A sad time for gamers.
Taking a more than surface level look at Microsoft's acquisition of Activision Blizzard.
One of the most interesting news stories recently has been the largest tech acquisition in history. Microsoft (MSFT 0.00%↑), a $2.5T tech behemoth and 2nd largest American company, is attempting to purchase Activision Blizzard (ATVI 0.00%↑), a publisher of incredibly popular video games including Call of Duty, for $69B. If the deal goes through, it would beat out the previous record purchase when Dell purchased EMC for $67B in 2016.
Unlike the Dell-EMC deal though, where both companies are relatively boring and unknown in the public eye, the huge gaming industry has resulted in much more attention on this deal. More importantly, the US government in the form of the FTC is actually challenging this acquisition.
From the FTC’s December 2022 press release
Agency alleges that maker of Xbox would gain control of top video game franchises, enabling it to harm competition in high-performance gaming consoles and subscription services by denying or degrading rivals’ access to its popular content
As of now, the initial trial is over. On July 11th, Judge Jacqueline Scott Corley ruled against the FTC’s preliminary injunction request to stop the deal. An appeal for emergency injunctive relief has also also been denied by The Ninth Circuit Court of Appeals, which means that at least in the US, the deal is currently free to progress.
Why does this case matter?
Now that we’re caught up on the news, let’s look a bit more into why this case exists in the first point, why I think it’s important, and why I think Judge Corley has clearly made the wrong decision.
I originally became interested in this case less because of my love for video games, and more thanks to a popular Twitch streamer Atrioc. In his Marketing Mondays series, he argues that despite the opinion you may see from the majority of internet anons, this is a bad thing for American consumers. If you’re more of a iPad kid, I highly recommend watching the VOD. I will be borrowing from his research extensively!
What does the internet think?
Let’s take a look at a very popular tweet on the matter:
This sounds like a reasonable tweet, well written and thought out. Only maybe slightly biased since the author is Activision Blizzard’s CCO and EVP Corporate Affairs, and earns a base salary of $850,0001 for the job of helping to push deals like this.
Many similar statements exist from other Activision Blizzard and Microsoft execs, and in the replies you’ll generally find overwhelming support. There are a couple dissenting opinions, questioning how the ruling benefits gamers, but they are far fewer.
CEO Bobby Kotick stands to receive a payout upwards of $375 million from the deal going through, despite his tenure at the company being plagued with scandal2. There are some incredibly strong motivations for some individuals to see this deal through at all costs.
What about the Judge?
Okay, well the internet is often pretty dumb, execs and anons included. We probably shouldn’t put much stock into tweets. The judicial system is meant to be impartial, far more likely to have reached a fair decision.
Unfortunately Judge Corley has a son who works at Microsoft, and might have just a little bit of a soft spot for the company. I can’t fault her for that, parents often love their children unconditionally, and that extends to whatever they do even when they know nothing about it.
This would normally be no problem, judicial ethics would call that Judge Corley simply recuse herself. However even when the Revolving Door Project3 sent a letter asking her to recuse herself, Judge Corley refused and did not respond to comment.4
Platform Exclusivity
Much of the case and subsequent trial against the centered around exclusivity of the popular franchise Call of Duty, which Microsoft would own after the acquisition. The game is currently available on multiple platforms, but there are worries that Microsoft could make it an Xbox platform exclusive with future releases. Doing so could give the company a huge competitive advantage over Sony.
The two companies have signed a binding deal to keep the game on Playstation for 10 years, which is good news since Microsoft has somewhat of a history of saying one thing and then doing another in their previous acquisition of Bethesda and the upcoming Xbox exclusive Starfield5. Microsoft has almost certainly also included this in their financial calculus, and is judging the value of the acquisition on timeframes longer than 10 years. Call of Duty is a 20 year old franchise; if it’s success were to continue another 20, sharing for the first 10 probably doesn’t seem so bad of a deal to Microsoft.
This is a good time to point out that Sony is far from innocent. It too is guilty of pushing for platform exclusivity of games, and other anticompetitive strategies. Still, just because everyone is doing it doesn’t make it right or good for consumers.
A Difference in Scale
Ultimately a lot of why this all matters comes down to the size of the companies in question. Sony (SONY 0.00%↑), has a market cap of roughly $120B making it roughly 20 times smaller than Microsoft. That naturally makes it more difficult for them to compete, especially when Microsoft can so easily spend over half of a Sony in value to bolster their position.
Microsoft can afford to lose a lot of money in order to gain market dominance now, and later use that dominance to squeeze consumers once fewer alternative choices exist. Many love the current value of Microsoft’s GamePass, but they are already increasing prices6 and removing benefits7. In addition, Microsoft has been running sales on the Call of Duty franchise on the Xbox platform even as the acquisition finalizes. Price cutting in order to create consolidation, so that prices can be raised later once no alternatives exist is a hallmark of corporate monopolization.
Game Over
This is has been a very different type of post for me, and was difficult to write. I’m sure it has many faults, and even the thesis isn’t guaranteed. Maybe Microsoft acquiring Activision Blizzard will turn out to be the greatest thing that’s ever happened for gamers.
I do think that’s unlikely however, and I think a lot of people are ignorant to the ways in which consolidation of large corporations ultimately harms them. I hope that this post will have at least made you think give more thought to the subject if nothing else. The story has definitely been a learning experience for myself!
https://contracts.justia.com/companies/activision-blizzard-19/contract/270759/
https://fortune.com/2022/01/18/activision-blizzard-ceo-bobby-kotick-scandal-microsoft-deal-payout/
“The Revolving Door Project (RDP) scrutinizes executive branch appointees to ensure they use their office to serve the broad public interest, rather than to entrench corporate power or seek personal advancement.”
https://therevolvingdoorproject.org
https://gizmodo.com/watchdog-demands-judge-recuse-microsoft-activision-case-1850591001
https://www.pcgamer.com/court-emails-reveal-bethesdas-confusion-at-microsofts-special-treatment-for-cod-while-starfield-goes-xbox-exclusive-whats-the-difference/
https://gamerant.com/xbox-game-pass-price-increase-july-2023/
https://www.theverge.com/2023/7/14/23795351/microsoft-xbox-game-pass-friends-and-family-plan-preview-end