Microsoft responded this week to criticism from the Federal Trade Commission (FTC) regarding planned layoffs at Activision Blizzard. The game publisher announced intentions to cut jobs despite its pending $68.7 billion acquisition by Microsoft.
The FTC argued the job cuts could hurt Microsoft’s ability to operate Activision independently if regulators block the deal and call for a divestiture. Microsoft fired back saying the layoffs were unrelated to the merger and already planned by Activision beforehand.
This article will analyze both perspectives, discuss the implications for the gaming industry and what happens next in Microsoft’s pursuit of Activision Blizzard approval.
Microsoft Counters Claims Layoffs Would Thwart Divestiture
After the FTC voiced concerns over Activision Blizzard’s restructuring plans compromising a potential divestiture, Microsoft clarified the layoffs were “in the works for a while”. A Microsoft spokesperson said the cuts pre-date acquisition talks and were planned independently by Activision.
Microsoft further asserted that even with staff reductions, it has the capacity and expertise to operate Activision on its own if regulators call for a split. The company aims to reassure the FTC it can manage Activision as a separate business entity.
Activision Announced Large Restructuring Regardless of Merger Outcome
Before Microsoft’s offer to buy Activision Blizzard, reports indicated the game maker was already planning sizable layoffs and internal reorganization.
After a disappointing financial outlook, Activision reportedly sought to cut costs and increase efficiency. Job cuts spanning multiple business units were on the table alongside excuses of senior executive positions.
The layoffs were framed as a broader transformation unrelated to Microsoft’s bid. After better-than-expected Q3 2022 earnings, Activision slowed down but will continue restructuring efforts.
FTC Fears Could Complicate Potential Breakup Remedy
Despite Microsoft statements that the cuts pre-date acquisition talks, the FTC worries rightsizing could make operating Activision as standalone challenging.
Regulators commonly rely on divestitures to approve mergers with competition issues. But workforce reductions raise questions if Activision could function independently after significant downsizing.
The FTC aims to determine if Microsoft could run Activision as is or be forced to spend heavily rehiring to enable a successful split.
Potential Impact of Layoffs on Gaming Industry
The planned Activision Blizzard layoffs sparked concerns throughout the gaming sector over potential talent loss and project delays.
Possible Talent Drain Across Studios
With nearly 10% of Activision’s 9,800 workers expected to lose jobs, critics worry valued creatives and engineers could exit.
There are fears the cuts could trigger an exodus of top talent to industry peers. This brain drain could hamper Activision’s ability to develop hit games.
Concerns Over Delayed Releases
Some analysts cautioned that even with remaining talent, reductions might introduce game development delays.
If assigned larger workloads post-layoffs, negative morale could further stifle creative output and productivity from developers.
These factors open the possibly of delayed releases for key franchise updates like Call of Duty, Overwatch 2 and others.
Impact on Merger Approval Process
Perhaps most critical is the impact Activision’s restructuring has on merger approval. The FTC must now determine if divestiture remains viable after planned cuts.
Microsoft contends Activision will operate effectively standalone after layoffs. But regulators may push for additional assurances given reduction scale.
What Happens Next With Microsoft’s Pursuit of Activision?
All eyes now turn to how the FTC responds to Microsoft’s claims that Activision layoffs won’t threaten a potential divestiture.
FTC Could Request More Info or Divestiture Guarantees
The FTC could probe deeper by formally requesting additional details on the scale, timing and impact of layoffs.
Regulators may also call for Microsoft to guarantee resources for Activision to function independently if a breakup is mandated.
Ruling Expected in 2023
The FTC is conducting an in-depth review of the deal including impact on competition, pricing and innovation.
Barring any extension requests, the FTC must file a lawsuit to block the merger by July 2023. A ruling is expected by early 2023 at the latest.
Microsoft Remains Confident in Eventual Approval
Despite FTC concerns over restructuring, Microsoft remains optimistic regulators will approve its Activision Blizzard acquisition.
Microsoft President Brad Smith said the deal should pass regulatory scrutiny based on past video game mergers’ impact on prices.
But the tech giant stands ready to address any other questions from the FTC in the coming months as part of its review.
The Final Word on Activision Blizzard Layoffs
Microsoft maintains planned layoffs at Activision Blizzard were in motion prior to its $68.7 billion buyout offer as part of a broader restructuring.
But the Federal Trade Commission worries downsizing could threaten divestiture ability if the merger faces regulator opposition.
The coming months will prove critical as the FTC determines if cuts impact the competitiveness of an independent Activision business post-merger.
Microsoft remains confident regulators will eventually approve the historic video game industry deal by early 2023 despite lingering concerns.