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[MarketWatch] Microsoft faces battle for Activision deal, especially if ‘Call of Duty’ is destined for Xbox exclusivity


Record-breaking tech acquisition is likely to face regulatory scrutiny, as Microsoft could turn popular Activision game into exclusives for it's own platforms.
Microsoft Corp. has received a pass from regulators keen to take on Big Tech in recent years, but it may have just forfeited that pass by making a run at the biggest tech acquisition in history for a company fraught with issues.

The software behemoth plans to purchase troubled videogame maker Activision Blizzard Inc. (ATVI, +25.88%) for $68.7 billion in cash, which would exceed Dell’s deal to buy EMC for $67 billion in 2015 as the largest tech deal ever. While antitrust scrutiny has kept companies like Facebook parent Meta Platforms Inc. (FB, -4.14%) or Google parent Alphabet Inc. (GOOGL, -2.50%) (GOOG, -2.50%) from making such a deal, Microsoft has largely escaped such scrutiny.

Dan Ives, an analyst with Wedbush Securities, said that Microsoft (MSFT, -2.43%) is taking advantage of being currently out of regulators’ viewfinder, as they have been focused on making cases against Facebook, Google, Apple Inc. (AAPL, -1.89%) and Amazon.com Inc. (AMZN, -1.99%).

“[Microsoft Chief Executive Satya] Nadella saw a window to make a major bet on consumer while others are caught in the regulatory spotlight and could not go after an asset like this,” Ives said in a note to clients early Tuesday.

But it’s unclear if even Microsoft will be able to swallow a deal like this. Activision’s shares closed at $82.31 on Tuesday, well short of the $95-a-share price Microsoft agreed to pay, a sign that Wall Street believes this deal could hit a wall with regulators. Cowen analysts on Tuesday said that the gulf between the acquisition price and the going rate means that “the market appears to be pricing in a roughly 1-in-3 probability that the deal gets blocked.”

In regards to the antitrust threat, many analysts pointed out that after the acquisition of Activision, Microsoft would still be the third-largest videogame company globally, trailing China’s Tencent Holdings (700, -0.27%) and Japan’s Sony Group (6758, -12.12%). While this suggests that the merger would not give Microsoft a dominant position in the videogame industry, it could still seriously alter the dynamics of the entire industry.

As a content creator, Activision designs games for all the top gaming platforms, including Sony’s PlayStation. The most important competitive advantage that the purchase of Activision could give Microsoft is the ability to give preferential treatment to its own system when releasing popular games such as “Call of Duty,” an Activision product that is one of the best-selling videogames in the world.

Sony and other gaming platform owners could argue that Microsoft’s giving preference to its own platforms with Activision’s vast array of games, and especially the most popular ones, could hurt consumers. And some analysts expect Microsoft to attempt to do just that, including making popular games exclusive for its own platforms and shutting out competitors.

“Ultimately, we think Microsoft’s goal is to take Activision’s key console franchises away from Sony (and other would-be platform competitors such as Google or Apple) and thereby improve its competitive positioning,” the Cowen analysts argued. “While Microsoft indicated that ‘Activision Blizzard games are enjoyed on a variety of platforms, and we plan to continue to support those communities moving forward,’ if we were a PlayStation owner, we wouldn’t take a lot of comfort from that imprecise statement.” Cowen’s analysts believe that Sony will likely take legal action to support blocking the deal, as well as look for a blockbuster deal of it own.

Similar concerns have also hung over Nvidia Corp.’s (NVDA, -3.86%) $40 billion proposal to buy ARM Holdings Plc. from Softbank Corp. Because ARM designs and licenses chips that are used by over 500 companies, including some of Nvidia’s rivals, some regulators and critics fear that ARM will lose its neutral industry stance. That deal has still not been approved and many on Wall Street believe it is unlikely to get a green light. Microsoft officials, for their part, only mentioned regulatory approval as needed prior to closing in a timeframe of sometime in 2023, and the company did not take any questions on its brief conference call with analysts early Tuesday. A chorus of outside voices have already called for regulators to stand in the way of the deal, as gamers lament the possibility of losing access to their favorite titles.

“Once again, Microsoft, one of the biggest of the Big Tech companies, is shamelessly gobbling up a competitor to try to strengthen its market position,” Alex Harman, competition policy advocate for Public Citizen, said in a statement to MarketWatch. “No way should the Federal Trade Commission and the U.S. Department of Justice permit this merger to proceed. If Microsoft wants to bet on the Metaverse, it should invest in new technology, not swallow up a competitor.”

Plenty believe the deal will go through, though. Kirk Materne, an analyst with Evercore ISI, wrote Tuesday that “clearly the biggest question” surrounding the deal relates to the regulatory process, but also stated why he thinks the deal will ultimately pass muster, “though it could be a long process.”

“While this deal will get plenty of attention from lawmakers given its size, gaming is a very competitive market that spans across a number of paradigms from mobile to PCs to consoles,” he wrote, adding that Microsoft has demonstrated in past deals that it can promote an open ecosystem for gamers and content, such as in its acquisition of Mojang Studios, the creators of “Minecraft,” in 2014.

Competitive concerns are far from the only worries about this deal, which involves the acquisition of a company torn apart by its culture of sexual harassment by a company reckoning with its own past. In late November, Phil Spencer, Microsoft’s head of Xbox, said the company was “evaluating all aspects of its relationship with Activision Blizzard” after the Wall Street Journal reported that CEO Bobby Kotick knew about misconduct for years,but Microsoft recently began its own inquiry into sexual-harassment guidelines after embarrassing reports about founder Bill Gates.

If the software giant passes the antitrust test, which is far from guaranteed, then it would be allowed to combine Activision’s “frat boy” culture with its own questionable workplace climate. It seems like an expensive gamble that Microsoft will be able to withstand the regulatory heat that it has been fortunate to avoid so far, all for the rights to spend billions on a potentially toxic asset.
EDIT: Thanks to GHG GHG for this, Financial Times explains in much more detail the amount of scrutiny the Microsoft - Activision | Blizzard deal's about to go through:
Lots of unfounded dismissal in this thread. Look at the price ATVI is currently trading at. If you're so confident then put all your money into the stock, it'll be free money (~13.5%). This article from the FT is far more comprehensive than the market watch article:
The biggest deal in Microsoft’s history is set to become a test case for the leaders of US antitrust agencies who have vowed to tackle Big Tech’s market power.

Microsoft is bracing for intense regulatory scrutiny, with its agreed $75bn acquisition of video game maker Activision Blizzard set to be under the microscope of progressives appointed to leading antitrust roles in the Biden administration. They include Lina Khan at the US Federal Trade Commission and Jonathan Kanter at the US Department of Justice.

“Microsoft is fully aware that it won’t be a breeze even if there is no obvious antitrust violation,” said a person with direct knowledge about how the company’s M&A team is preparing to get the transaction approved.
The fear inside the tech group is that Khan will use this transaction to prove she is serious about taking on Big Tech, the person added. Activision’s investors appear to share such concern, as the company’s stock price is trading at a 13.5 per cent discount to Microsoft’s $95 a share all-cash offer.

“This is an ideal opportunity for the antitrust agencies to act on the view of their leaders that the courts have been too lenient in allowing consolidations in many industries, particularly the tech sector,” said Bill Baer, visiting fellow at the Brookings Institution and former head of the DOJ antitrust division.

The FTC and DOJ declined to comment on whether they would probe the megamerger. Which agency would potentially investigate the deal also remained unclear. Bobby Kotick, chief executive of Activision, has played down the risk of regulatory pushback, as tech behemoths such as Apple and Google also exploring gaming.

Responding to the calls for regulatory action, Microsoft said that the games market would still be “diverse and fragmented” even after its deal and took swipe at some of its biggest tech rivals.

“Mobile game distribution runs through Apple and Google, who can generate more money from consumers who purchase games than the actual studios and developers who make the games,” said Microsoft.

It added that it had “no intention of withdrawing games from existing platforms, and our strategy is player-centric — gamers should be able to play the games they want where they want. We believe this acquisition will only increase competition, but it is ultimately up to regulators to decide.” But antitrust experts argue that federal agencies will be taking a very close look given the focus of their leaders, the size of the takeover and the potential harm to others in the gaming industry.

Khan says the deterring factor provided by taking action is “key” in enforcing competition law. The FTC chair on Wednesday told CNBC that illegal mergers have been pursued in the past “because the consequences of proposing those deals have not been significant... the kind of deterrence that we need to see in order to change the game, we’re not seeing.”
The Microsoft deal was announced on Tuesday just hours before the FTC and DOJ said they would seek input from the public on revamping merger rules to crack down on illegal deals amid a surge in transactions. Merger filings more than doubled between 2020 and 2021, the agencies said. Herbert Hovenkamp, professor at Penn Law at the University of Pennsylvania, said that while it is too early to predict the complexity of a potential case against the transaction, “new merger laws [are] made by close calls, not by the easy cases.”

A probe into the acquisition would signal that agencies are keen to apply to Microsoft the level of scrutiny they have so far reserved for other tech companies.

“Big Tech has been in the crosshairs for the past couple of years,” said Michael Carrier, law professor at Rutgers University. “Microsoft has seemed to avoid the crosshairs, but in a deal like this they might find themselves in that position.”

An investigation would mark the biggest antitrust action against Microsoft since US authorities sued the company two decades ago in what became known as the “antitrust case of the century.” The government won after accusing the group of using its Windows monopoly to crush web browser pioneer Netscape.

“The question is whether we would have seen the growth and success of this next generation internet companies if the Department of Justice hadn’t taken the action,” Khan told CNBC of the 1998 lawsuit. “In that case, enforcement was critical to oxygenate the market and make sure that those opportunities were there.”

The Microsoft-Activision deal would not represent the sort of straightforward market share concerns that prompt most antitrust enforcement. Instead, as a “vertical merger” combining the software group’s distribution systems and the video game maker’s content, it would present a more challenging case. A challenge from the antitrust agencies could help them shape rules around vertical mergers — one of the topics on which they are seeking information — after the FTC last year withdrew 2020-vintage guidelines for these types of tie-ups for being too lax.

If agencies sued to block the transaction they could argue, for instance, that Microsoft could “disadvantage competitors” by having Activision’s popular games Call of Duty or World of Warcraft only played on its own Xbox and not on Sony’s PlayStation, Carrier said.

While cases against vertical mergers are among the most challenging to win, they have started to pick up in recent years amid tougher antitrust enforcement. “This will be an interesting test case to see whether the agencies are willing to challenge a merger that presents these vertical questions in the video game industry,” Carrier added.
A recent challenge by US agencies to vertical mergers has been unsuccessful. The DOJ in 2019 failed to block AT&T’s $80bn acquisition of Time Warner after a US federal appeals court ruled against the department.

But Khan appears unfazed by the prospect of the FTC losing in court, telling CNBC on Wednesday that “even if it’s not a slam dunk case, even if there is a risk you might lose, there can be enormous benefits from taking that risk . . . You lose all the shots you don’t take.”

The $75bn acquisition could turbocharge the growing co-operation between regulators on both sides of the Atlantic, which according to Margrethe Vestager, the EU’s competition chief, was triggered by Khan’s FTC appointment. Baer said: “I would expect in particular Europe, the US and the UK to co-ordinate closely on their reviews and on any possible outcomes . . .[for] these sorts of mergers which have worldwide implications.”

Having escaped regulatory scrutiny for years in Brussels, Microsoft could face lengthy probes as EU officials take a close look at its acquisition, said multiple people with direct knowledge of the transaction.

EU regulators are expected to dig into potential anti-competitive issues based on the size of the deal alone, said one adviser. “It is just too big to be ignored,” the person said.
Lina Khan is looking to stamp her feet and EU regulators will also be looking into it.

Here's the interview with Lina Khan (starts 6 minutes in):

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Gold Member
IIRC, AT&T and Time Warner's $85 billion merger was blocked by the government though it eventually went through.

$70 billion is a lot of money and it might face some scrutiny but I doubt anything will come from it.
It’s not related to money at all, and in here monopoly power is a LOL argument, especially since the games release on PC.

I cannot wait for the argument that all the Billies and Timmies not enjoying their Call of Duty on their PlayStation and daily dose of harassment is somehow abusing monopoly power.

As for the shares tanking - investors have given Microsoft a pass with their gaming initiatives as pet projects, basically ‘we don’t believe in Xbox and gaming, but since it is such a small part we let you guys play’. Now 70 billion in cash that can be spend on their more core activities will raise some heads - some people would never agree to this on principle that games = kids, and here we are big software company doing cloud, ML, etc.
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Gold Member
IIRC, AT&T and Time Warner's $85 billion merger was blocked by the government though it eventually went through.

$70 billion is a lot of money and it might face some scrutiny but I doubt anything will come from it.
And that's even worse because anytime telecom companies start buddying up, every government red flags it as a start, since in many cities you only have a handful of providers where its all or nothing, and govs dont want corporations controlling too many TV channels. It's not like gaming where you got another 2000 games to pick from.

But if that even got through, I dont see how Call of Duty will be the make or brake product for a merger.
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Gold Member
Let’s see how it pans out but I’m still convinced Microsoft wouldn’t block CoD from PlayStation, it’ Just won’t get the maps first or exclusive modes. These will go to Xbox for a year minimum etc to pass the pain back to Sony. Plus the games will be on gamepass day one. Which would be huge.
Give me a break. As if the FTC or any other hack US regulatory agency has the fortitude to do what they were sanctioned to do.

I honestly feel these regulatory bodies sometimes just sue or try to block something to try to explain their existence. Case in point the suing of Penguin Random House's acquisition of Simon & Schuster.

And the existence of modern Disney is my rebuttal to this clickbait.
And that would be a bad rebuttal, but I get your point.


Honestly reading that was cringe at times, it reads like it came from one of a certain group on this forum lol.
I'll cut my finger off live on Gaf if this deal doesnt go through. What a load of bollocks.:messenger_tears_of_joy:
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Just keep it cross platform, make it run like shit on playstation, require a microsoft online ID, and change all the gun names and call it "Hero Gun Squad" (but we all know it's really call of duty).


Just keep it cross platform, make it run like shit on playstation, require a microsoft online ID, and change all the gun names and call it "Hero Gun Squad" (but we all know it's really call of duty).
Nah they were being vague on purpose with their wording, they did the same thing with Bethesda when that deal was announced.
Once any Activision/Sony deals run out, COD will be Xbox/PC only imo.


Quoted for later use..... :messenger_beaming::messenger_ogre::messenger_fistbump:


I wouldnt read much into this author's hit piece as she's making subjective comments and somehow intertwining sexual harassment issues into an acquisition deal.

Check out her other clickbaity articles.

There are 2 paragraphs about it (out of 16?) and yes the sexual harassment lawsuits did lower the company's value and whomever buys it will have to pay for the damages if they lose in court or reach an agreement.
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Report me if I continue to console war
The article seems like a case for why the deal will go through.

I personally think it will go through because theres still plenty of other devs that could be acquired, xbox is in 3rd placeand its better an American company owning acti-blizz then a Chinese company.

I wonder what the judge will be like I remember in the apple vs epic trial the judge did not know that much about videogames, on paper acti-blizz has 9 studios and a collection of I.P, it would bring Xbox's studio count to 32, 15 more then there competitor sony who has 17.

I dont see anything unfair about this, Microsoft are aquiring studios in order to provide games for there netflix style sub service "gamepass".


Regulatory authorities have become much more strict these days so all previous deals cited as an example may not be applicable in this case.

I hope European authorities take them to cleaners even if deal eventually go through. US authorities i have no hope they will do anything as they have allowed Microsoft to get away with much bigger violations before


Ultimately they will let them through because that place is corrupt itself. At best they will put on a dog and pony show for us and may demand a little money under the table from MS.


The best thing that can come from this is Xbox gets shitty CoD exclusively which forces Sony to finally revive SOCOM out of pressure like they should have years ago.

Blood Borne

All this talkil about PlayStation and CoD but you guys are missing the elephant in the room. Candy crush will be a windows phone exclusive
Virtually impossible. Kinda like Minecraft, keeping it exclusive will hurt the game and its revenues because games don’t have the persuasive power to make people to switch to different phones or desktop os.


Virtually impossible. Kinda like Minecraft, keeping it exclusive will hurt the game and its revenues because games don’t have the persuasive power to make people to switch to different phones or desktop os.
Think or hope the op was being sarcastic.

I do wonder how much more interested MS in the anti-trust bills passing through Congress that's currently applicable to mobile app store owners.


Gold Member
This isn't the only article saying these things so no idea why folks are throwing rocks at this author.

"I strongly suspect that both Microsoft and Activision know that a deal of this size in an industry that has never experienced one like it before will get a closer look by acquisition regulators, which means it will take more time. It doesn’t mean that the deal will get blocked (and indeed Microsoft likely wouldn't announce it in such a fashion if they anticipated a block), but it also doesn’t mean it won't."

Microsoft's Activision Blizzard Acquisition Likely To Be Scrutinized By Regulators, Says Legal Expert

"But there are complicated relationships here that regulators will no doubt scrutinize. For instance, Activision (ATVI) games like Call of Duty are popular on the Sony PlayStation platform, the primary rival to Microsoft’s Xbox game console. It is likely that regulators will want assurances that Microsoft won’t limit Activision games to Xbox. And there are good reasons to ask the question—you can’t play Microsoft’s popular game Halo on a PlayStation, for instance."

Microsoft Is About to Get a Close Look From Regulators. Its Free Pass Is Over.
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Blood Borne

The best thing that can come from this is Xbox gets shitty CoD exclusively which forces Sony to finally revive SOCOM out of pressure like they should have years ago.
Whether they revive SOCOM or not, one thing for sure is Sony has to get/create a flagship FPS as soon as possible because right now, MS has Halo, COD, Wolfenstein, DOOM, etc as exclusives. That is major, pretty much guarantees them NA market domination.
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