In recent weeks, Microsoft has accused Sony, its main video game rival, of misleading regulators. His lawyers have shown games consoles, including an Xbox, to British officials. And the president of a major union that courted Microsoft has spoken out before the Federal Trade Commission on behalf of the company.
The actions are part of a campaign by Microsoft to counter growing scrutiny of its $69 billion acquisition of video game publisher Activision Blizzard, the largest consumer technology deal since AOL bought Time Warner two decades ago, and far bigger than Elon Musk’s recent $44 billion buyout of Twitter.
Microsoft’s goal is simple: to convince skeptical governments around the world to approve the blockbuster acquisition. Sixteen governments must approve the purchase, placing Microsoft under its heaviest regulatory burden since the antitrust battle of the 1990s. And in three key places – the United States, the European Union and Britain – regulators have begun thorough reviews, with the European Commission this month declaring it would open an in-depth investigation into the deal.
Whether Microsoft succeeds in getting 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 rising fears that industry giants exercising too much power. If Microsoft, whose public affairs operation has spent the past decade building the company’s nice reputation, can’t get a mega deal through, can anyone?
“If this deal had been done four years ago, it would hardly have mattered,” Microsoft president Brad Smith said in an interview. “If someone can’t do something easy, then we all know you can’t do something hard.”
Google, Meta, Amazon and Apple have all faced growing accusations that they are monopolies, and regulators have tried to block some of their smaller deals. In July, the FTC sued Meta, Facebook’s parent company, to block its acquisition of Within, a virtual reality start-up. Last month, Britain forced Meta to sell Giphy, an image database it bought for $315 million in 2020.
At the heart of regulators’ concerns about the Activision deal is whether it violates antitrust laws by giving Microsoft excessive leverage in the video game industry. They worry that Microsoft could push Activision’s games away from competitors like Sony or use them to gain an unfair advantage as more games are streamed online.
Mr. Smith said Microsoft is open to formally agreeing to place restrictions on its business practices to resolve antitrust issues. But the United States and other countries are increasingly seeing such promises as insufficient unless a company spins off part of its business.
Microsoft’s deal with Activision will demonstrate whether tech giants can navigate the new environment, said William E. Kovacic, a former FTC chairman. “It’s a fundamental test,” he said.
The road ahead seems long. Of the 16 governments reviewing the deal, only Saudi Arabia and Brazil have approved it. Microsoft said it expected Serbia to approve the deal soon.
The most crucial regulators seem skeptical of the tech giants. The FTC is headed by Lina Khan, a lawyer and a notable critic of Amazon. The European Commission has fined Google for violating antitrust rules and has opened an investigation into Microsoft’s cloud service. In Britain, the Competition and Markets Authority is increasingly hostile to business deals.
In a statement, the Competition and Markets Authority said it would release its findings on the deal in the “new year”. The European Commission said its investigation is “ongoing”. The FTC declined to comment on the deal.
When Microsoft completed its $26 billion acquisition of the professional networking service LinkedIn in 2016 — its largest acquisition at the time — the deal required just six government approvals.
The Activision deal is “significantly more resource intensive,” Smith said.
Getting approval for the acquisition is critical to Microsoft. Gaming has become the most important consumer activity, with annual revenues exceeding $15 billion, largely under the Xbox brand. Microsoft CEO Satya Nadella’s compensation is partly tied to the growth of Game Pass, the company’s Netflix-like gaming subscription service. And Microsoft agreed to pay Actvision as much as $3 billion if the deal fell apart.
Activision also needs the sale to continue. It was in distress a year ago, with its share price plummeting as it faced revelations of sexual misconduct and worker unrest.
Activision CEO Bobby Kotick said in an interview that he had “great confidence that regulators will properly assess the industry.” He added: “I have no reason to believe that we will ultimately be unsuccessful in the transaction.”
Microsoft’s deal with Activision was revealed on January 18. In February, Mr. Smith and Mr. Nadella met with officials and people who worked at Washington think tanks to announce the purchase to the public. Meeting with reporters, Mr Nadella said the acquisition would benefit gamers by “providing more choice so they can play any game on any platform”. Courts regularly review whether a merger benefits consumers.
Several senators asked the FTC to carefully examine the impact of the acquisition on employees. The Communications Workers of America, who organized with Activision, also publicly questioned the deal. Ms. Khan, the chairman of the FTC, is more interested in exploring how mergers can harm workers.
Mr Smith asked legislators and government leaders for advice on how to tackle the labor problems.
In June, Microsoft reached an agreement with the CWA, pledging not to oppose unionization at Activision. The negotiations “involved more lawyers than a lawyer’s convention,” Chris Shelton, the union’s president, said in an interview. The concessions turned the union into supporters of the deal.
Last month, Mr Shelton met with Ms Khan and praised Microsoft’s commitment to remain neutral in union campaigns and said the deal should be approved.
“The FTC told me, ‘Many companies promise a lot of things, but they never keep their promises,'” he recalls. He said he told the agency the agreement was rock solid, and in writing.
An FTC spokesperson said agency officials had not commented on the deal or the employment contract at the meeting.
Microsoft has been less successful in neutralizing opposition from Sony, which makes the PlayStation console. Sony has argued that Microsoft could pull Call of Duty from PlayStation to lure players to Xbox.
Microsoft has denied that it would. “The first call Satya and I made after the deal was announced was with Sony’s CEO to say, ‘Hey, we’re going to keep Call of Duty on your platform,'” said Phil Spencer, Microsoft’s chief of gaming. .
Sony was not pleased. In filings in Brazil, the company argued that Call of Duty was such a powerful gaming franchise that Microsoft could use it to hurt rivals. It hired a consulting firm to organize meetings on Capitol Hill, two people familiar with the matter said. And his arguments were repeatedly cited in a September decision by the UK regulator to launch a deeper investigation.
Microsoft accused Sony of misleading the regulator by saying it “exaggerated the importance of Call of Duty to its viability”.
Mr. Spencer said that “maintaining and growing the existing Call of Duty business is quite central to the economics of the deal.”
In a statement, Jim Ryan, the CEO of Sony Interactive Entertainment, said it was “untrue” that his company had misled regulators. He said that Microsoft was “a technology giant with a long history of dominating industries” and that “it is very likely that the choices gamers have today will disappear if this deal goes through.”
Microsoft said it offered Sony a 10-year deal on Nov. 11 to keep Call of Duty on PlayStation. Sony declined to comment on the offer.
Last month, Mr Spencer and other Microsoft executives brought an Xbox, a PlayStation, a Nintendo Switch and other devices to a meeting with regulators in London, where they showcased Call of Duty and other games to illustrate a dynamic market , people familiar with thus the visit.
Regulators are also concerned about what the deal could mean for the future, when cloud computing will allow people to stream advanced games to a variety of devices, including mobile phones.
In September, the UK regulator expressed concern that combining Activision’s library of games with Microsoft’s cloud computing prowess would give Microsoft “an unparalleled advantage” over game streaming competitors. Microsoft argued that it had “no advantage” because the streaming was not supported by its Azure cloud technology.
In this year’s annual report, Microsoft said its streaming product “uses” Azure. The company said that while the gaming servers shared data centers with Azure, the hardware was different.
In the United States, more than 10 FTC employees are reviewing the deal, a person with knowledge of the agency said. They interviewed executives, including Mr. Nadella and Mr. Smith, in the late summer and fall.
And as a sign that the FTC may be challenging the deal legally, two people said it had recently asked other companies to provide affidavits to voice their concerns.
