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Federal Judge to Weigh Decision on Microsoft's Acquisition of Activision Blizzard

CIO Insider Team | Friday, 30 June, 2023
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A federal judge will soon decide whether to halt Microsoft's acquisition of the video game business Activision Blizzard, which could be the most expensive merger in the history of the IT industry.

Federal antitrust officials have filed a lawsuit to stop the $69 billion deal, which they claim will hurt Microsoft's competition with rivals in the game sector like Sony and Nintendo.

But Microsoft, which called in its CEO Satya Nadella and other officials, including former Activision Blizzard CEO Bobby Kotick, to speak in favor of the merger, has mostly held sway in the five-day hearing, which is set to end on Thursday.

The US District court Jacqueline Scott Corley has been urged by the Federal Trade Commission, which upholds antitrust rules, to grant an injunction that would temporarily prevent Microsoft and Activision from consummating the transaction before the FTC's own court can assess it in an August trial.

Activision and Microsoft have both asserted that such a delay would effectively compel them to break their 17-month agreement. If the transaction doesn't close by July 18, Microsoft committed to pay Activision a breakup fee of $3 billion.

However, Microsoft pledged to establish legally enforceable agreements to keep Call of Duty on other platforms for at least 10 years in response to concerns about the Activision arrangement.

Sony, the deal's most outspoken opponent in the gaming industry, has expressed concern to regulators that Microsoft will deny its dominant PlayStation game console access to well-known Activision franchises like Call of Duty or provide a subpar version of those games in an effort to convince players to switch to Xbox instead.

This week, Nadella, Kotick, and other Microsoft witnesses sought to allay such worries by making the case that it was better for business to maintain titles like Call of Duty available across many platforms and that doing so would trigger a backlash among gamers.

James Weingarten, the FTC's main attorney in the lawsuit, tried to refute Microsoft's claims that it didn't care much about making games exclusive on Thursday. Weingarten questioned a financial manager at Microsoft's Xbox division about the firm's internal strategy discussions for the acquisition of Activision Blizzard and its $7.5 billion 2021 acquisition of Zenimax, another leading game developer.

Tim Stuart, the CFO of Xbox, was questioned about the controversy he generated when he stated at an investor conference in 2020, following the first announcement of the Zenimax transaction, that Microsoft's long-term strategy was to distinguish its platform by making its games "either first or better or best."

Stuart stated that there were internal discussions about how the revenue from selling more Xbox systems and subscriptions to Microsoft's Game Pass monthly subscription service may make up for a decline in sales caused by making titles exclusive to the Xbox.

Since then, Microsoft has made Xbox the only platform for some of Zenimax's games, including the upcoming Starfield. However, Microsoft pledged to establish legally enforceable agreements to keep Call of Duty on other platforms for at least 10 years in response to concerns about the Activision arrangement. For its Switch console, Nintendo accepted such a deal, while Sony rejected it.

The FTC and Microsoft are both anticipated to present their concluding arguments on Thursday.

While other nations and the European Union have authorized the agreement, another important regulator, the UK's Competition and Markets Authority, is opposed to it.



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