Microsoft and Activision CEOs fight for their $75bn deal in court hearing


The chief executives behind Microsoft’s planned $75bn acquisition of Activision made a last-ditch attempt to save the deal in a courtroom on Wednesday in the face of US government objections that could result in its annulment as early as next week.

The acquisition of the gaming company would almost certainly collapse if the judge sided with the Federal Trade Commission, according to executives and lawyers for the companies at the hearing in federal court in San Francisco, which began last Thursday. The agency is seeking a preliminary injunction to stop the deal closing while it pursues a parallel case in an administrative court.

However, evidence and questioning during the hearing have lifted the hopes of the deal’s supporters on Wall Street. Judge Jacqueline Scott Corley repeatedly prodded an expert witness called by the FTC over his analysis of the deal and at one point cut off the agency’s lawyer during questioning. She also invited a Microsoft executive to swear under oath that the company would grant Sony’s PlayStation a 10-year licence for Activision’s most popular game, Call of Duty — a central issue in the case.

If the FTC loses its bid for a preliminary injunction, it would throw the agency’s separate case in administrative court into doubt. Earlier this year the agency abandoned further action against Meta after failing to get a preliminary injunction blocking that company’s purchase of virtual reality game company Within.

A similar outcome in the Activision case would leave the UK’s Competition and Markets Authority as the only regulator to stand in the way of the deal. Closing arguments in the US hearing are due on Thursday, and a decision could come as early as Monday.

Microsoft chief executive Satya Nadella used his 40-minute appearance in federal court to underline his company’s claim that larger gaming rival Sony was seeking to have the deal blocked for competitive reasons, rather than because it was genuinely worried about losing access to Activision’s titles.

Nadella said he would guarantee “100 per cent” that Microsoft would make Call of Duty available on PlayStation, and that it made “no economic sense and no strategic sense” to limit the game to his company’s Xbox console.

In a reference to Sony’s PlayStation, he said: “The dominant player has defined market competition using exclusives, so that’s the world we live in. I have no love for that world.”

In earlier testimony, the FTC pointed to the way Microsoft had made some of the games from another acquisition exclusive to its Xbox console, despite having said beforehand that it would keep them widely available. It claimed Microsoft had the incentive to do the same with Activision’s games.

In the most dramatic evidence presented during the hearing, a lawyer for Microsoft pointed to an email from Sony’s PlayStation chief Jim Ryan reassuring a colleague that the Activision purchase was not likely to lead to its games becoming exclusive to Xbox. In later video testimony shown during the hearing, Ryan said he changed his view after seeing details of the terms Microsoft was proposing, while also growing worried that PlayStation’s customers could be left with “degraded” versions of the games.

Much of the hearing has turned on technical questions about the video games market, with the FTC claiming that Microsoft would have too much power for high-performance game consoles occupied by Xbox and PlayStation, as well as separate markets for multi-game subscription services and cloud streaming.

Microsoft, by contrast, has sought to paint itself as the third-biggest player in a larger console market that also includes Nintendo’s Switch. Also, rather than separate markets, it claims that its Game Pass subscription service is merely an alternative way to pay for games, while cloud streaming is only a feature of console gaming.

Challenging Nadella, a lawyer for the FTC pointed to comments he had made during an earnings call about the success of the latest Xbox console. The agency also made mention of his predictions about the future importance of cloud-based gaming. Nadella, however, said that there had been little demand to stream video games and that his definition of cloud services included Xbox Live, which makes it possible to play with other people through the console.

In evidence filed as part of the case, one Microsoft executive singled out games streaming as a market the company stood to dominate.

“It is practically impossible for anyone to start a new video streaming service at scale at this point,” Matt Booty, head of Xbox Games Studios, wrote to a colleague in 2019, more than two years before the Activision deal was announced. Making the case for the software company to spend heavily to cement its lead in streaming, he added: “We are in a very unique position to be able to go spend Sony out of business.”

Despite that, backers of the deal have shown mixed support for the subscription-based streaming of games. Bobby Kotick, chief executive of Activision, said in court that such services, which give players access to a library of games for a flat price, “degrade the economics” of games.

Pointing to the losses stemming from Hollywood’s streaming video wars, he added: “I have a general aversion to the idea.”

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