrary. PlayStation, Tencent, Apple, and Google are all bigger than Microsoft by gaming revenue, and most would remain so even after the deal. Still, the size of the deal has upset elements of the U.S. regulatory community, who arbitrarily seem to view it as "too large" at 69 billion dollars. The FTC seems to be overreacting to the deal, whose efforts seem emblematic of historical regulatory failures such as allowing Google to control all of search and allowing Facebook to control virtually all of social media. I would argue they picked the wrong fight here since a damaged Xbox would give PlayStation even more dominance in a relatively static market.
In any case, Microsoft has been arguing its points in federal court as the FTC seeks to gain an injunction. The injunction request was timed carefully to cause as much damage to the deal as possible. Microsoft and ABK have to close the deal by July 18 according to their agreement, leaving very little time to negotiate an extension between all the concerned parties. If the deal falls through, Microsoft would have to pay ABK $3 billion dollars for the trouble.
Today, U.S. federal Judge Corley has finally ruled on the matter, essentially allowing the deal to close. The FTC lost.
"After considering the parties’ voluminous pre-and-post hearing writing submissions, and having held a five-day evidentiary hearing, the Court denies the motion for preliminary injunction." (Via FossPatents).
Update: Microsoft President Brad Smith has issued the following statement: "We're grateful to the Court in San Francisco for this quick and thorough decision and hope other jurisdictions will continue working towards a timely resolution. As we've demonstrated consistently throughout this process, we are committed to working creatively and collaboratively to address regulatory concerns. "
Update: Xbox and gaming lead Phil Spencer has also chimed in: "We're grateful to the court for swiftly deciding in our favor. The evidence showed the Activision Blizzard deal is good for the industry and the FTC’s claims about console switching, multi-game subscription services, and cloud don’t reflect the realities of the gaming market.
Since we first announced this deal, our commitment to bringing more games to more people on more devices has only grown. We’ve signed multiple agreements to make Activision Blizzard’s games, Xbox first-party games, and Game Pass all available to more players than they are today.
We know that players around the world have been watching this case closely and I’m proud of our efforts to expand player access and choice throughout this journey."
Update on the UK situation: Microsoft President Brad Smith has issued another update, stating that they're planning to work out a deal with the CMA, and end litigation between the CMA and the CAT while negotiations continue.
"After today's court decision in the U.S., our focus now turns back to the UK. While we ultimately disagree with the CMA's concerns, we are considering how the transaction might be modified in order to address those concerns in a way that is acceptable to the CMA. In order to prioritize work on these proposals, Microsoft and Activision have agreed with the CMA that a stay on the litigation in the UK would be in the public interest, and the parties have made a joint submission to the Competition Appeal Tribunal to this effect."
Xbox ABK merger analysis: So what happens next?
With Corely ruling in Microsoft's favor, the stage is set for Microsoft and ABK to close the deal without the FTC's approval effectively. The FTC could still win in court at a later date, and potentially force divestiture of the entire ABK operation even after Microsoft had closed, but it's potentially unlikely. The FTC has other big court battles it's preparing for, including one that examines Amazon's shopping logistics business, and some have expected the FTC to abandon the fight with this injunction dropped. It seems unlikely that it will, though. The FTC has already lined up other hearings against the Xbox-ABK deal, but previous situations like this has seen the FTC drop their cases entirely owing to the ongoing expense. The FTC is, after all, funded by taxpayers. We'll have to wait and see.
From here, the deal still faces some hurdles. Microsoft has re-opened negotiations with the UK CMA to address their so-called "concerns," while hearings with other regulators proceed in other major markets. The fact the UK regulator has sought to avoid a court hearing shows they listened to the U.S. court case very intensely, and have perhaps accepted that their arguments don't amount to much. There are still potential legal headaches down the road too. Don't expect the saga to end just yet.
Even without Activision-Blizzard, Xbox lead Phil Spencer has said in recent interviews that ABK is about accelerating their vision for gaming on mobile, PC, and console, as opposed to being the entire vision. Court documents suggested Microsoft was interested in buying other big players in mobile, including Square-Enix, Sega, and more, potentially giving Microsoft another path toward clout in the mobile gaming space. The lineup of upcoming Xbox games looks stronger than ever, too, many of which will launch day one into Xbox Game Pass.
