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Microsoft and Activision Chiefs Testify Merger Will Benefit Consumers

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Microsoft and Activision Chiefs Testify Merger Will Benefit Consumers

Satya Nadella, the chief executive of Microsoft, appeared in federal court on Wednesday to pledge his support for open platforms and consumer choice, underscoring the tech giant’s commitment to closing its $70 billion acquisition of Activision Blizzard over regulators’ objections.

“If it was up to me, I would love to get rid of the entire ‘exclusives on consoles,’” Mr. Nadella testified, rebutting claims from tech regulators that Microsoft’s deal for the video game giant would curtail competition and restrict Activision’s games only to players on Microsoft’s Xbox console. “I have no love for that world.”

The fourth day of a hearing in U.S. District Court in San Francisco that could determine the deal’s outcome was the highest-profile session, with appearances by Mr. Nadella and Activision’s chief executive, Bobby Kotick.

The Federal Trade Commission’s challenge of the blockbuster acquisition, led by its chair, Lina Khan, is viewed as a test of whether more aggressive efforts to curb tech giants can be successful. The F.T.C. is seeking a preliminary injunction that would prohibit the companies from closing the deal before the agency has the chance to argue its case in its internal court.

Microsoft has said such a lengthy delay would most likely doom the deal, a perspective that Mr. Kotick shared in his testimony on Wednesday.

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The F.TC. has argued that the merger would harm competition in the video game industry and hurt consumers, because Microsoft could pull Activision’s games, like Call of Duty, from its rival Sony’s PlayStation console. Mr. Kotick promised that he had no intention of doing so, though the decision will not ultimately be his if his company is acquired.

“You would have a revolt if you were to remove the game from one platform,” Mr. Kotick said. “It would cause reputational damage to the company.” Mr. Nadella likewise said he would not withhold Call of Duty.

Under Ms. Khan, the F.T.C. has sued Meta, Microsoft and Amazon, arguing that Big Tech’s immense power over communications, social media and online commerce allows the companies to build monopolies and harm consumers.

After Microsoft announced early last year that it intended to reshape its Xbox business by buying Activision, the company struck agreements with other video game companies, like Nintendo, to show regulators that the deal would benefit gamers and not curtail access to Activision’s games.

Most government agencies, including the European Commission, were convinced. But the F.T.C. and the Competition and Markets Authority in Britain are trying to block the deal.

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Court arguments have focused on the practice of exclusivity — releasing a highly anticipated game only on one console. Microsoft has repeatedly promised it will not make Call of Duty exclusive to Xbox if it acquires Activision, and offered Sony a contract putting that guarantee in writing.

But the F.T.C. argued in court last week that Microsoft had moved swiftly to buy ZeniMax Media and its slate of gaming studios for $7.5 billion in 2020 when it realized that Sony might pay to make one of ZeniMax’s important upcoming games, Starfield, exclusive to PlayStation. New ZeniMax titles, including Starfield, are now exclusive to the Xbox.

Jim Ryan, the chief executive of Sony, testified in a recorded video deposition that he thought that even if Call of Duty remained on PlayStation, Microsoft would try to “drive PlayStation gamers to the Xbox platforms” by somehow degrading the Call of Duty experience on PlayStation.

“I believe that they’re going to use Call of Duty somehow to damage us,” Mr. Ryan said.

But Mr. Nadella testified that he opposed a walled-off approach to gaming.

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“I grew up in a company that always believed that software should run on as many platforms as possible,” he said. “And I believe in that.”

Microsoft has sought to portray itself as a distant third in a three-player console market dominated by Nintendo and Sony. Phil Spencer, the head of Xbox, said that as a third-place competitor, Xbox was “not a robust business.”

Mr. Spencer did acknowledge that Microsoft has had discussions about potentially excluding Activision games other than Call of Duty from PlayStation.

The F.T.C. has argued that Microsoft’s acquisition of Activision would also give it an unfair advantage in gaming subscription services and the nascent market for cloud gaming.

Judge Jacqueline Scott Corley is expected to decide whether to grant the injunction before July 18, the date the deal is expected to close. At times, her courtroom questions have been skeptical of some of the F.T.C.’s arguments.

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The F.T.C., for example, tried to get Mr. Spencer to swear he would put Call of Duty on PlayStation for at least 10 years, no matter what terms Sony requested as part of that agreement. Judge Corley seemed to feel that such a blanket promise was unrealistic, especially if Sony asked for something unreasonable, like receiving Call of Duty for free.

“Well, it’s not going to be for zero dollars,” Judge Corley said, sounding impatient. “That was understood.”

David McCabe contributed reporting from Washington.

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Edison’s safety record declined last year. Executive bonuses rose anyway

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Edison’s safety record declined last year. Executive bonuses rose anyway

The state law that shielded Southern California Edison and other utilities from liability for wildfires sparked by their equipment came with a catch: Top utility executives would be forced to take a pay cut if their company’s safety record declined.

Edison’s safety record did decline last year. The number of fires sparked by its equipment soared to 178, from 90 the year before and 39% above the five-year average.

Serious injuries suffered by employees jumped by 56% over the average. Five contractors working on its electric system died.

As a result of that performance, the utility’s parent company, Edison International, cut executive bonuses awarded for the 2024 year, it told California regulators in an April 1 report.

For Edison International employees, planned executive cash bonuses were cut by 5%, and executives at Southern California Edison saw their bonuses shrink by 3%, said Sergey Trakhtenberg, a compensation specialist for the company.

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But cash bonuses for four of Edison’s top five executives actually rose last year, by as much as 17%, according to a separate March report by Edison to federal regulators. Their long-term bonuses of stock and options, which are far more valuable and not tied to safety, also rose.

Of the top five executives, only Pedro Pizarro, chief executive of Edison International, saw his cash bonus decline. He received a cash bonus of 128% of his salary rather than the planned 135% because of the safety failures, the company said, for total compensation including salary of $13.8 million.

The cash bonuses increased for the other top four executives despite the safety-related deductions because of how they performed on other responsibilities, said Trakhtenberg, Edison’s director of total rewards. He said bonuses would have been higher were it not for safety-related reductions.

“Compensation is structured to promote safety,” Trakhtenberg said, calling it “the main focus of the company.”

Consumer advocates say the fact that bonuses increased in spite of the decline in safety highlights a flaw in AB 1054, the 2019 law that reduced the liability of for-profit utility companies like Edison for damaging wildfires ignited by their equipment.

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AB 1054 created a wildfire fund to pay for fire damages in an effort to ensure that utilities wouldn’t be rendered insolvent by having to bear billions of dollars in damage costs.

In return, the legislation said executive bonus plans for utilities should be “structured to promote safety as a priority and to ensure public safety and utility financial stability.”

“All these supposed accountability measures that were put into the bill are turning out to be toothless,” said Mark Toney, executive director of The Utility Reform Network, a consumer advocacy group in San Francisco.

“If executives aren’t feeling a significant reduction in salary when there is a significant increase in wildfire safety incidents,” Toney said, “then the incentive is gone.”

One of the executives who received an increased cash bonus was Adam Umanoff, Edison’s general counsel.

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Umanoff was expected to get 85% of his $706,000 salary, or $600,000, as a cash bonus as his target at the year’s beginning. The deduction for safety failures reduced that bonus, Trakhtenberg said. But Umanoff’s performance on other goals “was significantly above target” and thus increased his cash bonus to 101% of his salary.

So despite the safety failures, Umanoff received a cash bonus of $717,000, or 19% higher than he was expected to receive.

“If you can just make it up somewhere else,” Toney said, “the incentive is gone.”

The utility recently told its investors that AB 1054 will protect it from potential liabilities of billions of dollars if its equipment is found to have sparked the Eaton fire on Jan. 7, resulting in 18 deaths and the destruction of thousands of homes and commercial buildings.

The cause of the blaze, which videos captured igniting under one of Edison’s transmission towers, is still under investigation. Pizarro has said the reenergization of an idle transmission line is now a leading theory of what sparked the deadly fire.

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The 2019 legislation was passed in a matter of weeks to bolster the financial health of the state’s for-profit electric companies after the Camp fire in Butte County, which was caused by a Pacific Gas & Electric transmission line.

The wildfire destroyed the town of Paradise and killed 85 people, and the damages helped push PG&E into bankruptcy.

At the bill-signing ceremony, Gov. Gavin Newsom touted its language that said utilities could not access the money in a new state wildfire fund and cap their liabilities from a blaze caused by their equipment unless they tied executive compensation to their safety performance.

In April, Edison filed its mandatory annual safety performance metrics report with the Public Utilities Commission as it seeks approval to raise customer electric rates by more than 10% this year.

In the report, Edison said that because its safety record worsened in 2024 on certain key metrics, its executives took “a total deduction of 18 points” on a 100-point scale used in determining bonuses.

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“Safety and compliance are foundational to SCE, and events such as employee fatalities or serious injuries to the public can result in meaningful deduction or full elimination” of executive incentive compensation, the company wrote.

Edison didn’t explain in the report what an 18-point deduction meant to executives in actual dollar terms, another point of frustration with consumer advocates trying to determine if executive compensation plans genuinely comply with AB 1054.

“Without seeing dollar figures, it is impossible to ascertain whether a utility’s incentive compensation plan is reasonable,” the Public Advocates Office at the state Public Utilities Commission wrote in a 2022 letter to wildfire safety regulators.

To try to determine how much the missed safety goals actually impacted the compensation of Edison executives last year, The Times looked at a separate federal securities report Edison filed for investors known as the proxy statement.

In that March report, Edison detailed how the majority of its compensation to executives is based on its profit and stock price appreciation, and not safety.

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Safety helps determine about 50% of the cash bonuses paid to executives each year, the report said. But more valuable are the long-term incentive bonuses, which are paid in shares of stock and stock options and are based on earnings.

The Utility Reform Network, which is also known as TURN, pointed to those stock bonuses in a 2021 letter to regulators where it questioned whether Edison and the state’s other two big for-profit utilities were actually tying executive compensation to safety.

“Good financial performance does not necessarily mean that the utility prioritizes safety,” TURN staff wrote in the letter.

Trakhtenberg disagreed, saying the company’s “long-term incentives are focused on promoting financial stability.” A key part of that is the company’s ability “over the long term to safely deliver reliable, affordable power,” he said.

Trakhtenberg noted that the state Office of Energy Infrastructure Safety had approved the company’s executive compensation plan in October, saying it met the requirements of AB 1054, as well as every year since the agency was established in July 2021.

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The Times asked the energy safety office if it audited the utilities’ compensation reports or tried to determine how much money Edison executives lost because of the safety failures.

Sandy Cooney, a spokesman for the agency, said that the office had “no statutory authority … to audit executive compensation structures.” He referred the reporter to Edison for information on how much executive compensation had actually declined in dollar amounts because of the missed safety goals.

A committee of Edison board members determines what goals will be tied to safety, Trakhtenberg said, and whether those goals have been met.

Even though five contractors died last year while working on Edison’s electrical system, the committee didn’t include contractor safety as a goal, according to the company’s documents.

And the committee said the company met its goal in protecting the public even though three people died from its equipment and there was a 27% increase in deaths and serious injuries among the public compared to the five-year average.

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Trakhtenberg said most of the serious injuries happened to people committing theft or vandalism, which is why the committee said the goal had been met.

Edison has told regulators that if its equipment starts a catastrophic wildfire, the committee could decide to eliminate executives’ cash bonuses.

But the company’s documents show that it hasn’t eliminated or even reduced bonuses for the 2022 Fairview fire in Riverside County, which killed two people, destroyed 22 homes and burned 28,000 acres.

In 2023, investigators blamed Edison’s equipment for igniting the fire, saying one of its conductors came in contact with a telecommunications cable, creating sparks that fell into vegetation.

Trakhtenberg said the board’s compensation committee reviewed the circumstances of the fire that year and found that the company had acted “prudently” in maintaining its equipment. The committee decided not to reduce executive bonuses for the fire, he said.

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In March, the Public Utilities Commission fined Edison $2.2 million for the fire, saying it had violated four safety regulations, including by failing to cooperate with investigators.

Trakhtenberg said the compensation committee would reconsider its decision not to penalize executives for the deadly fire at its next meeting.

TURN has repeatedly asked regulators not to approve Edison’s compensation plans, detailing how its committee has “undue discretion” in setting goals and then determining whether they have been met.

But the energy safety office has approved the plans anyway. Toney said he believes the responsibility for reviewing the compensation plans and utilities’ wildfire safety should be transferred back to the Public Utilities Commission, which had done the work until 2021.

The energy safety office has rules that make the review process less transparent than it is at the commission, he said.

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“The whole process, we feel is rigged heavily in favor of utilities,” he said.

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Cable giant Charter to buy Cox in a $34.5-billion deal, uniting providers that serve SoCal

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Cable giant Charter to buy Cox in a .5-billion deal, uniting providers that serve SoCal

Charter Communications and Cox Communications plan to merge in a $34.5-billion deal that would unite Southern California’s two major cable TV and internet providers to sell services under the Spectrum brand.

The proposed consolidation, announced Friday, comes as the industry grapples with accelerating cable customer losses amid the shift to streaming.

The companies could face even more cord-cutting after their long-time programming partner, Walt Disney Co., begins offering its ESPN sports channel directly to fans in a stand-alone streaming service debuting this fall.

If approved by Charter shareholders and regulators, the merger would end one of the longest TV sports blackouts.

Cox customers in Rancho Palos Verdes, Rolling Hills Estates and Orange County would finally have the Dodgers’ TV channel available in their lineups. For more than a decade, Cox has refused to carry SportsNet LA because of its high cost.

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Charter distributes the Dodgers channel as part of a $8.35-billion television contract signed with the team’s owners in 2013. Charter has bled hundreds of millions of dollars on that arrangement and now offers the channel more widely via a streaming app.

The Atlanta-based Cox is the nation’s third-largest cable company with more than 6.5 million digital cable, internet, telephone and home security customers. Stamford, Conn.-based Charter has more than 32 million customers.

Charter dramatically expanded its Los Angeles presence in 2016 by acquiring Time Warner Cable for more than $60 billion.

The Charter-Cox combination would have 38 million customer homes in the country — a larger footprint than longtime cable leader, Philadelphia’s Comcast Corp.

“This transformational transaction will create an industry leader in mobile and broadband communication services and seamless video entertainment,” Charter Chief Executive Christopher Winfrey said in a conference call with analysts.

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Winfrey would become the proposed entity’s CEO.

A major motivation for the deal was to be able to combine operations in Los Angeles, Orange and San Diego counties where both services currently operate and add attractive markets like Phoenix, Winfrey told analysts.

“Our network will span approximately 46 states passing nearly 70 million homes and businesses,” Winfrey said.

Cox is privately held. The billionaire Cox family, descendants of an Ohio press baron who bought his first newspaper in 1898, began acquiring cable systems in 1962 and has since held them with a tight grip. The Cox cable assets were long seen as a lucrative target.

Last year, Cox generated $13.1 billion in revenue and $5.4 billion in adjusted earnings before interest, taxes, depreciation and amortization.

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“Cox was always the first name that would come up in consolidation conversations… and it was always the first name dismissed,” longtime cable analyst Craig Moffett wrote in a Friday research note. “Cox wasn’t for sale.”

Until it was.

In an unexpected twist, the name of the merged company would be changed to Cox within a year of the deal closing. However, its products would carry the Spectrum moniker.

The Cox family would be the largest shareholder, owning about 23% of the combined entity’s outstanding shares.

Charter shares got a slight bump on Friday’s news, climbing nearly 2% to $427.25.

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“Cable is a scale business. [The] added size should help Charter compete better with the larger telcos, tech companies and [Elon Musk’s] Starlink,” said Chris Marangi, co-chief investment officer of value at the New York-based Gabelli Funds, a large media investor.

Adding the Cox homes will allow Charter to expand distribution for its El Segundo-based Spectrum News channel.

Charter said it would absorb Cox’s commercial fiber, information technology and cloud businesses. Cox Enterprises agreed to contribute the residential cable business to Charter Holdings.

Cox Enterprises would be paid $4 billion in cash and receive about $6 billion in convertible preferred units, which could eventually be exchanged into Charter shares. The Cox family would get about 33.6 million common units in the Charter Holdings partnership, worth nearly $12 billion.

The combined entity will absorb Cox’s $12 billion in outstanding debt.

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Charter’s ability to navigate the challenged landscape was a factor in the family’s decision, said Cox Enterprises Chief Executive Alex Taylor, a great-grandson of the company’s founder, told analysts.

“Charter has really impressed us above all others with the way they have spent capital,” Taylor said. “In the last five years, they’ve spent over $50 billion investing” in internet infrastructure and building a wireless phone service.

“This deal starts with mobile,” cable analyst Moffett wrote. “Cox is relatively late to the wireless game. But that only means that the opportunity in [the combined companies’] footprint is that much larger.”

The companies said they could wring about $500 million a year in annual cost savings.

The combined company would have about $111 billion of debt.

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Cox would have two directors on the 13-member board, including Taylor, who would serve as chairman.

Advance/Newhouse would keep its two board members. Advance/Newhouse would hold about 10% of the new company’s shares.

The transaction is expected to close at the same time as Charter’s merger with Liberty Broadband, which was approved by Charter and John Malone’s Liberty Broadband stockholders in February.

After the consolidation, Liberty Broadband will no longer be a direct Charter shareholder.

The Associated Press contributed to this report.

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Video: How Staffing Shortages Have Plagued Newark Airport

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Video: How Staffing Shortages Have Plagued Newark Airport

What’s causing major flight delays and disruptions at Newark Liberty International Airport? Niraj Chokshi, a reporter at The New York Times covering transportation, explains how a staffing shortage has contributed to the chaos and what’s being done to address it.

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