Microsoft-Activision Deal Can Move Forward Transcript

Well, Microsoft and Activision Blizzard clearing a big hurdle. Just days before their merger is scheduled to close, the US judge rejecting the FTC’s attempt to block the $69 billion deal. You’re seeing the reaction in shares of Activision today up almost a 10%. Yahoo Finances’ Alexis Keenan and Daniel Howley joining us now to discuss what exactly this means and the next steps forward for this merger.

(00:23)
Alexis, let’s start with you though, breakdown exactly what was in today’s ruling.

Yeah, so Seana, what the FTC is hearing here from this federal judge is that it’s a no to an injunction request that it had made. It wanted, the agency wanted this deal to be paused while it continued to review this deal, saying that the July 18th deadline, it should not go forward at that time. But judge not siding with that. And this was a really closely watched decision. And the reason is because is expected to make or break the broader entire $69 billion deal. Now, listen to the way that the judge phrases her ruling here, and this is really important. She says, “The FTC has not shown it’s likely to succeed on its assertion that the combined firm will probably pull Call of Duty from Sony PlayStation.” So Activision’s Call of Duty game there with a promise from Microsoft that it will not pull it from Sony PlayStation for about 10 years.

(01:22)
The judge goes on to say, “Or that it’s ownership, Microsoft’s ownership of Activision content, will substantially lessen competition in the video game library subscription and cloud gaming market.” So a ton of clarity there on how the federal court views this transaction as a whole because injunctions here are only granted if the judge finds that the moving party, that’s the FTC here, is likely to succeed on the underlying case. So just getting so much information here from that ruling. But of course it’s not the end here. The FTC still has its antitrust suit to block the deal going forward, but this certainly opens up the possibility that now Microsoft might be able to start engaging with the FTC in some negotiations now that it’s position is significantly weakened.

And Dan, we heard from Activision, their spokesperson coming out with a pretty strongly worded statement saying that the judge’s ruling rejects the FTC’s ideologically driven attempt to prevent the deal that they say benefits gamers. At the core of this, was Microsoft’s attempt to expand their portfolio, particularly in mobile gaming as well, I mean, how do you think this hurdle and potentially the closure of this, what does that mean for this sector as a whole?

Yeah, I mean, look, this is something that we’re really not sure how this will all shake out. The mobile portion of this for sure is big for Microsoft. They really don’t have any kind of skin in the mobile game as far as the ability to draw users. That’s a big portion of this. There’s kind of three parts to this deal. There’s the Call of Duty aspect, which is a huge franchise. Microsoft said they’ll allow it to continue to exist on PlayStation. They said they’ll get it on Nintendo, though the Switch really can’t support a game of that caliber at this point and on NVIDIA’s cloud gaming platform. Then there’s a cloud gaming aspect, which is part of Microsoft’s subscription service Game Pass, that is something that this deal will help kind of grow over time. And then there’s the mobile aspect.

(03:30)
And so mobile and cloud gaming kind of go together because when you’re on mobile, you can game via the cloud. That’s the whole point of cloud gaming, is to be able to play these big name console titles that require tons of power over the cloud on relatively low power devices like smartphones, Chromebooks, your smart TV. And the idea here is for Microsoft to eventually reach gamers throughout the world who don’t necessarily have the money to pay for a high-end console or gaming PC, but do have mobile phones and are willing to sign up for a subscription service. So they would be able to get mobile as well as cloud. And that’s really where they’re kind of angling this.

(04:10)
So it’s not necessarily about the exclusivity of Call of Duty, or the head of PlayStation had said this is an exclusivity deal that came out in the hearings for the temporary restraining order. But the big deal here is the cloud as well as mobile. And if Microsoft gets this through and they get King, which is part of Activision Blizzard King, they will have a huge stake in mobile gaming going forward. They’re the folks that run Candy Crush. So I mean, you add that with some Call of Duty mobile, and that’s a whole heck of a lot of people.

Alexis, what about just the consequences for the FTC more broadly when we take into account what they have done under Lina Khan being very aggressive, trying to reign in large mergers, the fact that they were not successful at least for now on this. What does that tell us just about the M&A deals that maybe we could see return to the market ahead?

Yeah, Lina Khan certainly has a very aggressive approach to going after these big tech companies. But a lot of these deals, apples and oranges in terms of how the legal arguments go. But this absolutely shows that the FTC does not have a slam dunk. It must come to court and it must present arguments that show that these alleged antitrust problems are in fact going to be a problem in definitive markets. But look, the FTC also brought this case in its in-house court system. A lot of legal experts tell me that if the FTC was really serious about wanting to challenge this deal, it would’ve done it in federal court. And on top of all of that, the Supreme Court has not looked very favorably upon the weight of some of these deals that are handled by an administrative judge, that would be this in-house court system. So perhaps the FTC will have to take that into consideration as they go forward with potentially other challenges.

All right. We will see how all of this plays out. Alexis and Dan, thanks so much.