Advocates Applaud as FTC Sues to Stop Microsoft-Activision Mega-Merger

Consumer advocates cheered a lawsuit filed Thursday by the Biden administration in a bid to block the proposed merger of two of the world's leading video game companies, Microsoft and Activision Blizzard--a $69 billion deal the Federal Trade Commission argued would "harm competition" in the nearly $200 billion gaming industry.

"Today's action is of incredible importance in ensuring fair and open competition in gaming and across the larger digital economy."

"The Federal Trade Commission is seeking to block technology giant Microsoft Corp. from acquiring leading video game developer Activision Blizzard, Inc. and its blockbuster gaming franchises such as Call of Duty, alleging that the $69 billion deal, Microsoft's largest ever and the largest-ever in the video gaming industry, would enable Microsoft to suppress competitors to its Xbox gaming consoles and its rapidly growing subscription content and cloud-gaming business," the FTC said in a statement.

Reacting to the lawsuit, Sen. Elizabeth Warren (D-Mass.) tweeted, "Corporate monopolies have had free rein to hike prices and harm workers, but now the Biden administration is committed to promoting competition."

Microsoft announced in January that it would acquire Activision Blizzard--whose other popular titles include the World of Warcraft, Diablo, and Overwatch franchises--for $68.7 billion. Activision Blizzard has been plagued by multiple allegations of sexual harassment, gender discrimination, sexual battery, and labor violations.

Politico reports:

The FTC voted, 3-1 to issue the complaint, with all three Democrats--Lina Khan, Alvaro Bedoya, and Rebecca Kelly Slaughter--supporting the move, and Republican Christine S. Wilson voting no...

The lawsuit is the FTC's biggest move yet under Chair Lina Khan to rein in the power of the world's largest technology companies. It is also a major black mark for Microsoft, which has positioned itself as a white knight of sorts on antitrust issues in the tech sector after going through its own grueling regulatory antitrust battles around the world more than two decades ago.

Microsoft president Brad Smith responded to the suit by insisting that "we continue to believe that our deal to acquire Activision Blizzard will expand competition and create more opportunities for gamers and game developers."

However, Sarah Miller, executive director of the American Economic Liberties Project, called the proposed merger "unlawful" and said it "will undermine the vitality of an important sector of the American economy and consolidate the video game industry into a small group of firms who control walled gardens of content, data, and advertising."

Sandeep Vaheesan, legal director at the Open Markets Institute, an anti-monopoly group, warned that "if Microsoft acquired Activision, it could use Activision's valuable portfolio of games as a competitive weapon, withholding titles from rival consoles or offering lower quality versions of them, to give its own Xbox and cloud-gaming service a leg-up."

"The FTC recognized this threat of unfair competition and made the right choice, once again showing it takes vertical mergers seriously," Vaheesan added. "If giants like Microsoft want to expand, they should invest in their own capacity and hire more workers, instead of snapping up firms in adjacent markets. We hope the court sees the merits in the FTC's case and stops this harmful consolidation."

Matt Kent, competition policy advocate for the consumer advocacy group Public Citizen, said in a statement that "today's action is of incredible importance in ensuring fair and open competition in gaming and across the larger digital economy. The FTC is showing, once again, that it is serious about enforcing the law, reversing corporate concentration, and taking on the tough cases."

"The proposed deal raises too many red flags to proceed, especially considering that Microsoft is already operating in several concentrated sectors of the economy including consumer electronics, cloud computing, software development, hardware development, internet search, social networking, virtual reality, and video gaming," Kent continued.

"This deal should be stopped," he added. "If allowed to purchase a key video game developer like Activision, Microsoft would be positioned to dominate gaming into the future and unfairly disadvantage other market participants."