FTC sues to block Microsoft-Activision Blizzard merger

The Federal Trade Commission will seek to block Microsoft's $69 billion acquisition of video game developer Activision Blizzard, the agency announced Thursday.

Why it matters: If the FTC is successful, it will be a major blow to the biggest attempted deal in gaming history. And the suit itself is another clear signal from the agency that any big tech company looking to buy a smaller one should be wary.

Driving the news: The commission voted 3-1, with Republican commissioner Christine Wilson voting no, to file an administrative complaint seeking to block the merger.

• The FTC alleges in its complaint that the deal would allow Microsoft to "suppress competitors to its Xbox gaming consoles and its rapidly growing subscription content and cloud-gaming business."
• It's a major setback for Microsoft, after a full-court press tour which sought to warm regulators to the deal, including an op-ed by the company's president Brad Smith in the Wall Street Journal.

What they're saying: "Microsoft has already shown that it can and will withhold content from its gaming rivals," said Holly Vedova, director of the FTC’s bureau of competition, in a statement. "Today we seek to stop Microsoft from gaining control over a leading independent game studio and using it to harm competition in multiple dynamic and fast-growing gaming markets."

• "We continue to believe that this deal will expand competition and create more opportunities for gamers and game developers. We have been committed since Day One to addressing competition concerns, including by offering earlier this week proposed concessions to the FTC," Microsoft's 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 our case in court."
• "The allegation that this deal is anti-competitive doesn't align with the facts, and we believe we’ll win this challenge," Activision Blizzard CEO Bobby Kotick said in an internal memo shared with Axios.

Between the lines: The FTC chose to file the complaint in its own administrative court, not in federal court.

• The agency is not seeking a preliminary injunction to stop the deal from closing, so the two parties are still likely to clear regulatory roadblocks in the U.S.
• But the bid also faces scrutiny from regulators in the EU and U.K. who have raised concerns about Call of Duty being under Microsoft’s control.

Details: While a lot of attention has been paid to what Microsoft might do with Activision's lucrative Call of Duty franchise, the FTC's announcement today zeroed in on Microsoft's practices regarding games made by Bethesda/ZeniMax, which Microsoft bought for $7.5 billion in 2020.

• "Microsoft decided to make several of Bethesda's titles including Starfield and Redfall Microsoft exclusives despite assurances it had given to European antitrust authorities that it had no incentive to withhold games from rival consoles," the FTC said in its statement.

Between the lines: Microsoft has spent considerable energy arguing that it would not keep Call of Duty from rivals like Sony PlayStation, should the deal go through.

Editor’s note: This story has been updated to add further context about other international hurdles this merger also faces.