Microsoft’s acquisition of Santa Monica video game publisher Activision Blizzard hit headwinds earlier this month when the Federal Trade Commission announced its intent to block the $68.7 billion deal, but if the sale goes through it could result in big changes locally.
Observers believe that employees could be laid off, for example. Activision Blizzard’s employee base numbers nearly 10,000, with teams spread across multiple locations in Los Angeles and around the world.
Activision Blizzard is the third largest public company in the Los Angeles area. The Walt Disney Co. and Amgen are the only bigger ones, as measured by market capitalization, according to the Business Journal’s list of Largest Public Companies published in August.
The acquisition, first announced in January, would bring multiple Activision Blizzard video game franchises, including “Call of Duty,” “Candy Crush,” “Warcraft” and other gaming juggernauts, under Microsoft’s control
According to Adam Adler, an attorney covering intellectual property and tech for Reichman Jorgensen LLP, the deal likely will have some impact on Activision Blizzard employees if it goes through successfully.
“I would expect some impact after the merger is complete, where they basically combine their forces and then reduce the redundancy from the combined operations,” Adler said. He added that departments that already exist at Microsoft, such as human relations, may be on the chopping block. Meanwhile, Adler said, talent like Activision Blizzard video game developers would likely be left alone.
In estimating what employment changes might look like at Activision Blizzard, Adler referred to a precedent set by Disney in 2019, when multiple rounds of employee cuts materialized after the Burbank conglomerate acquired Fox for $71.3 billion.
Continuing lawsuits
Microsoft’s acquisition plans were announced not long after Activision Blizzard became the subject of internal, public and legal scrutiny resulting from allegations of discrimination and sexual harassment. Early this year, a court approved an $18 million settlement between the Equal Employment Opportunity Commission and Activision Blizzard. The lawsuits have continued, with another Activision Blizzard employee alleging in October that the company failed to stop workplace sexual harassment and discrimination.
The litany of issues at the company, according to Adler, may have lowered the cost of Microsoft’s acquisition and could lead to changes at the top of the company if it goes through.
“Because of the cultural problems and the sexual harassment problems that Activision was facing, I would expect to see substantial changes in Activision’s leadership,” Adler said. “I don’t know how much. It might be certain presidents and executive vice presidents, but Microsoft is going to do something to take that negative aspect out the culture and make it more into Microsoft.”
Activision Blizzard did not comment or otherwise provide any details on what the acquisition would entail for employees. In terms of executives, a Wall Street Journal report cited sources familiar with the deal who said that the companies agreed that Activision Blizzard Chief Executive Bobby Kotick will leave “once the deal closes.”
The FTC’s move to block the acquisition is rooted in concerns that Microsoft, the maker of the Xbox console, would gain control of high-level video game franchises and enable it to harm competition such as Sony, which produces the PlayStation console, a rival to Xbox.
In a filed complaint, the commission pointed out that Microsoft has had a record of acquiring gaming content to suppress competition, citing the corporation’s acquisition of ZeniMax, the parent company of major game developer Bethesda. The commission added in the complaint that Microsoft made several Bethesda games, such “Starfield” and “Redfall,” available on Microsoft’s platforms only, despite assurances the company gave to European antitrust authorities.
The commission noted that Activision offers its games on multiple gaming devices regardless of producer.
‘Deal will close’
Despite the challenge, Activision Blizzard is confident things will go according to plan. In a press release issued the same day as the commission’s announcement, Kotick said, “This sounds alarming, so I want to reinforce my confidence that this deal will close. The allegation that this deal is anti-competitive doesn’t align with the facts, and we believe we’ll win this challenge.”
In an internal email to Activision Blizzard staff, the company emphasized that Microsoft had spent time promising global regulators, video game players and competing platforms that it would not make “Call of Duty” exclusive to Xbox. The company added that doing so “doesn’t make good business sense” and that it would destroy Microsoft’s brand and its trust with players.
“Call of Duty,” which offers microtransactions for virtual goods within its games, has tens of millions of monthly players across multiple consoles, according to estimates from Activeplayer.io. Some of the virtual goods within Call of Duty include character attire, weapons and cosmetic items.
Last year, Activision Blizzard reported that it made $5.1 billion just from microtransactions within its games.
Adler believes the deal will go through despite the commission’s challenge, saying that it does not consider just how many consoles are competing in the market and that the vertical, non-competitive nature of the acquisition helps Microsoft’s case. In other words, Microsoft, a console and video game service producer, is not in direct competition with Activision Blizzard, a video game developer and publisher.
In addition to his work as an attorney, Adler also writes as a columnist for Escapist Magazine covering the intersection of law and comic books, movies, video games, and TV shows.
He also noted that the filed complaint itself will not stop the closing of the deal. For that to happen, the commission would have to file suit in federal court.
“A caveat about (the complaint) is that just because the proceeding won’t technically stop (the acquisition) as a matter of law, does not mean that Microsoft will decide to continue the transaction on schedule,” Adler said. “Microsoft may decide to delay the closing to see how things play out and to avoid the risk of having to unwind the transaction.”
According to Adler, if Microsoft was to lose the challenge, the company would need to spin off its new assets, a risk that could cause Microsoft to delay the official closing of the deal to avoid such action.
