Microsoft acquiring Activision will be good for gaming and everyone, Satya Nadella tells US court

During his testimony on Wednesday in a San Francisco federal court, Microsoft CEO Satya Nadella expressed his belief that the proposed acquisition of Activision Blizzard for $69 billion would benefit the gaming industry.

Nadella defended the deal against regulatory opposition, emphasizing his aim to expand the availability of Activision games across multiple platforms, similar to Microsoft’s success with its software products. Nadella stated his admiration for Activision’s console, PC, and mobile games, noting that Microsoft currently has limited involvement in the mobile gaming sector.

During the courtroom proceedings, U.S. District Judge Jacqueline Scott Corley injected a moment of humour by asking Nadella if he plays Candy Crush, Activision’s well-known mobile game. Nadella’s responded yes, which elicited laughter from those present.

Important hearing for the FCC as well as Microsoft
This hearing serves as a significant test for the Federal Trade Commission (FTC) under the leadership of Chairperson Lina Khan, who has expressed a more stringent approach towards regulating Big Tech. Khan has criticized previous deals that contributed to the growing power of companies like Amazon, Google, and Facebook, deeming the regulatory response too lenient. Microsoft’s legal confrontation with the FTC comes after the agency’s unsuccessful attempt to prevent Facebook’s owner, Meta Platforms, from acquiring a virtual reality fitness company, a case that was ultimately rejected by the judge in Silicon Valley.

Microsoft’s pursuit of the Activision Blizzard deal initiated 17 months ago, aims to broaden its presence in the video game industry beyond the Xbox platform. With Xbox holding roughly half of the market share compared to industry leader Sony and its PlayStation device, Microsoft hopes to expand its video game imprint through this acquisition.

Nadella aimed to alleviate concerns in the court by emphasizing that Microsoft has no intention of excluding PlayStation users from accessing popular Activision games by making them exclusive to the Xbox system. This statement aimed to undermine a crucial argument presented by the U.S. Federal Trade Commission, which asserts that the acquisition would negatively impact competition.

In his testimony, Nadella referred to Sony, the maker of PlayStation, highlighting that they have established a market approach centred around creating exclusive premium games.

Microsoft pledges unequivocal support for other platforms
Nadella emphasized Microsoft’s unequivocal support for the Sony platform, mentioning a conversation he had with Sony’s CEO soon after the acquisition announcement, reaffirming their commitment to collaboration.

During his testimony, Activision CEO Bobby Kotick echoed Nadella’s sentiments, asserting that there is no business incentive to deprive Microsoft’s gaming competitors, such as Sony, of popular titles like Call of Duty. Kotick emphasized that such a move would alienate the dedicated fanbase of the franchise.

He argued that it would be illogical to make Call of Duty exclusive to Microsoft’s Xbox console or to deliver subpar versions of the game on other platforms, like Sony’s PlayStation. Kotick stressed that removing the game from PlayStation would significantly damage the company’s reputation, and creating an inferior version for PlayStation would result in backlash from gamers. He stated that it is not something Activision developers would consider.

The testimonies of both CEOs took place on the fourth day of the court hearing in San Francisco. The Federal Trade Commission (FTC) is attempting to convince Judge Corley to issue an order that would halt the completion of the takeover until a more extensive administrative trial begins on August 2 in Washington. Microsoft is striving to finalize the deal before a July 18 deadline, as failing to do so could trigger a $3 billion breakup fee payable to Activision.

Acquisition will ensure Activision games reach a wider Audience
Microsoft has promoted the acquisition of Activision Blizzard as a means to enhance the accessibility of popular Activision games, including Call of Duty, to a wider audience.

While Activision CEO Bobby Kotick has been leading the company since 1991, he expressed some reservations about certain aspects of Microsoft’s plans during his questioning by an FTC lawyer. Specifically, he revealed his aversion to multi-game subscription services, such as Xbox Game Pass, which Microsoft intends to bolster with more Activision games after the acquisition. Nevertheless, Kotick acknowledged that his disagreement was more of a philosophical nature, stating, “I can have a philosophical disagreement with the way that Microsoft approaches its business.”

Sony gaming executive Jim Ryan also testified through a pre-recorded video deposition. Ryan initially expressed minimal concern about the acquisition after holding private discussions with Kotick and Xbox chief Phil Spencer. However, Ryan later developed the belief that Microsoft would exploit the popularity of Call of Duty to disadvantage PlayStation users, potentially leading to a diminished gaming experience for them. Ryan emphasized the potential harm to Sony arising from players abandoning their platform in favor of Xbox.

Microsoft has accused the FTC of disregarding the pressures that its gaming division will face in delivering profit margins that justify the substantial price paid for Activision. The testimony this week has involved economists from both sides presenting conflicting forecasts regarding the impact of the merger on the industry. The judge questioned whether Call of Duty’s exceptional popularity and significance in the case might set this acquisition apart from other deals within the gaming industry.

Microsoft highlighted its commitments to making Call of Duty available on Nintendo’s Switch console and an NVIDIA gaming subscription service as evidence of the benefits the Activision deal would bring to consumers. Additionally, Microsoft attempted to present evidence suggesting that Sony is attempting to thwart the deal in order to preserve its dominant position in the console market.

The proceedings are expected to conclude on Thursday. The UK.’s Competition and Markets Authority has also taken action to impede Microsoft’s takeover, adding to the regulatory challenges faced by the company.

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