Microsoft’s showdown with the Federal Trade Commission over its Activision Blizzard acquisition ultimately came down to one question: Can the tech giant be trusted in the long run to make the video game developer’s massively popular titles available on rival consoles?
In the end, Democratic members of the FTC answered with an emphatic “no.”
Eleven months after Microsoft announced its $68.7 billion purchase of Activision Blizzard, the studio behind Call of Duty, Candy Crush, and Diablo, federal antitrust regulators sued in administrative court Wednesday to stop the deal. The move marks FTC Chair Lina Khan’s most ambitious effort to curb Big Tech mergers, a well-known cornerstone of her political philosophy.
In seeking to halt the acquisition, FTC officials interestingly ignored the sheer size of the deal or the implications of Microsoft’s foray deeper into mobile gaming via its addition of Activision Blizzard titles.
Instead, they homed in on a single issue: the potential for Xbox parent Microsoft to undercut its lone rival, PlayStation parent Sony, in the so-called high-performance video game console business. (The FTC did not consider Nintendo part of the sector, owing to lower computing power and graphics processing on its devices.)
Microsoft could do this, FTC officials argued, by making Activision Blizzard titles exclusive to the Xbox console or degrading the quality of Activision Blizzard games available on PlayStation consoles. The developer’s console sales totaled $2.6 billion in 2021.
Microsoft officials have tried to head off this argument by proposing a 10-year deal with Sony to keep Call of Duty available on PlayStation. Company executives also announced this week a 10-year agreement with Nintendo to bring Call of Duty to future Switch consoles.
In addition, Microsoft president Brad Smith has claimed that taking Activision Blizzard titles off PlayStation would be bad business. About $1.3 billion of Activision Blizzard’s sales last year derived from Sony platforms, equal to 15% of the developer’s total revenue. Activision Blizzard also earned an undisclosed amount from sales of its PlayStation games through third-party retailers.
That, however, wasn’t enough for the FTC.
Federal regulators lent no credence to the 10-year pledges, focusing instead on Microsoft’s ability to manipulate the market well into the future. In particular, they hammered on Xbox’s ambitious efforts to reshape the industry through cloud-based gaming and a Netflix-style subscription service—two advances that could benefit from exclusive titles.
“Gaming is a growing and lucrative market opportunity and one in which Microsoft is already well-positioned,” FTC officials wrote in their complaint. “Microsoft already has a built-in incentive to promote its own products wherever possible, and it fully understands the competitive power that owning Activision’s leading gaming content would yield.”
To that end, federal regulators harped on Microsoft’s 2021 acquisition of video game developer ZeniMax Media and its subsequent decision to make three of the company’s titles—Starfield, Redfall, and Elder Scrolls VI—into Xbox exclusives. (Microsoft has argued, in part, that comparisons between ZeniMax Media games and Call of Duty aren’t valid given the enormous popularity and multiplayer functionality of the latter.)
The FTC’s case will require months of complex litigation to determine whether Microsoft’s acquisition stands to “substantially” lessen competition in the video game console market, the legal standard for stopping the acquisition.
With Wednesday’s filing, the FTC put Lina Khan’s fundamental distrust in Big Tech into action.
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Before we head into the weekend, the second parceling of the so-called Twitter Files on Thursday deserves some attention. A few brief observations follow.
First, it’s worth reiterating that Twitter is a private enterprise that’s well within its legal rights to censor, downrank, or deplatform users as it pleases (recent laws passed by Florida and Texas legislators make it more complicated in those states, but that’s a whole other matter). Remember, Elon Musk tweeted just last week that “negativity should & will get less reach than positivity” on the platform, whatever that means.
Second, outright dismissiveness of Thursday’s posts by Bari Weiss feels misguided. Social media companies have enormous power to shape the public discourse. More transparency around how tech platforms wield that authority is a good thing—especially if certain demographics are impacted more than others.
Third, the rollout of the Twitter Files by Musk, Matt Taibbi, and Weiss has been a downright disservice to the public. Rather than producing a comprehensive, detailed report that gives its subjects the opportunity to respond, Taibbi and Weiss are publishing cherry-picked snapshots that lack context and broader scope. We can argue over the wisdom of Twitter’s content moderation actions, particularly as it relates to conservative users. But the piecemeal release of internal records only feeds into our worst suspicions about our political opposites, fomenting more divisiveness.
On that cheery note, have a great weekend, everyone. See you on Monday.
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Jacob Carpenter
