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Microsoft: FTC’s case against Activision deal defies business logic and ignores industry realities

Microsoft laid out its case against the U.S. Federal Trade Commission’s attempt to block its proposed $68.7 billion acquisition of Activision-Blizzard, describing itself as “the third-place manufacturer of gaming consoles” and its acquisition target as “one of many publishers of popular video games.”

Those statements, made by Microsoft in a filing late Thursday with the FTC’s administrative court, are technically true. However, Activision-Blizzard owns one of the most successful game franchises in history, “Call of Duty,” the latest installment of which, “Modern Warfare 2,” is the top-selling game in the U.S. this year.

The franchise has been a major focus of the regulatory review, with the FTC raising concerns that Microsoft might try to make “Call of Duty” exclusive to Xbox.

Activision-Blizzard, which also owns the King mobile game business, is “one of only a very small number of top video game developers in the world that create and publish high-quality video games for multiple devices, including video game consoles, PCs, and mobile devices,” the FTC said previously.

But Microsoft, which recently announced a deal to bring “Call of Duty” to Nintendo, says the success of the franchise is exactly why it wouldn’t make business sense to take “Call of Duty” away from Sony PlayStation.

“A substantial portion of Activision’s financial value to Xbox comes from business as usual, including the continued sale of Call of Duty—its most popular game—on Sony PlayStation,” Microsoft’s filing says.

“Paying $68.7 billion for Activision makes no financial sense if that revenue stream goes away,” the filing adds. “Nor would it make sense to degrade the game experience and alienate the millions of Call of Duty players who play together using different types of consoles. The reputational hit to Xbox would not be worth any theoretical economic benefit from taking Call of Duty away from competitors.”

Microsoft said previously that it offered Sony a 10-year contract to release “Call of Duty” on PlayStation at the same time as on Xbox. “Sony refuses to deal,” the new filing says. But a redaction in the public version of the filing indicates that there’s more to the deal than Microsoft has said publicly.

Despite Microsoft’s pledges, the FTC said previously that the deal would position Xbox to “harm competition by manipulating Activision’s pricing, degrading Activision’s game quality or player experience on rival consoles and gaming services, changing the terms and timing of access to Activision’s content, or withholding content from competitors entirely, resulting in harm to consumers.”

In its filing, Microsoft says its main strategic motivation for the deal is to grow Xbox’s presence in mobile gaming, citing the fact that “three-quarters of Activision’s gamers and more than a third of its revenues come from mobile offerings.”

In a statement, Activision-Blizzard CEO Bobbby Kotick said there “is no sensible, legitimate reason for our transaction to be prevented from closing.”

“Our industry has enormous competition and few barriers to entry,” Kotick added. “We have seen more devices than ever before enabling players a wide range of choices to play games. Engines and tools are freely available to developers large and small. The breadth of distribution options for games has never been more widespread. We believe we will prevail on the merits of the case.”

See the filings by Microsoft and Activision below, see the FTC complaint here.

2022.12.22 (9412) Resp. Activision’s Answer PUBLIC by Todd Bishop on Scribd

2022.12.22 (9412) Resp. Microsoft’s Answer_PUBLIC by Todd Bishop on Scribd

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