Big Stories of 2023: The Microsoft-Activision Blizzard Deal

Nearly two years after Microsoft announced its intention to acquire video game company Activision Blizzard, it sealed the deal. But it wasn't a sure thing. We look back on how government officials around the world nearly prevented the merger and why. 

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Episode Transcript

Speaker 1 (00:04):
Welcome to Tech Stuff, a production from iHeartRadio. Hey there,
and welcome to tech Stuff. I'm your host, Jonathan Strickland.
I'm an executive producer with iHeart Podcasts and How the
tech are you? So as twenty twenty three winds down,
we're looking back on some of the big tech stories

(00:24):
that happened this year. I mentioned this one a few times,
but I figured it would be better to do a
full look back on Microsoft's acquisition of Activision Blizzard, which
actually obviously stretches back more than a year. It was
never a guaranteed deal and there was a significant amount
of opposition to it all around the world. So today
we're going to look at how the story began and

(00:47):
how it unfolded, as well as we'll speculate a little
bit about the future now that the two companies have
put ink to paper. Now, let's start off with background
on Activision Blizzard. The company traces its history to the
earliest days of home video game markets. Activision launched out
of Atari when a group of folks decided that it

(01:07):
might be nice to receive credit and royalties for their work,
rather than all that sweet cash and credit going to
the company itself. So Activision made some real bangers like Pitfall,
which if you're old like I am, you might remember
fondly compared to more recent games. Of course, it's primitive,

(01:28):
but trust me, at the time, Pitfall was amazing. Skip
ahead to nineteen ninety one and a guy named Bobby
Kodik would, along with some financial partners, by a significant
amount of stock in Activision. He would later become the
CEO of the company. That same year, the company that
would become Blizzard would form. The original name for a

(01:51):
Blizzard was Silicon and Synapse when it was launched in
ninety one, but it took the name Blizzard in ninety four,
and Blizzard also published some real bangers in video and
computer games. It's the company behind Warcraft, which was a
huge hit in the real time strategy community. They produced Diablo,
which was a huge hit among the how many times

(02:13):
can I click my mouse button in a row? Community,
and it launched World of Warcraft, the I Will Never
see the light of day again community, among many others.
By the two thousands, Activision was creating or publishing genre
defining franchises like Call of Duty and Guitar Hero. Blizzard's

(02:34):
game StarCraft would become a cornerstone of esports. Blizzard also
changed hands multiple times in the early two thousands, ending
up with a company called Vivendi Games out of France.
Activision merged with Vivendi in two thousand and eight and
the new company was called Activision Blizzard and Bobby Kotik
became CEO of this newly merged company. Activision Blizzard continued

(02:59):
to develop, up and publish successful games and franchises. It
became one of the largest video game companies in the world. Now,
let us switch gears to talk about Microsoft. Now, obviously
Microsoft has had a really long history as well. I
think it's safe to say that the company is best
known for the Windows operating system. It's also the company

(03:21):
behind the Office suite of productivity software like Word and Excel.
Oh and it has a long history of Shenanigan's ranging
from misleading business deals which go all the way back
to the earliest days of the company, with Bill Gates
pulling a fast one on rivals, to a legal case
that very nearly forced Microsoft to break up into smaller companies,

(03:44):
but a subsequent judge in the US would overrule that
decision later on. Microsoft has been a big part of
gaming for a really long time as well. The first
edition of Microsoft Flight Simulator launched in nineteen eighty six,
but this title was actually built on an older simulator
that originally came out in nineteen seventy seven. Microsoft waded

(04:05):
into the video game console wars in two thousand and
one with the launch of the original Xbox console. The
Xbox three sixty would follow in two thousand and five,
and then Xbox One would come out in twenty thirteen.
In twenty fourteen, Microsoft acquired Mojang Studios, the company behind
the insanely popular title Minecraft, and in twenty twenty, Microsoft

(04:29):
launched the most recent version of the Xbox. The Series
X is the flagship. There's also the Series S. In
recent years, Microsoft has focused more on video games as
its business model has shifted quite a bit so in
years past, new versions of Windows and updates to the

(04:49):
Office Suite where the flagship products for the company. That's
mainly what they focused their sales on, but the revenue
strategy has changed a bit. It focuses more on subscrib
options than product sales, and they also have other services
that they make money from, like cloud computing. Video games
and consoles are one of the product lines that are

(05:11):
still going strong in Microsoft, though there are also subscription
elements to those as well, and Microsoft faces a couple
of heavy hitters in the video game industry, namely Sony
and to a lesser extent, Nintendo, but Sony is the
real rival to Microsoft's total domination of the home video
game market. In twenty twenty one, a scandal erupted at

(05:36):
Activision Blizzard. Now, to be clear, the problem that was
the focus of the scandal had been in place for
a really long time, but in twenty twenty one it's
when it all sort of became public dirty laundry. Multiple
parties came forward and accused the company of allowing a
toxic environment to flourish. At Activision Blizzard. There were allegations,

(05:58):
like serious allegations of stuff like sexual harassment cases, including
at least a couple that were really more bordering on
sexual assault cases, and a lot of the stories ended
up being the same where employees were told that they
had to settle the matter internally within the company and
that human resources was supposed to be the first and

(06:20):
really only resort. Meanwhile, that department was allegedly burying these matters,
so that they wouldn't go any further. There were other
serious allegations as well, claiming the company discriminated against women,
and that it violated the law in how the company
treated pregnant women, and that it was also guilty of
retaliating against employees who brought issues up, another thing that

(06:43):
is against the law. The accusations also said that Bobby Kotik,
the CEO of the company, was fully aware of the
situation and that he did nothing about it, or worse,
not that he did nothing, but that he also faced accusations.
They specifically withheld in from the board of directors. There
were folks calling for Kodek's resignation, a call that CODEC

(07:06):
pointedly ignored. Not at the time, very few people knew
what was going on behind the scenes, but this was
when Microsoft was in early negotiations considering an acquisition of
the company, and it wasn't public knowledge yet. A big
move like that requires stability in both companies that are

(07:26):
part of a merger, and while a change in leadership
might have been appropriate considering the accusations involved over at
Activision Blizzard, it would also make the acquisition process more complicated,
and apparently business wins out over matters of toxicity and
abuse of employees. So Kdek stayed put, and various employees

(07:48):
in US agencies filed lawsuits against Activision Blizzard. The company
actually settled one of those lawsuits out of court in
September twenty twenty one. It agreed to settle a similar
lawsuit just this year, after Microsoft had already completed the acquisition.
There's a dark legacy of sexual discrimination that Activision Blizzard

(08:10):
must overcome, and there are different camps that view the
acquisition in very different ways with regard to that. There
are some who worry that with Microsoft acquiring Activision Blizzard,
the new parent company is just going to sweep everything
under the rug and walk away and make that just
a matter of the past, and no one will ever

(08:32):
see any justice from the various indignities and worse that
they experienced under Activision Blizzard. The other camp hopes that Microsoft,
by taking charge, will actually address these things in a
way that is accountable and will end up seeing justice
done for the people who were negatively impacted by Activision

(08:54):
Blizzard's environment, and that perhaps Microsoft will clean house as
part of the process. Some of that has actually come
to pass, as we have seen some changes in executive
leadership in recent days, but we'll get back to that.
So on January eighteenth, twenty twenty two, Microsoft announced its

(09:15):
intention to acquire Activision Blizzard. The transaction was to be
all in cash nearly sixty nine billion, with a b
dollars worth of cash, which is a whole lot of cash.
According to the press release that Microsoft was behind, this
would put Microsoft in third place among video game companies,
at least by revenue. They said that the Chinese company

(09:38):
Tencent was in number one and the Japanese giant Sony
was in place number two, and I suspect Microsoft listed
Sony this way, acknowledging it as a larger video game company,
because it was a strategic move. I'm pretty sure that
Microsoft and Activision Blizzard knew that this merger was going

(09:59):
to face scrutine all around the world, and it would
mean two very powerful companies in the video game space
would consolidate, and that could be viewed as a threat
to competition in the overall industry. So they end up
pointing out, hey, even if we're together, Sony is still
bigger than we are. It was kind of a strategic
way of saying we're not a threat to competition. Look,

(10:20):
we still won't be as big as Sony or Tencent.
But as it turns out, that scrutiny would exactly follow
it in the way that Microsoft anticipated, and Sony would
play a very large heart of it. I'll talk more
about this, but first let's take a quick break to
thank our sponsors. All Right, we're back. I had talked

(10:50):
about how Microsoft was trying to kind of pregame by saying, hey,
even when we're together, we're gonna just be in third place,
And they're positioning it in a way where they're like, hey, yay,
we're all the way moving up to third place. But
it was kind of a sly way of saying, there's
still two companies that are bigger than us, even given
this this merger. The situation also explained why Bobby Kodick

(11:14):
was adamant with regard to staying in charge at Activision Blizzard.
Before it looked like he was just doubling down as
a leader of a company that had a callous attitude
toward employees, specifically employees who were also women. But now
the complication of this massive business deal put things into
a new perspective, people said, Aha, this is why Bobby

(11:38):
Kodick refuses to step down. It's not that he really
thinks he's in the right here, but because there's this massive,
sixty nine billion dollar deal going on and he doesn't
want to mess it up by stepping down and having
someone else take charge. So it got very cynical for
good reason. It didn't take long for folks to screw

(12:00):
the deal and for people to start raising their concerns.
In fact, in April twenty twenty two, several US senators
wrote a letter to the Federal Trade Commission, or FTC
about this proposed merger, and they cited worries about consolidation
in the tech industry in general, which does make sense
because there is a very small collection of very large

(12:21):
companies that dominate the tech space here in the United States,
and Microsoft is one of them already, and their move
appeared to be in alignment with concentrating even more power
within that small group of companies. The senators also reference
the ongoing investigations and litigations surrounding Activision Blizzard. They were

(12:42):
among those who were worried that a merger could mean
that employees who had been affected by the activities of
Activision Blizzard might find themselves without means to have their
issues addressed in the wake of a merger, like how
can they see justice if there's a new boss in
charge in the just essentially say upslates wipe clean. But

(13:04):
the real opposition to the deal, I would argue came
from overseas. Specifically in the United Kingdom. The Competitions and
Markets Authority or CMA launched an investigation into the deal
out of concern that it would lead to significant decrease
in competition in video games. There were worries that Microsoft
would reserve Activision Blizzard titles to Microsoft exclusive platforms like

(13:29):
Xbox consoles and Windows based PCs, that Microsoft would deny
companies like Sony and Nintendo from getting access to really
hugely popular video game franchises, and that this would constitute
anti competitive practices. Essentially, they were worried about Microsoft locking
all of these popular video game titles to an exclusivity

(13:52):
deal with itself. Microsoft repeatedly committed to giving its competitors
access to those pop titles. Time and again, a Microsoft
representative would refute the concerns, and this got to a
point where Microsoft agreed to sign to ten year commitments
that would cement that Microsoft would not lock games like

(14:16):
the Call of Duty franchise behind an exclusive arrangement. It
turned out that Sony representatives had been raising concerns with
regulators about this very thing. That Sony had been arguing
Microsoft and Activision Blizzard merging together would cause direct harm
to companies like Sony and Nintendo, and ultimately, they argued consumers.

(14:37):
Sony reps also said that Microsoft would squeak around guarantees right. Oh, sure,
they'll release the game, but they'll make sure that the
Microsoft version of the game has more features and more
content in it, and that the version that gets released
to platforms like PlayStation or Nintendo consoles will be stripped
down and inferior. Maybe they'll have a content, maybe it'll

(15:01):
be lower fidelity, something along those lines, maybe it'll have
performance issues. By the way, Sony locking stuff behind exclusive
content for themselves is something that they have done a
lot of, so you could argue they knew a lot
about this kind of idea because they themselves had sort
of perfected it. But no matter, I think the concern

(15:21):
was a legitimate one, even if Sony itself had been
guilty of doing the same thing to other platforms. Phil Spencer,
the head of the Xbox division over at Microsoft, ultimately
made a public statement that said the company would release
Call of Duty titles to PlayStation for as long as
there's a PlayStation to release titles too. Essentially said, we're

(15:43):
never going to get out of the business of creating
video games for other platforms. It doesn't make sense because
while we could dominate the market and be anti competitive,
there's more money to be made by making titles for
other platforms. That's that's what we want to do, ultimately,
is make more money, not have some sort of, you know,

(16:06):
de facto dominance in the market. This was after more
than a year of back and forth in various regulatory arenas.
So not only did the two companies face stern opposition
in the UK, here in the United States things were
getting thorny as well. The Federal Trade Commission announced it

(16:26):
was opposed to the deal. In fact, the FTC sued
Microsoft to stop the deal from happening. Again. The concern
was that the deal marked a decrease in competition in
the market and that it would give Microsoft an unfair
advantage over other companies. And again this is something that
Microsoft has a well earned reputation of doing in the past,

(16:47):
So it's not like Microsoft is some innocent babe in
the woods. The company has been found guilty of engaging
in anti competitive practices. So in some ways you can
look at this as the FTC saying, ah, you're back
up to year old tricks again Microsoft. By early twenty
twenty three, the European Union had also jumped into this mess,

(17:11):
and regulators in the EU said that they too were
concerned about the deal. At this point, things were starting
to look pretty uncertain. Microsoft and Activision Blizzard were facing
critical scrutiny in the UK, the EU, and the US.
That's a lot of initials. The deal was supposed to
close in the summer of twenty twenty three, but at

(17:34):
this point that seemed like that was going to be
wishful thinking. In fact, the deal itself was by far
not a guarantee. There were serious doubts coming up. For
a few short weeks, things actually started to look up
for Microsoft and Activision Blizzard because the CMA, potentially the
harshest critic of all the regulators. Arguably the FTC wins

(17:58):
out in the end, but the CMA had serious concerns
about this deal, but in March of twenty twenty three,
CMA said, you know what, we're not as concerned about
this whole thing as we used to be. They essentially
said they were no longer concerned on March twenty fourth,
twenty twenty three. However, on April twenty sixth, twenty twenty three,

(18:21):
a month later, the CMA did another one to eighty
and formally moved to block the deal from happening, saying Nope,
we're not gonna let this go through. So what the
heck happened? Where did CMA go from saying Okay, our
concerns have been met to Nope, we can't allow this
to happen. Well, according to the CMA, the new issue

(18:42):
was a concern that the acquisition would create an unfair
market in cloud gaming. Microsoft reps said the issue appeared
to stem from a quote flawed understanding of the market
end quote which is throwing some shade at the CMA.
They also said something along the lines of it, sure
is a shame that the CMA is determined to make

(19:03):
the UK lag behind in technological innovation. Like it was
kind of it was kind of like a like the mafia,
making a threat in a way like the way that
you see in mob movies where someone's like, hey, it's
a nice shop you got here. Sure would be a
shame if someone would, I don't know, set fia to it.
It kind of felt like that sort of threat, like

(19:26):
a threat that's worded in a way to potentially raise
plausible deniability. But yeah, that's that's what Microsoft was saying.
Plus they were just saying, y'all are stupid because you
don't understand the market. Shortly after the CMA made its
change of mind and said no, we're not going to
let this go through, the EU regulators actually dropped their

(19:47):
concerns and they approved the deal, so they removed one
of the massive obstacles that were in the way of Activision,
Blizzard and Microsoft, but the UK and the United States
were still uncertain. Good news arrived in the US as
a judge found that Microsoft's commitments to ensuring that popular
titles would remain on competitors' platforms were sufficient enough to

(20:10):
allow the deal to proceed. This knocked down the FTC's
concerns on the matter. The judge said, well, Microsoft has
made a commitment to negate the problems that the FTC
has brought up, and as long as Microsoft follows that,
then there's no anti competitive issue here because the company
has committed to making sure that competitors have access to

(20:33):
those titles. That was one of the cornerstones of the
FTC's argument. So the judge said, FTC, your your argument
doesn't have merit to it and essentially dismissed the case.
This happened on July eleventh, and remember Microsoft hoped to
close the deal in June twenty twenty three, so this
is after when the original closing date was supposed to

(20:54):
have happened. All Right, we've got a bit more to
cover about this case, but before we can get to that,
let's take another quick break to thank our sponsors. Okay,
during its legal case with the FTC, Microsoft said some

(21:18):
stuff that everyone already knew but that the company had
never really admitted, namely, that Sony had run away with
the victory in the console wars. Right in the announcement,
Microsoft had mentioned that Sony was a larger company in
the video game space than Microsoft was, but then this
was slightly different. This was Microsoft saying that the PlayStation

(21:40):
consoles consistently outsold Xbox consoles. Again, this wasn't a secret,
like everyone knew this, but for Microsoft to acknowledge it
seemed like it was a pretty big deal. And Microsoft
was using it in defense right. They were saying, how
could we be decreasing competition in a market when we're

(22:01):
not the dominant player in the market, Sony dominates us.
So this isn't bringing down competition, It's actually helping us
improve our position in a market that is already extremely
competitive and we are losing. So it helps support the
story that Microsoft wasn't about to run away with everything.
But I bet it's stung to say it out loud.

(22:22):
The FTC, for its part, would appeal the ruling saying
that hey, actually, our concerns are well merited and they
we should be allowed to stop this merger. But that
appeal is still pending as I record this episode, So
that is a we'll talk about it again in a second,
but it's an unresolved matter. But with the recent win

(22:46):
for Microsoft and Activision Blizzard on the books, where a
judge had said that Microsoft was fine to pursue this
merger in the United States, the company's moved to convince
the CMA back in the United Kingdom to reconsider their
position of blocking the deal from happening. So they took
the concerns that the CMA raised and they proposed a

(23:09):
new deal in an attempt to mollify those concerns. So,
for example, one of the concessions that Microsoft made was
that it would sell the streaming rights to Activision Games
to Ubisoft Entertainment for non European markets. This was a
specific move to assuage the concerns that the deal would

(23:30):
somehow unfairly impact the cloud gaming market. The CMA took
this newly revised deal and they took their time reviewing it,
and then finally in October, they dropped their opposition to
the merger. The FTC was still urging US courts to
review the case that they had appealed, but because there

(23:52):
was no active appeal case going on, technically it meant
there were no real legal obstacles in the way of
Microsoft and Activision Blizzard, and so they finalized the merger
that happened on October thirteenth, twenty twenty three. It took
nearly a year and nine months from when Microsoft announced

(24:12):
its plans to acquire Activision Blizzard to win the deal
was actually finalized. Meanwhile, the FTC is still appealing that
earlier court decision that ruled in favor of Microsoft. The
FTC says it wants to unwind the merger. Now I
don't think that's likely to happen, but I do think

(24:33):
it may see Microsoft have to pay some sort of
settlement out of court in the process. As I record this,
the matter is still pending in US courts. Microsoft most
recently successfully requested an extension to file a response to
a motion to compel, so that is a motion that
the FTC brought against Microsoft to compel Microsoft to share

(24:56):
documentation relating to the case. The court has granted Microsoft's
request and has extended the time limit to compel to
that motion to January second, twenty twenty four. So while
the acquisition has already happened back in October, the matter
itself technically remains unresolved until next year, and that brings

(25:17):
us up to speed on the whole matter. I suspect
the merger will remain in place. The process of unwinding
the deal seems so complicated that it's very hard to
imagine a court commanding it to happen. Technically, I guess
it could, but it seems unlikely. However, if the FTC's
appeal actually works, this would send a massive message to

(25:39):
businesses at large and the tech industry in particular, that
there is a new focus on competition and antitrust situations.
Then again, we also have to acknowledge that here in
the United States, it's an election year in twenty twenty four,
and if there's another change in administration, we're likely to

(26:00):
see those changes trickle down into regulatory agencies as well,
and things that are of huge concern right now may
be dismissed later on. And by that I mean companies
that are looked at as being anti competitive may end
up getting a pass depending on how elections go, same
as it ever was. It's one of the big reasons

(26:20):
why regulatory change in the United States happens rarely, and
it is increasingly difficult to happen in a world a
political world where there's very little bipartisan support for anything anymore.
There's so much tribalism in the various political camps that

(26:41):
you typically just see people opposing one another. In my view,
it's because if one party says yes, the other party
has to say no. Doesn't matter if they actually agree
on the thing. At the end of the day. It's
just like by law, if you're in favor of it,
I have to be opposed to it. That can That's
what it seems like. Maybe I'm being far too cynical,

(27:02):
but that's look back on how the Microsoft Activision Blizzard
acquisition deal actually finally coalesced in twenty twenty three, with
the acknowledgment that the FTC is trying to undo the
whole thing, and who knows where that's going to go again,
I'll be surprised if it changes. Oh and one other update. Yeah,

(27:25):
Bobby Kodik, the CEO of Activision Blizzard, has stepped down
finally now that the deal is done, and so that
thing that people have been asking for since twenty twenty
one has finally come to pass. There's also been some
changes in executive leadership over at Microsoft's Xbox division, and
it looks like there's going to be some shuffling that

(27:49):
will go on as Microsoft determines whose role fills what
position within the newly merged company. So I'm sure that
the changes are just at the very beginning. We'll have
to see what happens in twenty twenty four. That's it.
I hope you are all well, and I am going
to wish you a happy new Year, and I'll be

(28:10):
back with predictions with what I think might happen in
twenty twenty four. We know how well those go. It's
been a few years since I've done one of those.
And until then, I'll talk to you again, really soon.
Tech Stuff is an iHeartRadio production. For more podcasts from iHeartRadio,

(28:34):
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