Fate of record tech industry tie-in headed for judge as Microsoft defends $69 billion Activision deal

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SAN FRANCISCO (AP) The fate of what could be the most expensive merger in tech industry history will soon be in the hands of a federal judge who will have to decide whether to stop Microsoft from closing its deal to buy video game company Activision Blizzard .

And much of the decision may be based on a single successful franchise from Activision, the military commando game Call of Duty, and whether Microsoft could hurt the competition by owning it.

All of this is for a shooter video game,” US District Judge Jacqueline Scott Corley said, expressing a hint of exasperation near the end of a 5-day hearing in the San Francisco court on Thursday. “We are concerned about the competition for this video game shooter.

Federal antitrust enforcers have sued to block the $69 billion acquisition that they say will hurt competition between Microsoft and gaming industry rivals like Sony and Nintendo.

But Microsoft largely got the upper hand in the 5-day federal court hearing in San Francisco due to end on Thursday, calling its CEO Satya Nadella and other executives, including Activision Blizzard’s longtime CEO Bobby Kotick, to testify at favor of the merger.

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The Federal Trade Commission, which enforces antitrust laws, has asked Corley to issue an injunction that would temporarily bar Microsoft and Activision from closing the deal before the FTC’s domestic judge can review it in an August trial.

Both Microsoft and Activision have suggested that such a delay would effectively force them out of the deal they signed 17 months ago. Microsoft has promised to pay a $3 billion breakup fee to Activision if the deal doesn’t close by July 18.

The relief the FTC seeks is not only unprecedented, it kills the deal, Microsoft lead attorney Beth Wilkinson said in a final written defense filed Thursday.

The case is an important test of the FTC’s increased control of the tech industry under its presidency Lina Khan, who was sworn in by President Joe Biden in 2021 due to her tough stance on what she sees as monopolistic behavior by the of tech giants like Amazon, Google and Meta parent Facebook. A loss for the FTC could repeat what happened earlier this year when another judge rejected the FTC’s attempt to stop Meta’s acquisition of a virtual reality fitness company.

Corley expressed skepticism about the FTC’s arguments against the Activision settlement, particularly Thursday when he stopped the agency’s lead attorney during his closing arguments to ask him to define exactly what the harm is to consumers.

Why aren’t you a little more specific? Corley said. She added later: It’s not the damage to Sony that we care about. It is the damage to the consumer.

Sony, the games industry’s most outspoken opponent of the deal, has told regulators it fears Microsoft will strip its dominant PlayStation gaming console of popular Activision franchises like Call of Duty or offer a shoddy version of those titles for push gamers to abandon PlayStation for Microsoft’s Xbox system.

Nadella, Kotick and other Microsoft witnesses tried to allay those concerns this week, arguing that it was better for companies to keep games like Call of Duty on more platforms and that pulling it from PlayStation would lead to a backlash from gamers.

The possibility of making Call of Duty an Xbox exclusive was never evaluated or discussed with me, nor was it even mentioned in any of the presentations or discussions with the Board of Directors,” said Microsoft chief financial officer Amy Hood, in written testimony filed before Thursday’s court session Hood sat in the courtroom Thursday but was not asked to testify.

The FTC’s lead attorney in the case, James Weingarten, tried Thursday to undermine Microsoft’s claims that it didn’t care much about making games exclusive. Weingarten questioned a finance executive at Microsoft’s Xbox division about the company’s internal strategy discussions for its acquisition of Activision Blizzard and its 2021 purchase of another major game maker, ZeniMax, for $7.5 billion.

Xbox chief financial officer Tim Stuart was asked about the uproar he caused when he told an investor conference in 2020 after the ZeniMax deal was first announced that Microsoft’s long-term plan was that of differentiating its platform by making its games first or better or better.”

Stuart confirmed that there have been internal discussions about how a drop in sales from making Xbox-exclusive games could be offset by the money made from selling more Xbox consoles and subscriptions to Microsoft’s Game Pass monthly subscription service.

Microsoft has since made some of ZeniMax’s games, such as the upcoming Starfield release, exclusively for the Xbox. But in response to concerns over the Activision deal, Microsoft has offered to strike binding deals to keep Call of Duty on other platforms for at least ten years. Nintendo agreed to such a deal for its Switch console, while Sony turned it down.

Both Microsoft and the FTC began making their closing arguments on Thursday.

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