Microsoft is pushing back against the Federal Trade Commission’s implication that it didn’t live up to its commitments to the European Commission in its $7.5 billion acquisition last year of Bethesda Game Studios parent ZeniMax Media.
The company says it kept its word even when it was detrimental to its own business.
The issue could prove pivotal to Microsoft’s efforts to overcome the FTC’s formal opposition to what would be the biggest acquisition in the company’s history, its proposed $69 billion purchase of Activision-Blizzard, the gaming giant behind such franchises as “Warcraft,” “Call of Duty” and “Candy Crush.”
The ultimate outcome of the case could embolden or undermine the FTC’s ability to successfully block big tech deals, as one of the first big legal tests for the agency under chair Lina Khan.
In coming out against the deal last week, the FTC said Microsoft’s “past conduct” following its ZeniMax acquisition makes Microsoft’s current commitments in the Activision-Blizzard acquisition unreliable, “despite any assurances the company may offer regarding its plans.”
“Microsoft assured the European Commission (“EC”) during its antitrust review of the ZeniMax purchase that Microsoft would not have the incentive to withhold ZeniMax titles from rival consoles,” the FTC wrote in its complaint. “But, shortly after the EC cleared the transaction, Microsoft made public its decision to make several of the newly acquired ZeniMax titles, including Starfield, Redfall, and Elder Scrolls VI, Microsoft exclusives.”
In other words, the FTC is saying, it’s difficult to take seriously Microsoft’s offer to release future “Call of Duty” games simultaneously for Xbox and PlayStation, and not to turn the blockbuster franchise into a Microsoft exclusive.
But in looking back at the ZeniMax deal, Microsoft says it’s important to distinguish between existing and future games.
When the European Commission was deciding whether to allow Microsoft to buy ZeniMax, Microsoft pledged to honor existing ZeniMax commitments, and agreed that it would “not make any existing ZeniMax games exclusive to Xbox.”
However, as noted in a Microsoft briefing document, the company was also clear with the European Commission: “Future decisions on whether to distribute ZeniMax games for other consoles will be made on a case-by-case basis.”
Microsoft points, as examples, to two games, “Deathloop” and “Ghostwire: Tokyo,” which were under development by Bethesda Game Studios when Microsoft completed the ZeniMax acquisition in March 2021.
After the ZeniMax deal closed, Microsoft points out that it followed through on Bethesda’s earlier agreement to release the games for PlayStation a year before their Xbox debuts, honoring the commitment to its own detriment.
Here’s what Microsoft says about “Starfield” and “Redfall,” two of the games referenced by the FTC.
- “Starfield is a new game under development by Bethesda Game Studios. It will be available on the Xbox console and PC. Starfield, however, is yet to be released; Xbox has announced that it will be coming in 2023. It is a single-player game. It has no pre-existing sales, revenue, or community of gamers on any console, much less PlayStation, that would be impacted by an exclusivity decision.“
- “Redfall is a new game under development by Arkane Studios Austin. It will be available on the Xbox console and PC. Redfall, however, is yet to be released; Xbox has announced that it will be available in 2023. It is a single-player game with multi-player capabilities. It has no pre-existing sales, revenue, or community of gamers on any console, much less PlayStation, that would be impacted by an exclusivity decision.“
The situation is less clear regarding the third unreleased game cited by the FTC, “The Elder Scrolls VI.”
In response to a GeekWire inquiry, Microsoft declined to comment on whether it plans to make “The Elder Scrolls VI” exclusive to Xbox and PC, as GQ reported last year, citing Microsoft Gaming CEO Phil Spencer at the time.
Aficionados of advanced legal linguistics will note that the FTC and Microsoft statements are not necessarily contradictory, as explained by Stephen Totilo of Axios in this lengthy Twitter thread.
In contrast, in the Activision deal, “Call of Duty” has effectively been put into a league of its own, due to its size and significance in the gaming world. Any risk that Microsoft would make future installments of the best-selling franchise exclusive to its own platforms would raise significant anti-competitive concerns.
Beyond that, Microsoft says making “Call of Duty” exclusive would be a financial blunder and PR nightmare.
“A vital part of Activision Blizzard’s ‘Call of Duty’ revenue comes from PlayStation game sales. Given the popularity of cross-play, it would also be disastrous to the ‘Call of Duty’ franchise and Xbox itself, alienating millions of gamers,” wrote Microsoft President Brad Smith, in a Dec. 5 Wall Street Journal op/ed, part of an unsuccessful last-ditch effort to use the court of public opinion to sway the FTC.
That was part of a nearly year-long “charm offensive” by Microsoft, as the WSJ put it, including Microsoft’s release of principles for working with labor unions after some Activision-Blizzard employees began to organize.
The case now moves to an FTC administrative court.
“We have been committed since Day One to addressing competition concerns, including by offering earlier this week proposed concessions to the FTC,” Smith said in a statement. “While we believed in giving peace a chance, we have complete confidence in our case and welcome the opportunity to present it in court.”