Microsoft tries to win over regulators for its massive Activision Blizzard deal

By Brian Fung, CNN

Microsoft is trying to persuade regulators to approve its $68.7 billion acquisition of Activision Blizzard with a series of new app store commitments that it says will put the company “on the right side of history” as policymakers worldwide debate new laws to force competition open in digital marketplaces.

The 11-point pledge, announced Wednesday, includes promises by Microsoft to allow third-party app stores on its platforms and to not give preferential treatment to its own published games on the digital marketplaces the company runs. Microsoft also committed to letting software developers use whichever payment system they prefer rather than require that they use Microsoft’s proprietary channels.

The pledge covers not just the Activision Blizzard deal but virtually all of Microsoft’s gaming business going forward, including metaverse platforms, CEO Satya Nadella and President Brad Smith told reporters during a visit to Washington, D.C. on Wednesday.

The announcement is a centerpiece of Microsoft’s pitch to antitrust regulators to bless the Activision Blizzard merger — the largest in the company’s history. The deal focuses antitrust scrutiny on a tech giant that has so far avoided much of the criticism and skepticism that has been leveled in recent years at other Silicon Valley behemoths including Apple, Facebook and Google.

It also reflects an effort by Microsoft to get ahead of legislation that targets the largest app store operators.

“We want to compete. We want to compete for users; we want to compete for publishers,” Nadella told reporters. “I want us to approach this in a principled way where we are building our platforms, our technology, such that we are on the right side of history.”

The announcement comes amid a global reckoning for app stores, as software developers have revolted against what they say are high store fees and draconian policies that harm consumers. Those tensions have culminated most visibly in a lawsuit by Epic Games, the maker of “Fortnite,” against Apple — litigation that Microsoft has supported with a friend-of-the-court filing staking out positions against the iPhone maker.

As part of Wednesday’s pledge, Microsoft vowed that video games produced under its own banner — including titles it plans to acquire from Activision Blizzard such as “Call of Duty” — will not be given preferential treatment on its app stores relative to competing games. It also said it would not use data collected from app store activity to compete with developers. And it added that Microsoft would not stand in the way of app makers contacting their users directly with information about prices or product offerings.

Those commitments reflect a sharp contrast from policies and practices of some other tech giants that have come under fire. A key complaint against Google, for example, is that it has ranked or prioritized its own apps and services higher in search results. Apple and Google have lobbied hard against Congressional legislation to force open US app stores, saying that the new proposed rules could harm user security. (On Wednesday, Microsoft said that apps on its platform would still need to undergo “reasonable” security reviews.)

Separately, Microsoft said it has committed to Sony that popular franchises it acquires from Activision Blizzard will remain available on PlayStation under Activision’s existing deal with Sony, and that it has offered to extend the deal on a “multiyear basis.” The existing deal with Sony runs until 2024, Smith said.

The commitments will take effect immediately on Microsoft’s Windows store, said Smith, while a smaller subset will apply initially to the Xbox store before expanding to include all of the 11 principles. All of the principles will also apply immediately upon the launch of a forthcoming app store Microsoft is developing, which execs dubbed a “universal store.”

“This store will enable people to connect across all devices, globally,” said Sarah Bond, a top Xbox executive.

Trying to get ahead of scrutiny

The historic merger comes as regulators worldwide are rethinking how to apply competition laws to the digital world. Just a few years ago, the Activision Blizzard deal would not have attracted much scrutiny, Smith said, who added that the acquisition will make Microsoft the third largest game publisher in the world after Tencent and Sony.

“Regulators don’t typically get all that concerned about a company becoming number three,” Smith said. “But we’re not in the world of 2018 or 2019, it’s 2022. And we recognize there will be more scrutiny of any large acquisition that is being made by a large tech company. So I think that it really behooves us to step forward quickly and proactively and be very transparent about how we will manage this business, with a clear eye toward the competition law issues and responsibilities that we have.”

In addition to the deal’s impact on video game players and app stores, regulators could analyze the merger’s effect on competition in labor markets, Nadella acknowledged — an area where US regulators have shown increasing interest. That may prove particularly relevant in light of recent reports of sexual harassment and a toxic workplace at Activision Blizzard, a crisis that Nadella said Microsoft may look to address once Activision Blizzard follows through on its existing public commitments on the matter.

Nadella argued the merger is pro-competitive from a labor perspective because Microsoft “is a preferred employer” among people who work in games.

“So if you even want to take a much broader view and say, ‘What does it do to people who are employed in the gaming industry?'” he said, “I think Microsoft’s acquisition of Activision Blizzard, and our commitment to people who work in the gaming industry, is another element that will serve us well as we go through the review process everywhere in the world.”

Last week, Microsoft filed formal paperwork with the Federal Trade Commission to kickstart the merger review process, and has delivered an initial briefing to FTC staff, Smith said.

Wednesday’s commitments will be implemented regardless of whether the Activision Blizzard deal closes or whether governments worldwide succeed in passing app store legislation, said Smith.

“This will be the right thing for gamers and our employees, and it is a clear message to regulators we’re leaning in and adapting to the kinds of issues they want to address,” Smith said.

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