Back in the antitrust spotlight

Hi, Matt Day in Seattle here. Microsoft’s Brad Smith has spent years building up goodwill with policymakers around the world, but that didn’ [View in browser]( [Bloomberg]( Hi, Matt Day in Seattle here. Microsoft’s Brad Smith has spent years building up goodwill with policymakers around the world, but that didn’t stop the FTC from suing to block the software giant’s acquisition of Activision Blizzard. But first… Today’s must-reads: • Amazon is probed by[federal safety officials]( • Telsla’s problems are piling up while [Elon Musk focuses on Twitter]( • Broadcom’s forecast [gives investors hope]( Back in the Antitrust Hot Seat By almost any measure that matters—market capitalization, revenue, user count—Microsoft Corp. is a peer of Alphabet Inc., Apple Inc., Amazon.com Inc. and Meta Platforms Inc. But when the CEOs of all those companies were [called into Congress]( in July 2020 to answer questions about their market power, Microsoft was left off the guest list. In fact, the Redmond, Washington-based software behemoth has escaped much of the antitrust scrutiny that has landed on others in the industry in recent years, the result of some major business flops as well as nearly two decades of influence-building in the halls of power in Washington, Brussels and elsewhere. The question facing Microsoft this week is whether the success of that campaign blinded its executives to the likelihood that a $69 billion acquisition, the company’s biggest ever, would run into opposition from regulators that have dialed up their investigations of Big Tech deals. The US Federal Trade Commission on Wednesday [voted](to try to halt Microsoft’s purchase of game publisher Activision, saying the deal would harm competition. Microsoft is a giant in video games by virtue of its Xbox game console and Halo and Minecraft franchises, among other titles. In scooping up the creator of some of the industry’s biggest hits – including Call of Duty and World of Warcraft – Microsoft might well limit rivals’ access to Activision’s hit games, the FTC said. Brad Smith, Microsoft’s president, said in response that he believed the deal would “expand competition and create more opportunities for gamers and game developers.” He said the company was prepared to offer concessions to the FTC, but that Microsoft would stand up for the deal in court. Microsoft, of course, has come up against antitrust challenges before, leaving a scar on the company for years and providing a cautionary tale for the industry. A US District Court judge in 2000 ordered the breakup of the company over its efforts to use its dominance in Windows PC software to gain ground in the internet browser market. The decision was overturned on appeal and ultimately ended with a settlement among Microsoft, the federal government and individual US states. The fallout continued for years. Smith took Microsoft’s top legal job in 2002, as the software maker was seeking to end those battles, make peace with regulators around the globe and show a willingness to compromise at what had been an aggressive, periodically hostile company. His campaign was successful enough that Smith has risen to become the company’s vice chair and president. He’s also Chief Executive Officer Satya Nadella’s consiglieri, and something of a friendly ambassador from Big Tech to lawmakers and regulators worldwide. It’s not just Smith’s work that has kept Microsoft out of the antitrust spotlight. It’s also the result of business shifts that at times left Microsoft on the sidelines of critical markets. (The vast majority of personal computers are still shipped running Windows, but that distinction matters less and less each year as more gets done on smartphones). The company famously whiffed on social media, is a distant No. 2 in web search, and has waffled on internet advertising. Regulators with concerns about technology companies illegally throwing their weight around have plenty of other targets these days. Still, buying Activision Blizzard was always going to draw scrutiny, both for the enormous deal size and the risk that it consolidates too much power at the high end of video gaming, where Microsoft and Sony Group Corp.’s PlayStation lead. “In some ways, it’s an unforced error,” said someone familiar with Microsoft’s antitrust strategy, who asked not to be identified to protect relationships in the industry. “It could also be the dawn of a new era for Microsoft. It was inevitable that they were going to start facing more regulatory scrutiny once they turned their business around.” Smith’s team has tried to pave the way for the deal. In June, he committed Microsoft to cooperating with labor groups if its workers wish to unionize, a nod to the nascent employee organizing at Activision Blizzard and in the broader game industry, which is notorious for long and punishing workdays. That neutrality declaration stood in contrast to companies like Apple and Amazon that were fighting back against union drives, and seemed geared toward assuaging Democrats, who controlled Congress and the FTC, that a greatly expanded Microsoft video gaming franchise would be pro-worker. And this week, Microsoft made public a [10-year deal]( to bring Call of Duty to Nintendo Co. gaming platforms, signaling a willingness to take Activision Blizzard’s properties to rivals’ devices rather than restrict them to Microsoft products. Smith and other executives met with FTC Chair Lina Khan and other commissioners on Wednesday to make their case, Bloomberg News reported this week. Khan and her colleagues on Thursday signaled that the charm offensive didn't cut it.  “In this environment, it seems like a total misread of the room,” the person who has dealt with Microsoft said. “The fact of the matter is, at least for today, the antitrust spotlight is almost 100% focused on them.” —[Matt Day](mailto:mday63@bloomberg.net) The big story Disney is keeping tight reins on advertising content as it unveils its lower-cost ad [supported streaming service](. The Disney+ offering is important as the company deals with an executive shake-up and issues in other businesses. Get fully charged Meta Platforms and the FTC [faced off in court]( in their antitrust trial. The FTC says Microsoft plans to [keep Elder Scrolls VI exclusive](. Marc Benioff avoided talking about the [exodus of Salesforce executives](. 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