Can big tech get bigger? Microsoft presses governments to say yes

In recent weeks, Microsoft has accused Sony, its chief video game rival, of misleading regulators. Its lawyers have showed off game consoles, including an Xbox, to British officials. And the president of a major union that Microsoft wooed has spoken up on the company’s behalf to the Federal Trade Commission.

The actions are part of a campaign by Microsoft to counter intensifying scrutiny of its $69 billion acquisition of video game publisher Activision Blizzard, the largest consumer technology deal since AOL bought Time Warner two decades ago, and far bigger than Elon Musk’s recent $44 billion buyout of Twitter.

Microsoft’s aim is simple: Persuade sceptical governments around the globe to approve the blockbuster takeover. Sixteen governments must bless the purchase, putting Microsoft under the most regulatory pressure it has faced since the antitrust battles of the 1990s. And in three key places — the United States, the European Union and Britain — regulators have begun deep reviews, with the European Commission declaring this month that it was opening an in-depth investigation of the deal.

Whether Microsoft succeeds in gaining regulatory approval to buy Activision, which makes games such as “Candy Crush” and “Call of Duty,” will send a message about Big Tech’s ability to expand in the face of mounting fears that industry giants wield too much power. If Microsoft, whose public affairs operation has spent the past decade building the company’s nice-guy reputation, can’t get a megadeal through, can anyone?

“If this deal had happened four years ago, this would hardly be of any interest,” Brad Smith, Microsoft’s president, said in an interview. “If one cannot do something easy, then we’ll all know you can’t do something hard.”

Google, Meta, Amazon and Apple have all faced increasing accusations that they are monopolies, and regulators have tried to block some of their smaller deals. In July, the FTC sued Meta, Facebook’s parent company, to stop it from buying Within, a virtual reality startup. Last month, Britain forced Meta to sell Giphy, an image database it bought in 2020 for $315 million.

At the heart of regulators’ concerns about the Activision deal is whether it violates antitrust laws by giving Microsoft outsize power in the video game industry. They worry that Microsoft could pull Activision’s games away from competitors like Sony or use them to get an unfair leg up as more gaming is streamed online.

Smith said Microsoft was open to formally agreeing to place limits on its business practices to resolve antitrust concerns. But the United States and other countries increasingly see such promises as insufficient unless a company spins off part of its business.

Microsoft’s deal for Activision will demonstrate whether tech giants can navigate the new environment, said William E. Kovacic, a former FTC chair. “It’s a fundamental test,” he said.

The road ahead appears long. Of the 16 governments reviewing the deal, just Saudi Arabia and Brazil have approved it. Microsoft said that it expected Serbia to approve the deal shortly.

The most crucial regulators appear sceptical of the tech giants. The FTC is led by Lina Khan, a legal scholar and notable critic of Amazon. The European Commission has fined Google for violating antitrust rules and has opened an investigation into Microsoft’s cloud service. In Britain, the Competition and Markets Authority has become increasingly hostile to corporate deals.

In a statement, the Competition and Markets Authority said it would release its findings on the deal in the “new year.” The European Commission said its investigation is “ongoing.” The FTC declined to comment on the deal.

When Microsoft closed its $26 billion purchase of professional networking service LinkedIn in 2016 — at the time its largest acquisition — the deal required just six government approvals.

The Activision deal is “substantially more resource-intensive,” Smith said.

Obtaining approval for the acquisition is critical for Microsoft. Gaming has become its most important consumer business, surpassing $15 billion in annual sales largely under the Xbox brand. The compensation for Satya Nadella, Microsoft’s CEO, is partly tied to the growth of Game Pass, the company’s Netflix-like subscription service for gaming. And Microsoft agreed to pay Activision as much as $3 billion if the deal fell apart.

Activision also needs the sale to go through. It was in distress a year ago, with a falling share price as it dealt with revelations of sexual misconduct and worker unrest.

Bobby Kotick, Activision’s CEO, said in an interview that he had a “high degree of confidence that the regulators will be thoughtful about evaluating the industry.” He added, “I have no reason to believe that we won’t ultimately be successful in the transaction.”

Microsoft’s deal for Activision was unveiled on January 18. In February, Smith and Nadella met with officials and people working at think tanks in Washington to position the purchase with the public. During a meeting with reporters, Nadella said the acquisition would benefit gamers by providing “more choice so they can play any game on any platform.” Courts regularly look at whether a merger will benefit consumers.

Several senators asked the FTC to closely examine the acquisition’s impact on workers. The Communications Workers of America, which had been organizing at Activision, also publicly questioned the deal. Khan, the FTC chair, has taken a greater interest in scrutinizing how mergers could hurt workers.

Smith asked lawmakers and government leaders for advice on addressing the labor concerns.

In June, Microsoft hammered out an agreement with the CWA, promising not to oppose unionisation at Activision. The negotiations involved “more lawyers than a lawyer convention,” Chris Shelton, the union’s president, said in an interview. The concessions turned the union into supporters of the deal.

Last month, Shelton met with Khan and praised Microsoft’s commitment to remain neutral in union campaigns and said the deal should be approved.

“The FTC told me, ‘A lot of companies promise lots of things, then they never keep their promises,’” he recalled. He said he told the agency that the agreement was rock solid, and in writing.

A spokesperson for the FTC said agency officials had offered no opinions on the deal or the labour agreement in the meeting.

(David McCabe reported from Washington, and Karen Weise from Seattle)