5 issues Microsoft faces in its acquisition of Activision Blizzard

Microsoft is acquiring Activision Blizzard, the companies announced on Tuesday, but the deal isn’t exactly done yet. Microsoft will have many complex situations after the official $68.7 billion acquisition is complete.

Activision Blizzard is currently in litigation, facing accusations of a toxic environment, ongoing unrest at some studios, and being under scrutiny by a handful of government regulatory agencies. These are just a few of the issues that Microsoft will face as it acquires Activision Blizzard.

Federal Trade Commission, and the EU

Mergers of this size have to be approved by regulatory bodies, most prominently the United States’ Federal Trade Commission, the U.S. Security and Exchange Commission, the U.S. Department of Justice, and likely the European Union. While deals like this often aren’t obstructed, both the Federal Trade Commission and the EU have recently grown more hostile to the idea of big-tech acquisitions over fear that further consolidation could lead to harmful monopolies.

One outstanding question is whether Microsoft’s new deal will be treated as a tech acquisition or an entertainment acquisition. While big tech has received scrutiny over the last several years, entertainment deals like Disney’s acquisition of Fox have been met with fewer antitrust concerns. While Microsoft is undoubtedly one of the biggest tech companies in the world, it’s possible the video game subject matter will keep this deal firmly on the entertainment side of the FTC and EU’s radar. However, as Microsoft has positioned this deal as an important play in the metaverse — a decidedly big-tech dominated space — it’s still possible it could raise a few red flags.

This deal will be scrutinized more closely if it is considered big-tech. The recently appointed head of the FTC, Lina Khan, is likely to be tougher on big tech than previous heads of the organization, and President Biden issued an Executive Order in July that announced his administration’s intention to protect economic competition, particularly in tech. In fact, just a few hours after Microsoft’s announcement, the FTC announced that it’s starting a process to modernize its merger guidelines for major companies especially in digital spaces — which could have a major effect on this particular deal.

Workplaces that are toxic

Activision Blizzard, which was founded in July 2021 has been under fire for allegedly engaging in toxic or criminal acts at its work place. The instances were brought to light largely because of various official legal complaints filed by U.S. regulatory bodies, including one by California’s Department of Fair Employment and Housing, one by the Securities and Exchange Commission, and one by the U.S. employment commission.

The allegations include sexual harassment, workplace bullying and demeaning behavior as well as instances of sexism, racism, and other forms of discrimination. These complaints led to employees walking out, sponsors of esports withdrawing their support and several resignations, firings, and other high-profile personnel from different studios. Activision Blizzard settled many of these complaints.

Raven Software’s potential union

Activision Blizzard employees who walked out in July have formed a collective group called “The Activision Blizzard Employees’ Group”. Activision Blizzard King Worker’s AllianceThe goal is to get together fellow workers to improve the working environment of the company.

In December, the calls for organization got even louder as many employees at Activision’s Raven Software studio went on a strike (which is still ongoing) with the goal of pressuring the company to rehire several contractors who had suddenly been let go right before the holidays. They are also trying to unify the studio.

The quest to unite studios continues across the videogame industry. Over the years Paradox Interactive employees signed collective bargaining agreement and Nexon employees, a Korean studio formed a union.

Unionization tends to take a substantial amount of time, meaning that if Activision Blizzard’s employees were to organize on a large scale, it would likely be up to Microsoft to work with and recognize the unions themselves.

Bobby Kotick

Bobby Kotick, Activision Blizzard’s CEO has long been controversial in the gaming industry. The many legal allegations that led to criticisms of Kotick only increased, and many people (including Polygon), demanded his resignation. Even though these allegations were made during Kotick’s time as Activision Blizzard’s CEO position, they have not been proven to be true.

The initial news of Microsoft’s acquisition immediately garnered passionate responses that Microsoft must fire Kotick immediately — particularly given that Xbox boss Phil Spencer seemed to condemn Activision Blizzard in the wake of the lawsuits. Of course, business dealings aren’t quite that simple. Major management changes are rarely announced in the middle of an acquisition in part because the acquiring company doesn’t actually have any control over the company they’re attempting to acquire.

According to a report from the Wall Street Journal, Kotick is expected to leave following the completion of the merger, which would likely come in 2023, but don’t expect to hear anything definitive about Kotick’s future until the deal goes through.

The public’s opinion of Blizzard

Aside from its cultural issues, Blizzard’s not in the best shape on the video games side of public perception either. While Blizzard, separate from Activision’s library, has some of the most impressive IP in all of gaming, many of those games aren’t in a great place right now. World of WarcraftIt is experiencing its most frustrating back-to-back expansions and player frustration. Diablo 4 Overwatch 2They both remain in slow and uncertain development. The StarCraft IP has remained largely dormant since 2015’s StarCraft 2 Legacy of the Void and the only games on the near horizon are mobile-only versions of Blizzard’s major franchises.

While this may be the lowest point for Blizzard’s storied universes, this could end up being a good problem for Microsoft. This is despite ongoing development of a new Diablo, and possibly a sequel to Overwatch. Microsoft and Blizzard could have the opportunity to get back on track and go back to its iconic franchises, giving them the chance to make some progress. More importantly, with the addition of Xbox Game Pass, Microsoft can put these new titles — and perhaps even games like World of Warcraft — in front of players for a flat monthly fee.