To overcome an FTC lawsuit and succeed in its quest to buy Activision Blizzard, Microsoft has decided to admit defeat in the video game console wars.
Microsoft made the argument in court today as the FTC tries to stop the merger on antitrust grounds. To do so, the Commission is requesting a US judge order a preliminary injunction to halt the deal, which risks jeopardizing Microsoft’s bid to complete the acquisition.
In response, Microsoft filed a 77-page document that tries to argue why the deal should go through. “Xbox has lost the console wars, and its rivals are positioned to continue to dominate, including by leveraging exclusive content,” the company writes.
Microsoft adds that the Xbox has consistently ranked third behind Sony’s PlayStation and Nintendo’s own hardware, with only a 16% share of the market. “Sony’s lead is so significant that press reports have recently declared that ‘Sony’s PlayStation brand dominates 2021’s worldwide console market,'” the company added.
This is the case, Microsoft says, because Sony and Nintendo have many first-party exclusives on their platforms. The Xbox, on the other hand, has struggled to match the same output.
“The number of exclusive games available on PlayStation dwarfs the number available on Xbox, with eight exclusive games on PlayStation for every one on Xbox,” the company said. The court document even points out the most recent Xbox first-party title, Redfall, “has been widely panned by critics and has generated minimal sales.”
It’s a surprising admission. But it’s also been clear from day one that Microsoft wants to buy Activision Blizzard for its game catalog, which includes hit franchises such as Call of Duty, Diablo, and Overwatch.
Microsoft may also be desperate to prevent the acquisition from falling apart. If the FTC receives the preliminary injunction, then Microsoft would need to renegotiate its deal to buy Activision Blizzard while potentially facing months or even years in legal limbo. Currently, the company has until July 18 to complete the merger or else Activision can trigger a $3 billion breakup fee.
Microsoft has already secured approval from the European Union for the acquisition. But the company is still fighting to clear the deal in the UK and the US, where it’s facing opposition from the FTC. In its own filing on Tuesday, the commission said it planned on showing the court that Microsoft “has the incentive and the ability to harm competition in several well-defined relevant antitrust markets."
The FTC added that Microsoft’s decision to acquire ZeniMax Media and Bethesda, and make their upcoming games exclusive to the Xbox, underscore the antitrust concerns. “Microsoft’s ZeniMax decision is powerful evidence as to Microsoft's incentives here and should give this Court significant pause,” the Commission added.