Microsoft vs FTC: A comprehensive roundup of our coverage of the case

Microsoft’s chief executive Satya Nadella and Activision Blizzard CEO Bobby Kotick are expected to appear in court in person as witnesses. Jim Ryan, head of Sony’s PlayStation business, is also expected to testify through a video deposition.

Sony has objected to the deal for months, fearing that if Microsoft acquires Activision Blizzard it could result in its flagship Call of Duty game becoming a console exclusive. The Microsoft-Activision deal expires on July 18, and if the deal fails to go through, the Redmond-based giant would have to pay a $3 billion break-up fee.

Why does Microsoft want to acquire Activision Blizzard?

Although Microsoft is an old player in the video gaming market, the company, to say the least, hasn’t been as successful as Sony and Nintendo. Despite infinite resources and marketing muscle, Microsoft has neither excelled with hardware nor made a splash in developing must-have games barring a few titles including Halo and Gears of War.

But Satya Nadella has a plan to ramp up its video gaming division by buying Activision Blizzard, in what could be one of the biggest tech deals in history. If it gets clearance to purchase the mammoth gaming company, Microsoft would become the owner of Call of Duty, World of Warcraft, and Overwatch, to name a few. These are some of the world’s most popular video games, with millions of players who spend billions on subscriptions and in-game purchases.

Microsoft says buying Activision would allow it to put popular games on Game Pass—its Netflix-style gaming subscription service, which currently has over 25 million paid subscribers. The would deal also bring Candy Crush to Microsoft’s stable, giving the company entry into the lucrative mobile gaming market.

Microsoft has repeatedly said that its Xbox console is in a distant third place compared to the competition. (Image credit: Anuj Bhatia/Indian Express)

What is Sony’s objection to Microsoft-Activision deal?

If there is one company that is opposing the deal for months, it’s Sony. The PlayStation maker is worried that if Microsoft becomes the new owner of Activision, it would be cut off from getting big titles on its platform. One example is Call of Duty—perhaps the biggest gaming franchise on the planet. Microsoft has assured Sony that Call of Duty would appear on PlayStation for at least a decade. However, Sony has rejected the offer. Microsoft has signed a similar decade-long deal with Nintendo.

Sony argues that each time Microsoft acquires a new studio, it makes upcoming games exclusive to Xbox. Starfield is one such game which won’t be coming to Sony’s PlayStation 5, and instead will be released as an Xbox exclusive. The next-generation game in the Elder Scrolls series is unlikely to come to the PlayStation either. In 2020, Microsoft bought ZeniMax Media, the parent company of Elder Scrolls, Doom, and Fallout studio Bethesda Softworks for $7.5 billion.

That said, Microsoft hasn’t pulled Minecraft from Sony or Nintendo platforms since purchasing Mojang, the studio behind the popular title for $2.5 billion in 2014. Microsoft repeatedly said even if it acquires Activision, it would remain far behind Sony and Nintendo in gaming revenues.

Sony’s PlayStation 5 has outperformed Microsoft’s Xbox Series X since the beginning of the launch. (Image credit: Anuj Bhatia/Indian Express)

Why are regulators worried?

At one point, Microsoft CEO Satya Nadella was sure the Activision Blizzard buyout would go through. “Of course, any acquisition of this size will go through scrutiny but we feel very, very confident that we’ll come out,” he had told Bloomberg in an interview last year.

But since then, Microsoft has been in a legal showdown with regulators in the US and the UK.

FTC had filed a legal challenge to try and block Microsoft’s proposed Activision Blizzard acquisition in December last year, and it recently sought a temporary restraining order and injunction from a US federal district court. During the recent hearing in the court, FTC lawyer James Weingarten said Microsoft would have “the ability and incentive” to harm competition by withholding some of Activision’s games from competitors or by raising prices or degrading the content in a way that made the content less efficient on rival platforms.

Meanwhile, the UK’s Competition and Markets Authority (CMA) has blocked Microsoft’s merger with Activision Blizzard, citing concerns over the future of the cloud gaming market.

However, European regulators representing the 27-nation bloc approved the deal last month on condition that Microsoft makes some changes to increase competition in the cloud-based gaming market. China, Japan, Brazil, and South Korea have also approved the deal.

Here’s a rundown of everything that has happened in court so far.

As part of hearings, Microsoft’s lawyers presented an email by PlayStation boss Jim Ryan to former Sony Computer Entertainment Europe president Chris Deering in which Ryan said he wasn’t concerned that Call of Duty would become an Xbox-exclusive franchise shortly after Microsoft’s Activision buyout was announced.

“It’s not an Xbox exclusivity play at all. They’re thinking bigger than that, and they have the cash to make moves like this. I’ve spent a fair bit of time with both Phil [Spencer, Xbox boss] and Bobby [Kotick, Activision Blizzard boss] over the past day. I’m pretty sure we will continue to see COD on PS for many years to come,” Ryan said in the email.

Microsoft’s lawyers argued Ryan’s attitude proves that Sony’s main interest in stopping the buyout from closing is protecting its leading position in the market.

However, Microsoft purchased Bethesda to stop Starfield from being a PlayStation exclusive. For months, Microsoft has been claiming that it doesn’t want to take the Call of Duty franchise from PlayStation. But Sony keeps citing Microsoft’s acquisition of Bethesda’s parent company ZeniMax as a primary reason why it doesn’t exactly trust Microsoft on its Call of Duty offer.

Bethesda’s Starfield is exclusive to Xbox and PC. (Image credit: Microsoft)

During the recent hearing, Xbox head Phil Spencer did reveal that Microsoft’s decision to purchase Bethesda was to stop Starfield from being a PlayStation exclusive. “When we acquired ZeniMax, one of the impetus for that is that Sony had done a deal for Deathloop and Ghostwire…to pay Bethesda to not ship those games on Xbox,” Spencer said during his testimony.

“So the discussion about Starfield when we heard that Starfield was potentially also going to end up skipping Xbox, we can’t be in a position as a third-place console where we fall further behind on our content ownership so we’ve had to secure content to remain viable in the business.”

Spencer’s statement makes it clear that exclusive titles do matter in making the popularity of the platform.

This is why Call of Duty is at the centre of a war between Microsoft’s Xbox and Sony’s PlayStation over the Redmond-based multinational tech corp effort to purchase Activision Blizzard. If Microsoft can acquire Activision, it is up to Spencer to decide whether to allow the Call of Duty franchise to a multi-platform or choose to make it exclusive to Xbox.

Microsoft views Sony as an aggressive competitor

It’s not Nintendo but Sony which is Microsoft’s biggest competitor in the gaming market. Xbox boss Spencer believes Sony’s tactics of signing exclusive agreements by paying developers outright have weakened Xbox’s position in the marketplace. He cited the example of how PlayStation signed an agreement with Square Enix to keep Final Fantasy XVI off Xbox.

“Every time we ship a game on PlayStation… Sony captures 30 per cent of the revenue that we do on their platform and then they use that money among other revenue that they have to do things to try to reduce Xbox’s survival on the market,” said Spencer. “We try to compete, but as I said, over the last 20 years we’ve failed to do that effectively.”

Bungie, the developer behind the Halo and Destiny franchises, was sold to Sony in a deal worth $3.6 billion in 2022. (Image credit: Sony)

Microsoft’s bid to acquire Zynga

Mobile gaming giant Zynga was once on the radar of Microsoft but it instead opted to go for even bigger Activision. While testifying last week in San Francisco, Spencer opened up for the first time about buying Zygna but said the company opted not to go forward.

“A lot of respect for people at Zynga and what they built,” Spencer said at the hearing. “In the end, for our opportunity, we thought we needed to have something that was even bigger than what Zynga was, given our very small starting space in the mobile gaming business.”

While Spencer didn’t state the exact reason behind Microsoft’s logic to buy Zynga, it’s quite possible that Microsoft wanted the famous game publisher to bolster its mobile game library.

Zynga, the mobile and social games giant, is best known for social games such as FarmVille and Words with Friends. Grand Theft Auto publisher Take-Two Interactive ended up buying Zygna in a deal valued at $12.7 billion in May of last year.

Both Microsoft and Sony are scooping small and big developers in a sign that the video game industry is headed for consolidation. (Image credit: Microsoft)

Next-generation Xbox, PlayStation 6

Microsoft’s recent court proceedings reveal when the Xbox maker expects the PlayStation 6 and next Xbox consoles will launch. While no official announcement has been made regarding a PlayStation 6 or new Xbox console, it is a common practice the industry follows to work on the new hardware years in advance.

Although leaked documents reveal a “2028” window, this rumoured launch window would place the PS6 and next Xbox console launching eight years after the PS5 and Xbox Series X/S debuted in late 2020.

Microsoft wanted to buy Sega

Microsoft at one point was keen to buy Sega, the makers of Sonic the Hedgehog. In 2020, Xbox boss Phil Spencer wrote an email to Microsoft’s CEO and chief financial officer in which he requested strategy approval to approach Sega Sammy and discuss acquiring its game developers.

“We believe that Sega has built a well-balanced portfolio of games across segments with global geographic appeal, and will help us accelerate Xbox Game Pass both on and off-console,” Spencer wrote.

In his memo, Spencer said the deal would beef up the Xbox Game Pass subscription service and lead to more game sales on more platforms. Sega is behind Sonic the Hedgehog, Shin Megami Tensei, Yakuza, Football Manager and other large franchises.

It’s not clear whether Spencer got approval from Satya Nadella, but the Xbox boss really wanted Microsoft to own Sega. Notably, leaked court documents reveal that Sega was just one of 12 gaming acquisitions Microsoft had been eyeing. Microsoft was considering acquiring Bungie, Niantic, Supergiant Games, Scopely, IO Interactive and Thunderful.