Microsoft and Activision executives are fighting for their $75bn in court

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Microsoft’s proposed $75bn acquisition of Activision made a last-ditch effort to save the deal in court on Wednesday in the face of opposition from the US government that could lead to it ending next week.

The acquisition of the game company could fall if the judge sided with the Federal Trade Commission, according to management and lawyers of the company in the case of civil litigation in San Francisco, which began last Thursday. The agency wants to stop the deal from closing while it pursues a similar case in administrative court.

However, testimony and questioning during the hearing raised the hopes of the deal’s supporters on Wall Street. Judge Jacqueline Scott Corley repeatedly encouraged a prominent witness called by the FTC in its review of the deal and at one point cut off the agency’s attorney during cross-examination. He also asked Microsoft’s CEO to promise that the company would grant Sony’s PlayStation a 10-year license to Activision’s most popular games, Call of Duty – the main issue in the case.

If the FTC overturns its decision on the original decision, it would file a separate case against the agency in a court of appeals. Earlier this year the commission dropped its action against Meta after failing to obtain an injunction against the company’s acquisition of the internal gaming company.

A similar outcome in the Activision case could leave the UK’s Competition and Markets Authority as the only regulator standing in the way of a deal. Closing arguments in the US case are scheduled for Thursday, and a decision could come as soon as Monday.

Microsoft CEO Satya Nadella used his 40-minute appearance in federal court to emphasize his company’s claim that video game giant Sony wanted the deal closed on competitive grounds, not because of concerns about losing access to Activision titles.

Nadella said he would “100 percent” confirm what Microsoft will do Call of Duty is available on PlayStation, saying that it was “economically unwise and unwise” to limit the game to his company’s Xbox.

Commenting on Sony’s PlayStation, he said: “The big player has defined market competition using only products, that’s the world we live in. I don’t like that world.”

In earlier testimony, the FTC pointed out how Microsoft made certain games from other acquisitions of its Xbox, even though it had predicted that it would make it more widely available. He also said that Microsoft recommended doing the same with Activision games.

In the most dramatic testimony presented at the trial, Microsoft’s attorney pointed to an email from Sony’s PlayStation chief Jim Ryan assuring a colleague that Activision’s purchase would not make its games exclusive to Xbox. In video testimony later shown at the trial, Ryan said he changed his mind after seeing the details of Microsoft’s proposed terms, and worried that PlayStation customers could be left with “degraded” versions of the game.

Many of the hearings have opened technical questions about the video game market, with the FTC saying that Microsoft will have more control over the high-performance games that dominate the Xbox and PlayStation, as well as separate markets for multiplayer subscriptions and cloud streaming.

Microsoft, in contrast, wants to portray itself as the third largest player in the large console market that also includes Nintendo’s Switch. Also, rather than separate markets, it says its Game Pass subscription service is another way to pay for games, while cloud gaming is only part of console gaming.

Defending Nadella, the FTC’s lawyer repeated his statement during the earnings call about the success of the latest Xbox console. The organization also shared its predictions for the future of cloud-based gaming. Nadella, however, said that there has been less demand for playing video games and that his definition of cloud services includes Xbox Live, which makes it possible to play with other people through the console.

In testimony provided as part of the lawsuit, the Microsoft executive singled out streaming games as a market the company should have dominated.

“It’s not possible for anyone to start a new video game project right now,” Matt Booty, head of Xbox Games Studios, wrote to a colleague in 2019, more than two years before the Activision deal. Making a case for the software company to spend more to boost innovation, he added: “We are in a very unique position to destroy Sony out of business.”

Even so, those supporting the alliance have expressed mixed support for the subscription game. Bobby Kotick, CEO of Activision, said in court that such services, which give players access to a library of games at a low price, “disrupt the economy” of games.

Commenting on the losses caused by the Hollywood movie wars, he added: “I really hate the idea.”