In January, Microsoft announced its plan to acquire Activision Blizzard, one of the largest video game publishers in the world. The roughly $69 billion deal constitutes the biggest gaming industry transaction of all time.
Microsoft is already a major player in the gaming industry with its Xbox console and related franchises. Adding Activision Blizzard’s impressive collection of high-grossing video games, including Call of Duty, Candy Crush, Overwatch, and World of Warcraft, will bolster Microsoft’s standing in the industry. The proposed acquisition will make Microsoft the world’s third-largest gaming company, behind only behemoths Tencent and Sony. There is no question that Microsoft’s acquisition of Activision Blizzard will reshape the landscape of the gaming industry, but the transaction is also likely to have significant impacts beyond the world of controllers and keyboards.
Microsoft and Activision Blizzard will seek regulatory approval at a time when the U.S. government and regulatory authorities have signaled their intent to crackdown on increasing market concentration. In July 2021, President Biden gave an early signal that his administration was focused on promoting economic competition when he signed an executive order “affirm[ing] that it is the policy of my Administration to enforce the antitrust laws to combat the excessive concentration of industry, the abuses and market power, and the harmful effects of monopoly and monopsony[.]” Even more recently, the White House announced a new initiative aimed at “creating a more competitive, fair, resilient meat and poultry sector [.]” As part of this initiative, the DOJ and the Department of Agriculture will be coordinating efforts to better administer the Sherman, Clayton, and Packers and Stockyards Acts, making clear that the enforcement of the country’s antitrust laws is squarely in this administration’s sights.
Indeed, on the same day that Microsoft announced its proposed acquisition of Activision Blizzard, the Department of Justice (DOJ) and the Federal Trade Commission (FTC) put out a statement about a new joint undertaking between the two entities “to modernize federal merger guidelines to better detect and prevent illegal, anticompetitive deals in today’s modern markets.” It is both notable and timely that the DOJ-FTC statement singled out “digital markets” for which the agencies are particularly interested in creating additional pro-competitive guidelines. Though the FTC alone will review the Microsoft-Activision Blizzard deal, this broader, cooperative modernization effort between the two agencies primarily responsible for enforcing the country’s antitrust laws may foreshadow a potential coming conflict with Microsoft, and reaffirms the current administration’s prior commitment to furthering competition across the marketplace.
As to the specifics of this transaction most likely to draw scrutiny, it is probable that regulators will probe any potential preferential treatment that Activision Blizzard’s games may receive through Microsoft’s Xbox console, and how shared ownership of the companies’ intellectual properties may negatively affect consumers and other publishers. Activision Blizzard seems keenly aware of the scrutiny the proposed transaction will face. It negotiated a $3 billion breakup fee in the event the transaction fails to close.
Microsoft, for its part, has already started taking preemptive measures to assuage potential antitrust concerns. It released a “set of Open App Store Principles” designed to “address Microsoft’s growing role and responsibility as we start the process of seeking regulatory approval in capitals around the world for our acquisition of Activision Blizzard.” In short, the 11-point plan lays out how Microsoft intends to avoid giving its own games (including and especially those it now owns through its acquisition of Activision Blizzard) preferential treatment across its consoles/marketplaces while also ensuring a pro-competitive environment exists for other developers.
While it remains to be seen what effect Microsoft’s early assurances will have and whether the deal will ultimately cross the finish line, what is clear is that Microsoft’s proposed acquisition of Activision Blizzard presents difficult, complex issues with which U.S. antitrust enforcement authorities will have to wrestle. As one of the early transactions in the new antitrust environment, it is likely that interested parties will view regulators’ stance on the Microsoft-Activision Blizzard deal as a litmus test for just how far large companies can go in acquiring other companies in similar markets.