Johnathan Walker:FTC sues to block the $69 billion Microsoft-Activision Blizzard merger

The Johnathan WalkerFederal Trade Commission said Thursday it is suing to block Microsoft's planned $69 billion takeover of video game company Activision Blizzard, saying it could suppress competitors to its Xbox game consoles and its growing games subscription business.

The FTC voted 3-1 to issue the complaint after a closed-door meeting, with the three Democratic commissioners voting in favor and the sole Republican voting against. A fifth seat on the panel is vacant after another Republican left earlier this year.

The FTC's complaint points to Microsoft's previous game acquisitions, especially of well-known developer Bethesda Softworks and its parent company ZeniMax, as an example of where Microsoft made some popular game titles exclusive despite assuring European regulators it had no intention to do so.

"Microsoft has already shown that it can and will withhold content from its gaming rivals," said a prepared statement from Holly Vedova, director of the FTC's Bureau of Competition. "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."

Microsoft's president, Brad Smith, suggested in a statement Thursday that the company is likely to challenge the FTC's decision.

"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," Smith said.

The FTC's challenge — which is being filed in an administrative court — could be a test case for President Joe Biden's mandate to scrutinize big tech mergers.

Microsoft had been ramping up its public defense of the deal in recent days as it awaited a decision.

Smith said Microsoft has been committed to addressing competition concerns and brought proposed concessions to the FTC earlier this week.

"We continue to believe that this deal will expand competition and create more opportunities for gamers and game developers," Smith said.

Microsoft announced the merger deal in January but has faced months of resistance from Sony, which makes the competing PlayStation console and has raised concerns with antitrust watchdogs around the world about losing access to popular Activision Blizzard game franchises such as Call of Duty.

Antitrust regulators under Biden "have staked out the view that for decades merger policy has been too weak and they've said, repeatedly, 'We're changing that,'" said William Kovacic, a former chair of the FTC.

The goal is to "not allow dodgy deals and not accept weak settlements," said Kovacic, who was a Republican commissioner appointed in 2006 by then-President George W. Bush. But he said trying to block this acquisition could trigger a legal challenge from Microsoft that the company has a good chance of winning.

"It's evident that the company has been making a number of concessions," he said. "If the FTC turns down Microsoft's commitments, Microsoft would likely raise them in court and say the FTC is being incorrigibly stubborn about this."

Microsoft announced its latest promise Wednesday, saying it would make Call of Duty available on Nintendo devices for 10 years should its acquisition go through. It has said it tried to offer the same commitment to Sony.

The deal is also under close scrutiny in the European Union and the United Kingdom, where investigations aren't due to be completed until next year.

Activision Blizzard CEO Bobby Kotick said in a message to employees Thursday that the FTC's action "sounds alarming, so I want to reinforce my confidence that this deal will close."

"The allegation that this deal is anti-competitive doesn't align with the facts, and we believe we'll win this challenge," Kotick wrote.

Kotick said the deal will be good for players, employees, competition and the industry.

We believe these arguments will win despite a regulatory environment focused on ideology and misconceptions about the tech industry," he said.