Microsoft’s proposed $69 billion acquisition of Activision Blizzard has hit some snags as regulators from the US, UK, and EU have stepped in to potentially block the deal. It seems like everyone has an opinion on how things are going to shake out, but what do the actual experts think? IGN reached out to various legal experts and analysts about the US Federal Trade Commission’s case specifically, and they presented some interesting possibilities.
The FTC’s case against the deal essentially hinges on two arguments – that Microsoft will make currently multiplatform Activision Blizzard titles like Call of Duty exclusive and that the purchase would allow the company to monopolize certain narrowly-defined “relative markets.” So, buying Acti-Blizz wouldn’t make Microsoft the top dog within the industry as a whole, but owning Call of Duty would make them dominant within the narrower realm of AAA online shooters, World of Warcraft would make them dominant within the MMORPG space, ect.
As we’ve seen, Microsoft is fighting back against the notion they’ll lock down Call of Duty by signing a 10-year deal with Nintendo and making their PC titles playable via NVIDIA’s GeForce Now cloud gaming service. Microsoft has also offered Sony a 10-year deal, which they’ve refused to sign. Microsoft doesn’t seem to be focusing as much on the “relevant markets” argument, but per the experts IGN spoke to, that aspect of the FTC’s case isn’t as strong.
As for whether the Activision Blizzard deal gets past the FTC, IGN’s experts are split. According to Sam Castree of Sam Castree Law, the deal will go through, with the relevant markets argument likely being the FTC’s downfall.
“I think that the FTC’s plan to define a bunch of hyper-specific sub-markets within the gaming sector is just plain incorrect, and I was struck by a number of iffy to inaccurate statements in their complaint. I don’t think, for example, that cloud gaming subscription services are a relevant market unto themselves. Nintendo Switch might have a different price and technical specs compared to Xbox, but Switch isn’t in a totally different market. Switch and mobile and PC are all relevant competitors and alternatives to Xbox and PlayStation.”
Meanwhile, fellow lawyer Mark A. Lemley thinks the Acti-Blizz deal will fall through due to lingering concerns about exclusivity.
“I think the big underlying question is interoperability. Microsoft’s competitors are worried that if it buys a big maker of games that right now are playable across platforms, they will release future games just for the Xbox (or maybe Xbox + PC). I think that is a real risk. I think the FTC has a strong case that interoperability is important and it is at risk. Microsoft has offered to make some concessions to keep certain games like Call of Duty open, but it’s not clear how enforceable those promises would be. Previous experience with conduct-related promises suggests they don’t end up being a good substitute for structural merger remedies.”
One thing the experts agree on, is that this process could take a long time – much longer than the original July 2023 deadline Microsoft put on the deal. Even after a decision is rendered in the FTC case, the losing party can appeal to the FTC commissioners and then all the way up to the US Supreme Court, potentially dragging things out for years. And, of course, Microsoft also has to get approved by UK and EU regulators. Interestingly, according to Gamma Law’s David Hoppe, the “cost and uncertainty” of closing the Acti-Blizz deal could balloon to the degree that Microsoft actually calls it all off and pays the multi-billion dollar breakup fee.
Another interesting option on the table is divestiture – breaking up Activision Blizzard to make its sale more palatable to regulators. Microsoft has already said breaking off Call of Duty isn’t “feasible or realistic,” but SuperData CEO Joost van Dreunen suggests setting Blizzard free may be an option.
“Spinning off Blizzard would directly speak to reasonably diminishing Microsoft’s ability to leverage content to build its cloud ecosystem, especially because its biggest money-maker, World of Warcraft, is exclusively on PC. It will also allow Microsoft to push into mobile where, as I’ve argued previously, it will bring some much-needed competition.”
Interesting food for thought. The FTC’s case against the Activision Blizzard acquisition goes to trial in August. Meanwhile, the European Commission will come to a decision sometime before April 11. We’ll of course keep you updated on further developments in this story.
