ZeniMax Buy a Roadmap for Microsoft's Future if Activision Purchase Goes Through: FTC
Microsoft’s past conduct “provides a preview” of a combined Microsoft/Activision if the tech giant consummates its acquisition of the video games company, said the FTC’s Monday complaint (docket 3:23-cv-02880) in U.S. District Court for Northern California in San Francisco, seeking a temporary restraining order against the deal. "Microsoft and Activision have represented ... that they may consummate the Proposed Acquisition at any time without any further notice" to the commission, said the redacted complaint.
The FTC cited Microsoft’s buy of ZeniMax Media in March 2021 and its assurances to the European Commission it "would not have the incentive to withhold ZeniMax titles from rival consoles.” Soon after the EC approved the transaction, “Microsoft made public its decision to make several of the newly acquired ZeniMax titles, including Starfield, Redfall, and Elder Scrolls VI, Microsoft exclusives,” the FTC said.
In December, the FTC found reason to believe the $68.7 billion Activision buy would “substantially lessen competition” in violation of Section 7 of the Clayton Act, sections 18 and 45 of 15 U.S.C. and Section 5 of the FTC Act (see 2212270052), the complaint said. That started an administrative proceeding on the antitrust merits of the proposed buy. Fact discovery closed April 7, and pretrial disclosures are underway, with an evidentiary hearing scheduled before an administrative law judge Aug. 2.
A temporary restraining order is necessary to prevent Microsoft and Activision from completing the acquisition until after the fifth business day after the court rules on the commission’s motion for a preliminary injunction or until a later date set by the district court, said the complaint. It’s also necessary to “preserve the status quo” and “protect competition” while the court considers the commission’s application for a preliminary injunction, it said.
Activision owns Call of Duty, one of the so-called “AAA” video games for its high-quality, high-profile status. Microsoft also owns the Halo franchise, an AAA game, plus the Elder Scrolls and Forza franchises. “AAA content has particularly important downstream effects because it generates player interest, develops a base of users, and drives monetization opportunities,” the complaint said.
Owning more AAA content increases adoption and engagement and gives a console, such as Microsoft’s Xbox, or a subscription service, such as Microsoft’s Game Pass service, “greater leverage in attracting additional content,” said the complaint. The console or subscription service can tout the size of its player base in negotiations with publishers and developers seeking to increase the discoverability and engagement of their content. The FTC quoted Xbox Chief Marketing Officer Phil Spencer describing the “flywheel” of content creators and players, saying as content expands, “more players are attracted to the service,” making the platform more attractive for additional publishers. Microsoft leads the video game subscription market with 25 million subscribers.
The proposed acquisition is “reasonably likely to substantially lessen competition” or to create a monopoly in the relevant markets by creating a combined company with the “ability and increased incentive to withhold Activision’s valuable gaming content from, or degrade Activision’s content for, Microsoft’s rivals,” said the complaint. Microsoft would have the power to decide “if, when, and to what extent Activision content will be available on competing products,” it said. Microsoft could devise strategies leading to “reduced consumer choice, higher prices or lower quality prices,” it said.
In addition to the TRO, the FTC asked the court to enjoin the defendants from completing the acquisition or stock acquisition, maintain the status quo until the administrative proceeding initiated by the FTC ends, and award further relief the court determines as appropriate.