Microsoft Takes a Chance on Activision Good Guy Strategy Megadeal

By Maggie On Dec 22, 2022

Microsoft Takes a Chance on Activision Good Guy Strategy Megadeal, Microsoft President Brad Smith met with FTC Chair Leena Khan earlier this month to advocate for the company’s $69 billion acquisition of video game publisher Activision Blizzard.

Mr. Smith tried to appease competitors by promising to keep Activision’s best-selling game, Call of Duty, in wide distribution, but his move was unsuccessful. Their meeting was followed by a day of legal action from Ms. Khan’s representatives to delay the megadeal.

However, Mr. Smith expressed optimism in a recent interview. At least Ms. Khan smiled when he said, “give peace a chance,” he said, even though she had declined his offer. As such, whenever one of us leaves a meeting with even the slightest smile, it gives me hope that we might meet again in the future.

Mr. Smith’s soothing words provide insight into Microsoft’s strategy moving forward with the Activision acquisition. He stated that the company has no plans to abandon purchases and will continue to operate under the assumption that its “good guy” strategy will prove successful.

The company plans to win over European regulators according to those conversant with Microsoft’s strategy. The people said that if the Activision deal were approved in Europe, it would pressure US authorities to approve the acquisition or allow a more lenient court to hear the case.

According to company representatives, Microsoft plans to respond to the Federal Trade Commission’s lawsuit on Thursday. He added that the company intends to counter the claim that the merger will benefit consumers by providing increased choice at reduced prices for video game purchases.

The FTC has recommended that the deal be halted because it poses risks to consumers. The article speculated that Microsoft’s Xbox consoles, which run on the Windows operating system, could use Call of Duty and other popular Activision titles to woo players away from competitors like Sony’s PlayStation consoles.

Since the 1990s, when Microsoft was known as the “Evil Empire” due to its strong strategy to block competitors, its culture has undergone a nearly complete transformation, including a seemingly no-compromise approach. However, since Satya Nadella took over as CEO in 2014 and Mr. Smith became Microsoft’s top lawyer, the company has made great efforts to prove it has matured.

To push the Activision deal could affect more than just Microsoft. The Federal Trade Commission’s lawsuit marks a watershed moment in the government’s investigation of major technology firms. Ms. Khan’s antitrust agenda in the case may make a successful outcome unlikely. If Microsoft cannot win approval for the deal, it will be more difficult for other tech behemoths to do the same.

Sid Parekh, portfolio manager at Baker Capital, which has invested in Microsoft, said, “They will fight it.” You’re going beyond the scope of this agreement. The FTC has been notified, so this is also a statement.

Behind the Scenes in the Video Game Industry

“They no longer want to go back and then undercut every acquisition,” he said, referring to Microsoft’s massive cash reserves of over $100 billion.

Microsoft faces a $3 billion breakup fee if it cannot close its acquisition of Activision by the middle of July. Getting approval from other global regulators, especially in the UK and the EU, is one of many remaining obstacles. The FTC would be at a crossroads if Microsoft were to settle with them formally.

The FTC has filed a lawsuit against Microsoft in administrative court, but that court lacks the authority to prevent the deal from going through. The Federal Trade Commission (FTC) must decide whether to file an injunction in federal court to block the acquisition if other regulators approve the deal. Microsoft could get a quick win in court through the injunction process.

“There is no sensible, legitimate reason to prevent our transaction from closing,” Activision CEO Bobby Kotick said in a statement on Wednesday. We know we have a strong case and will prevail based on its merits.

The Federal Trade Commission declined to comment on Microsoft’s strategy or Mr. Smith’s meeting with Ms. Khan. FTC Competition Bureau Director Holly Vedova has stated that the agency is always willing to discuss business proposals for resolving antitrust issues.

Microsoft is walking a fine line between appearing amenable to a settlement and getting ready to demolish the FTC’s case in court completely. To represent it before the FTC’s inner court, it has retained Beth Wilkinson, who became one of America’s leading corporate litigators after working on the Oklahoma City bombing case in 1995.

Mr. Smith expressed optimism that the case could be settled out of court, partly because of Microsoft’s history with antitrust enforcement.

The company adopted a “scorched-earth” strategy in the 1990s when software bundling was a common tactic to gain an edge over rivals. Microsoft co-founder Bill Gates laughed off an investigation into the company by regulators in 1992, saying, “The worst that can happen is that I fall on the steps of the FTC and hit my head.” I might as well end it all.

Two years later, Microsoft signed a federal consent accord that loosened restrictions on the software that PC manufacturers could include with their products. After an antitrust trial in 1998, it was dissolved in 2001 as part of a settlement agreement with the George W. Bush administration.

Margaret O’Mara, a professor at the University of Washington who studies the history of technology firms, said that “the trial forced Microsoft to grow, especially in terms of its relationship with regulators and institutions beyond the tech industry.”

When Mr. Smith went into interviews in 2001 to become Microsoft’s top lawyer, it was time to make peace with regulators and competitors. They hired him. After several years of negotiation, he reached legal settlements with governments and other industry players worldwide over competition concerns.

In some ways, it was a rough ride. Sun Microsystems, the server company responsible for the widely used Java programming language, spent an entire year trying to get back on track after negotiations had broken down. In 2004, Microsoft CEO Steve Ballmer was en route to Brussels to announce a deal with the European Commission when Mr. Smith received word that the commission would pre-install applications into its Windows instead. We’re filing a lawsuit against the Microsoft OS because of this. A final agreement was reached after five long years.

As promised by Mr. Nadella, Microsoft has become even more transparent since he took office. The Minecraft development team was their first major purchase, as the game provides a safe and welcoming environment for kids to interact with one another and expand their horizons in a digital setting. He forked over $7.5 billion to acquire GitHub, a platform for hosting and sharing open-source software projects.

Because of its excellent cloud computing services, Microsoft has risen to become the world’s second most valuable public company. The government pays less attention to the enterprise business driving this expansion than it does to social media or other companies catering to individual consumers.

Mr. Smith has portrayed Microsoft worldwide as a cooperative and open organization, willing to work with even the most skeptical of governments. On contentious issues like the App Store, he has advocated for rules in the middle and supported interests shared by both parties, like the widespread deployment of high-speed Internet.

Mr. Smith is well-connected in the nation’s capital. Before the FTC sued to block the Activision deal, he attended a state dinner at the White House for French President Emmanuel Macron as a bundler for President Biden’s campaign.

Microsoft took extraordinary measures after the January announcement to ease regulators’ concerns about the merger. In February, Mr. Smith and Mr. Nadella visited Washington to promote the agreement’s advantages. The company also settled with a militant labor union, which lobbied the FTC in favor of the contract. And it signed a deal to put Call of Duty on Nintendo’s Switch after assuring Sony it would remain on PlayStation for years.

According to Mr. Smith, “things moved quickly” in the weeks leading up to the lawsuit against Microsoft. According to him, the FTC’s serious concerns became apparent after meeting with Microsoft’s team.

They said no when our team asked if we could talk about a settlement offer, he said. That attempt of mine was unsuccessful.

Microsoft submitted a formal settlement offer to the government on December 6. In response to rumors that Microsoft might pull the title from rival consoles, Mr. Smith declined to specify what was included but said it addressed “all issues relating to Call of Duty.” Mr. Smith spent an hour the following day communicating virtually with all four commissioners at the agency.

The FTC commissioners voted to file suit by a 3-1 margin the following day.

However, Mr. Smith insisted that he not view the conflict as a “us versus them” scenario.

Whenever I reflect on my actions, I ask myself, “Could I have done more?” he explained. I can confidently say that “a new year begins in January.”

Kellen Browning assisted in reporting.