By: Joseph Cunningham
In a sudden move, Microsoft has sought to acquire Activision-Blizzard-King (“ABK”), for just under $70 billion in what would be the industry’s largest all-cash deal. Microsoft aims to bring the widely popular ABK games into its growing cloud subscription service, Xbox Game Pass. The deal will surely grow Microsoft’s already substantial market cap and begin its foray into the “metaverse.” However, the three active suits against ABK for rampant sexual harassment as well as an FTC investigation into the market impact of the deal will loom large in the background. If the deal can survive, Microsoft will have the final hurdle of rebuilding the public trust in ABK content.
A Microsoft and ABK merger would be the biggest deal in gaming history and propel Microsoft to new heights in the $175 billion per year industry. Microsoft has recently led the industry in acquisitions, including large publishers like Bethesda, followed closely by Sony. These mega-publishers are gobbling up smaller studios to make their content exclusive to Microsoft’s platforms and lure consumers from other hardware. Microsoft is currently leading the industry at 60% of the cloud-based gaming market share with Xbox Game Pass. In addition to potentially making widely popular ABK content a Microsoft exclusive, Microsoft claims this is one of the first steps in its march toward the “metaverse.” Microsoft claims its eventual metaverse will allow consumers to enjoy various content, applications, and commerce on every possible platform.
However, this deal will not solve ABK’s growing problem with governmental suits alleging sexual harassment and other mismanagement occurring over the last ten years. Bobby Kotick led Activision as CEO for 30 years and was allegedly aware of the misconduct and failed to alert the board or take substantive action to redress the issues. While Bobby Kotick’s future is unknown, he will likely step down if the deal goes through and get a $375 million payday for his stock. However, Microsoft is said to have a better corporate culture, though not perfect, in comparison to ABK. Additionally, the contract has terms requiring ABK executives to be free of scandal, but only scandals alleged to occur after 2018, thus avoiding prior allegations.
On top of the other investigations, the merger will now be investigated by new Federal Trade Commission (“FTC”), chair Lina Khan, who is actively taking on big tech to prevent monopolies. The Department of Justice and FTC have combined under Biden and his new executive order to modernize antitrust enforcement, particularly against tech giants. The Senate Judiciary Committee is also close to voting on a bill targeting digital markets and promoting competition. The Senate seeks to force Apple, Meta, and Google to stop abusing their market dominance and to allow increased competition in app publishing. The FTC will also pursue a suit to undo Meta’s acquisition of Instagram and WhatsApp. Regardless, the deal is still likely to go through but could turn on the issue of determining if the agreement would transform Microsoft from an entertainment company into an all-around technology company.
Some other considerations may hamper this deal, but regardless, there is an uphill battle ahead to regain public trust in ABK. Recent ABK games have had low sales and suffered from slow development and bad roll-out on top of its culture disaster. If Microsoft were to take over the studio, it is unclear how they would handle the staff’s demands and Raven Software’s ongoing strike and attempt to unionize. Additionally, the EU could intercept the deal as it has grown increasingly hostile to tech monopolies. Finally, Microsoft shareholders could sue to prevent the merger as it is not in their interest since the agreement is heavily overpaying to acquire ABK.
Since the deal is likely to go through, only time will tell if it benefits the digital community. While there is plenty of competition in the market for video games and even sub-genre games, there is a slightly concerning trend as mega-publishers continue to purchase small indie developers. Microsoft claims it will honor ABK’s contracts to keep its games from going exclusive, but there is no way to know if this is true or if they will continue to support competing platforms after the contracts expire. Additionally, with Microsoft’s large market share of video games, hardware, and software, it is hard to see how this deal isn’t anti-competitive. Finally, Microsoft is overt about its interest to branch into other sectors of the market with its metaverse. All this combined would seem to indicate a solid opportunity for a new FTC to break ground with a big crackdown on two tech giants. While Xbox Game Pass is an excellent opportunity for Microsoft to bring a plethora of games for a relatively inexpensive subscription, the merger trend may prove to alienate those who can’t afford to switch platforms when their favorite studios are constantly bought out.
Student Bio: Joseph Cunningham is a second-year law student at Suffolk University Law School. He is a staffer on the Journal of High Technology Law. Joseph received a Bachelor of Science Degree in Economics and Sports Industry from The Ohio State University.
Disclaimer: The views expressed in this blog are the views of the author alone and do not represent the views of JHTL or Suffolk University Law School.
