The Federal Trade Commission (FTC) filed an administrative complaint to block Microsoft Corporation’s (Microsoft’s) nearly $70 billion acquisition of Activision Blizzard, Inc. (Activision), the largest video game acquisition in history.1 The complaint alleges harm in three distinct markets: (1) high-performance consoles (i.e., Xbox and PlayStation); (2) multi-game content library subscription services; and (3) cloud gaming subscription services. The FTC voted 3–1 to issue the complaint, with Commissioner Christine Wilson dissenting from the decision.
Microsoft develops and sells Xbox gaming consoles, publishes popular in-house gaming titles such as Halo, and offers the subscription service Game Pass, which some industry observers label as the “Netflix of Games.” Game Pass allows a gamer to pay a monthly subscription fee for access to hundreds of games on Xbox and PC. A premium version of Game Pass also provides “cloud gaming” functionality, which allows consumers to stream games from off-site servers over the cloud to their consoles, PCs, mobile phones, and other devices—allowing high-performance gaming without the need for a high-performance gaming PC or console. Activision is one of the largest independent producers of “AAA” video games, especially Call of Duty, which the FTC alleges “has achieved sustained dominance over the past decade, with Call of Duty titles comprising 10 of the top 15 console games sold between 2010–2019.” Activision itself has noted that Call of Duty is “one of the most successful entertainment franchises of all time.” Activision’s Blizzard subsidiary also produces the popular AAA titles Diablo and Overwatch.
The FTC’s challenge to Microsoft/Activision is purely vertical, meaning that the government is not concerned about diminished competition between gaming titles such as Microsoft’s Halo and Activision’s Call of Duty, but rather Microsoft’s incentive and ability to harm competition by withholding, frustrating, or degrading competitors’ access to Activision titles. Vertical cases are always challenging for the government, and the recent precedent of the Department of Justice’s failed attempt to enjoin AT&T’s acquisition of Time Warner provides some doubt as to whether content can be “must-have” such that a competing distributor would not be able to compete without access to the content.2 However, there are three important distinctions in the FTC’s challenge to Microsoft/Activision that may affect the analysis:
- The critical importance of Activision’s titles is more established: The FTC’s complaint includes several examples of statements from the parties reflecting the importance of these titles, including from both Microsoft and Activision, and notes that competing distributing services such as Amazon Luna and Google Stadia have struggled without access to Activision content. Indeed, the FTC alleges, “While AAA content in general is important to competitors in the Relevant Markets, Activision content is especially important because of its ability to drive gaming product adoption and engagement by users.”3
- Microsoft’s history of making games exclusive after acquiring studios confirms that it may be a rational economic decision: Microsoft has acquired and made exclusive numerous titles over the years, most notably a collection of games from ZeniMax and its subsidiary, Bethesda Games. The FTC notes that Microsoft achieved unconditional clearance for the transaction from the European Commission (EC) in part by persuading the agency that Microsoft would not have the economic incentive to withhold the titles from rival consoles. However, as the FTC alleges, “shortly after the EC cleared 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.”4 According to the FTC, “Microsoft’s past conduct is telling,”5 and the commission suggested that this past behavior “should also cast more suspicion on its non-binding public commitments…”6
- Microsoft could harm competition through degradation without literal foreclosure: Unique to the gaming industry, the threat of degradation may be sufficient to harm competition. The FTC alleges that Microsoft could “engage in several strategies to degrade access to Activision content on rival consoles and subscription services, including timed exclusivity, exclusive downloadable content available only on Microsoft’s products…”7 and the transaction would “give Microsoft the ability to reduce efforts to optimize Activision content for rival products,” noting that Activision currently “collaborates closely with gaming hardware manufacturers to ensure an optimal experience for gamers.”8
Whatever the result in the litigation, this challenge shows that video game developers should prepare for enhanced antitrust scrutiny of deals in the video game industry, as the FTC continues to be troubled by what it views as a “trend towards vertical integration and consolidation” in this space.
For more information about this litigation or other issues related to the intersection of gaming and antitrust, please contact Michelle Hale, Beau Buffier, Brendan Coffman, or another member of the firm’s antitrust and competition practice.
[1] Complaint, In the Matter of Microsoft Corp./Activision Blizzard, Inc. (Dec. 8, 2022), https://www.ftc.gov/system/files/ftc_gov/pdf/D09412MicrosoftActivisionAdministrativeComplaintPublicVersionFinal.pdf.
[2] U.S. v. AT&T Inc., et al, 916 F.3d 1029 (D.C. Cir. 2019).
