Microsoft is Buying Activision: Everything You Should Know

Background

Microsoft has become one of the largest tech conglomerates in the world, a household name, and a leader in various digital fields. It has an extremely diverse portfolio, making its revenue in numerous different avenues; one notable and surprising source of earnings is its gaming sector, which is essentially comprised of Xbox sales, services, content, and cuts of third-party games sold on its platform. For a considerable period of time, their main competitor, Sony, the owner of Playstation, has been surpassing Microsoft in console sales.

In an effort to bolster its sales, Microsoft expressed interest in purchasing Activision Blizzard. Activision is a prominent American game developer and publisher known for games like Overwatch, Call of Duty, and Candy Crush Saga. Purchasing Activision would enable Microsoft to offer more popular and big-name video games on their subscription-based Game Pass, and focus on creating more games for the lucrative mobile phone gaming market. Microsoft offered to purchase Activision Blizzard under a $69 billion deal, the largest deal ever for both Microsoft and the gaming market. The Wall Street Journal values Activision Blizzard for a total of $68.7 billion at $95 a share.

Microsoft’s revenue split into relative percent sectors

Antitrust Blocking

However, the acquisition of Activision is being blocked by the Federal Trade Commission (FTC). According to the FTC, the deal would enable Microsoft to “suppress competitors to its Xbox gaming consoles and its rapidly growing subscription content and cloud-gaming business.” In a complaint issued against Microsoft, the FTC claims their proposed merger, if completed, would violate sections of the Clayton Antitrust Act and Section 5 of the FTC Act; the FTC has jurisdiction to enforce these acts. Section 5 of the FTC Act prohibits ''unfair or deceptive acts or practices in or affecting commerce,” and the Clayton Antitrust Act prevents monopolistic corporate mergers, unlawful contracts, and acquisitions. These acts were originally enacted to prevent unfair competition and regulate anticompetitive practices. The complaint argues that the acquisition would give Microsoft too much power and control over gaming content, granting it the capability to degrade and lessen competition. It also points to examples of Microsoft’s records of acquiring valuable gaming content just to make it Xbox exclusive or to disable it in order to prevent it from being sold and used by rival companies. As Activision is one of the few considerable gaming developers in the world, control over their franchises would allow Microsoft to greatly harm any competition, especially in conjunction with the content they have now.

The acquisition’s violations according to FTC’s issued complaint 

Other entities have opinions regarding the purchase as well. The U.K.’s Competition and Markets Authority (CMA) announced its temporary conclusion. They claim that the purchase would harm competition, weaken the important rivalry between consoles, stifle competition, lower quality, provide worse service, and therefore harm gamers. They claim that they are open to alternative proposals, but are committed to maintaining equal access to Call of Duty on all major platforms. The European Commission has also objected to the deal and Canada has expressed similar concerns. Microsoft’s legal team believes that winning over the EU will make it easier to win over the CMA and FTC, but if Microsoft is unable to convince the various entities, the deal will likely have to be majorly altered or dropped altogether. 

Conclusion

Big acquisitions like these have negative consequences not only for other companies but for consumers as well. For this reason, government institutions like the FTC want to ensure that such a large deal would promote fair economic and competitive practices. Having too much control over a market can be dangerous; in this instance, Microsoft could potentially drive out smaller companies from competition, restrict access to content, and raise prices. The consequences of this event should not be overlooked.