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Microsoft says it may abandon Activision deal if judge delays it

First day of week-long hearing that could decide Microsoft’s outcome $70 billion acquisition Video game giant Activision Blizzard opened Thursday with a promise from Microsoft: If a federal judge grants an injunction that would delay the deal’s conclusion, Microsoft could abandon the deal altogether.

“That will decide whether the deal goes forward,” said Beth Wilkinson, Microsoft’s lead attorney. He said the loss could force the company into a “three-year administrative nightmare” that would sink the transaction, which is expected to close by July 18.

That set the stakes up for a hearing in the US District Court in San Francisco, where the Federal Trade Commission began laying out its case that Microsoft’s acquisition of Activision — and its popular games like Call of Duty — would be disastrous for the video game industry. .

The FTC is seeking a preliminary injunction from Judge Jacqueline Scott Corley, which would prevent Microsoft from completing the deal before the FTC has had a chance to argue the case in its internal court.

The clash is being seen largely as a test of whether recent efforts to more aggressively curb the power of tech giants around the world will be successful. Leena Khan, FTC chairhas argued that large tech companies have enormous influence over online commerce and communications, allowing them to engage in anti-competitive practices that harm consumers.

FTC lead counsel James Weingarten told the court on Thursday, “If the deal is completed, the combined company will likely have the ability and incentive to harm competition in various markets related to consoles, subscription services and cloud computing.” ” ,

Mr Weingarten said Microsoft could make Activision’s games exclusive to its Xbox console, or reduce their quality on other platforms to make the Xbox more attractive to gamers. He pointed to Microsoft’s $7.5 billion purchase of ZeniMax Media and its game studios in 2020, after which Microsoft made some of those games exclusive to Xbox. The FTC pointed to an agreement between Disney and ZeniMax to produce a game about Indiana Jones for multiple consoles. After Microsoft purchased ZeniMax, the agreement was amended and the game became exclusive to Xbox. It was a sign the FTC was arguing that Microsoft could make future Activision games exclusive to Xbox, even amending existing deals to do so.

The FTC has argued that adding Activision’s games to Microsoft’s portfolio would give it an unfair advantage in the emerging market for cloud gaming.

Sony, which makes rival PlayStation consoles, has been an outspoken critic of the deal, and has said PlayStation gamers could lose access to Call of Duty — a massive franchise that has generated more than $30 billion in lifetime revenue — If Microsoft decided to make the game exclusive to Xbox. Microsoft has denied that it will do so.

Microsoft said the Activision deal would be good for consumers, giving them the ability to play Activision’s games through Microsoft’s Xbox Game Pass, a subscription service, or through low-cost alternatives through platforms from other companies such as Nintendo and Nvidia. Will expand, with which it has made deals.

Ms Wilkinson also argued that it would be futile for Microsoft to remove Call of Duty and other titles from the PlayStation as the company would stand to lose a substantial portion of the game’s revenue. He said that Sony has become the “chief complainant” in the matter, and pointed to an email from Sony’s chief executive, Jim Ryan, which explained that he didn’t really believe Microsoft would shelve Call of Duty. Microsoft also pointed to its acquisition of Mojang, which produces Minecraft. This has continued to allow Minecraft to be available on all platforms.

In another lawsuit, the FTC has accused Facebook parent company Meta of leaving behind new competitors when it bought Instagram and WhatsApp. on wednesday it sued amazon over allegations that the company tricked users into signing up for its Prime membership service. But the FTC has setbacks: It’s challenge to its purchase of Meta’s virtual reality start-up got separated after a judge refused to block the deal from closing this year.

The FTC initially challenged Microsoft’s bid for Activision using an in-house court. But that court does not have the legal authority to stop the deal. The FTC asked a federal court to intervene this month, saying it feared Microsoft would try to complete the deal despite legal challenges.

Judge Corley’s court hearing could be a decisive test for the FTC. If Microsoft wins, it will signal that there are weaknesses in the FTC case and could cause the agency to drop its challenge to the deal. But an FTC victory would signal that its broader challenge has footing, and it could put new pressure on Microsoft and Activision to reconsider the multibillion-dollar corporate marriage.

Although most governments around the world, including the European Union, have approved the acquisition, Microsoft suffered a setback in April when a British regulatory authority blocked it. That decision is subject to appeal.

Microsoft Chief Executive Satya Nadella and Activision Chief Executive Bobby Kotick are among the high-profile list of witnesses testifying before Judge Corley next week. Mr. Ryan, Chief Executive Officer of Sony, will appear via a pre-recorded video statement.

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