FTC Sues Microsoft: The Federal Trade Commission has filed a lawsuit to prevent Microsoft’s proposed acquisition of Activision Blizzard, and there are reports that the European Union has intervened to defend Microsoft.
The European Union’s main issue appears to be that Microsoft reneged on its pledge to not make Starfield and other Bethesda titles exclusive in its pursuit of ZeniMax Media. Recently, more information about the EU’s reaction has surfaced, providing more context for the problem of ZeniMax exclusives on Microsoft platforms and how it relates to ZeniMax’s takeover appeal.
What the FTC Said?
The FTC stated in a filing last week that one of the main reasons Microsoft should not be permitted to acquire Activision Blizzard is because of the company’s history of “acquiring and exploiting valuable gaming content to stifle competition from competitor consoles.” The relevant section of the FTC’s announcement is as follows:
“Microsoft decided to make several of Bethesda’s titles, including Starfield and Redfall, Microsoft exclusives despite assurances it had given to European antitrust authorities that it has no incentive to withhold games from rival consoles.”
As an illustration, Microsoft cited the following, referring to its subsequent announcement that Starfield will be an Xbox and PC exclusive.
MyPOV: see the following. https://t.co/HsHnRoNzRo
The FTC’s bid to block Microsoft’s purchase of Activision and its library could reshape cloud gaming, an area in which Microsoft already leads https://t.co/AapyOYuz1R
— @ces R “Ray” Wang 王瑞光 R.NFT 1A #CES2023 #Metaverse (@rwang0) December 12, 2022
The EU Response
A spokeswoman for the EU agency that oversaw the deal declined to comment to Axios’ Stephen Totilo on whether or not the EU agency feels that Microsoft did not keep up to its pledges to the EU regarding ZeniMax.
The FTC is ringing alarm bells over Microsoft’s cloud gaming dominance with Game Pass. Here’s why, despite cloud gaming’s nacency, there may be cause for concern. Latest with @leah_nylen: https://t.co/tnxa83rdz6
— Cecilia D’Anastasio (@cecianasta) December 10, 2022
As one of their representatives explained to Totilo:
“The Commission cleared the Microsoft/ZeniMax transaction unconditionally as it concluded that the transaction would not raise competition concerns.”
According to the report’s continuation, “Microsoft did not give any commitments to the Commission,” and the report’s conclusion did not rely on anything Microsoft indicated regarding upcoming ZeniMax releases.
Why the EU approved the ZeniMax deal
According to the initial EU report for Microsoft’s acquisition of ZeniMax, which was mentioned by Totilo, the platform holder “would not have the motive to discontinue or limit making ZeniMax titles accessible for purchase on competing consoles.”
The EU also said that ZeniMax’s games aren’t popular enough to significantly affect console market competition, so even if they went exclusive to one platform, players on competing devices would still have plenty of options.
CWA comes out against the FTC’s challenge of the Microsoft-Activision deal. The FTC “missed an opportunity to demonstrate that it takes the labor impact of mergers seriously.” https://t.co/Y1eIdYcWpl
— Leah AntiTrustButVer1fy Nylen (@leah_nylen) December 9, 2022
The precise phrasing from the European Union is as follows:
“Even if the combined entity was to engage in a (total or partial) input foreclosure strategy, the Commission considers that such a strategy would not have a material impact on competition in the EEA.
“Rival consoles would not be deprived of an essential input and could still rely on a large array of valuable vidoe game content to attract players.”
What does this mean?
To put it as simply as possible, it would appear that Microsoft has kept all of their commitments. As far as the EU is concerned, the platform owner lied when it said it had no reason to make ZeniMax games exclusive to its ecosystem. There was never any legal requirement for them to keep distributing Bethesda games on other platforms, but it doesn’t mean they won’t.
Even if Microsoft did make such games exclusive, the EU said in its approval of the merger, the company’s actions would not materially damage competition enough to block the ZeniMax acquisition. It’s important to note that the European Union has not yet taken a stance on whether or not it thinks Call of Duty‘s exclusivity will have an impact on competition.
Lots of excitement today about whether the EU is saying the FTC was wrong to partially justify its suit to block Microsoft’s Activision bid due to Microsoft’s promises to the EU about Bethesda/ZeniMax.
I chatted with the EU about this…
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— Stephen Totilo (@stephentotilo) December 9, 2022
(However, the UK’s competition watchdog, the Competition and Markets Authority, has stated its belief that monopolisation is bad for business). It’s also worth noting that the FTC statement is accurate; Microsoft did assure the EU that it had no incentive to make these games exclusive, and then it announced that they would be exclusive to Xbox and PC.
Brazil and Saudi Arabia have already given their blessing to Microsoft’s proposed takeover of Activision Blizzard. The EU and the CMA are currently conducting extensive investigations into the arrangement. We’ve put up a primer to help you understand the regulatory challenges that companies like Microsoft and Activision confront.
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