The wave of massive mergers in the video game industry has prompted questions that none of us expected to ask. Will Destiny stay on PC now that Bungie is a Sony studio? Is World of Warcraft about to be ported to consoles? What future for Electronic Arts? Is this the next domino to fall? All of these hypotheses are fun and fascinating, but they ignore the elephant in the room. Once Microsoft’s acquisition of Activision Blizzard is complete, the company will be one of the top three game publishers in the world. It’s an earthquake in the market, and with uncertainty over how federal regulators interpret antitrust laws – which aim to break up corporate monopolies in the market – experts believe the deal will deserve a thorough investigation.
“The Federal Trade Commission and the Department of Justice are reviewing mergers to see if there has been a substantial lessening of competition and if prices will increase for consumers,” said Jeffrey Jacobowitz, chairman of the US antitrust practice. law firm Arnall Golden Gregory. LLP. “This agreement restricts the market and the government is looking at market power. So they will be looking at this merger carefully, I believe. They will be looking for any overlap and any competition, to see if the consumer is harmed.”
From a bird’s eye view, the Microsoft-Activision deal fits the same pattern that has powered the games industry for decades. There has never been a shortage of first-party publishers absorbing other development houses into an overall portfolio. Microsoft has been a frequent buyer over the past few years, scooping up Obsidian, DoubleFine, and InXile, replenishing an inventory of talent that lay fallow during the Xbox One years. The company’s biggest acquisition, before Activision’s blockbuster, was Bethesda, which will bring the upcoming Starfield exclusively to Microsoft platforms. You might be wondering if this deal didn’t raise antitrust lawsuits, why would anything change if the Gates estate released the next Diablo? These are all valid points, says Greg Day. professor of legal studies at the University of Georgia. He tells me that the Activision deal and the Bethesda deal are examples of “vertical mergers,” which Day explained with a handy metaphor.
“A horizontal merger is if, say, Coca-Cola and Pepsi merged, because those two companies are selling the same things,” he said. “A vertical merger would be if Coke bought a bottling plant, because those two companies are more complementary to each other. They’re in the same industry.” Day noted that horizontal mergers tend to attract more legal attention than vertical mergers, but also said that “it’s not impossible” that top-down industry integrations are triggering red flags of from antitrust agencies.
That, at least, is the academic interpretation of antitrust law. From a purely textual analysis, you’re left to believe that Microsoft was probably in the clear. But the legal experts I spoke to each mentioned that there were new executives in charge at the FTC under the Biden administration, and in the words of Jacobowitz, “they come out and say they will be aggressive. There is uncertainty in the mergers and transactions market.”
In particular, the FTC and DOJ have made it clear that they are eager to take a more adversarial stance against Big Tech – Fortune reported that the US government is currently implementing a antitrust lawsuit against Facebook’s parent company, Meta. Clearly, a game publisher acquisition differs in texture and scope from Facebook’s total dominance of social media between Instagram and WhatsApp, but there’s certainly some concern about what Microsoft may be up to. wait if regulators intend to back up their rhetoric.
“The Antitrust Division shares the FTC’s substantive concerns about the vertical merger guidelines,” said DOJ Assistant Attorney General for Antitrust Jonathan Kanter, in an interview with CNBC. “These guidelines overstate the potential effectiveness of vertical mergers and fail to identify important but relevant theories of harm.”
The details of these “substantive concerns” remain vague for now, although CNBC mentions “effects on the labor market and elements of competition that are not related to price, such as innovation and quality”, as priorities for departments in the future. When I read this statement, it feels like a transition from simple consumer protection to something more ethereal – you feel concepts like “innovation and quality” in your soul, rather than in your bank account. Could the Microsoft-Activision merger trigger a trigger in an antitrust environment that’s not exclusively price-driven? It’s hard to say, but it’s clear that unease about Big Tech mergers is coming from Washington. Microsoft is well aware of this. Earlier this week, company president Brad Smith published a blog post reaffirming their commitment to keeping Call of Duty on Playstation. “We believe this is the right thing for the industry, for the players and for our business,” it read. (Obviously, the title of the post is “Adaptation before regulation.”) Obviously, Microsoft is expecting a few phone calls from the government.
All of this leaves me with a fundamental question. Why do we live in an era of mass consolidation? It’s a subject much larger than the video game ecosystem. Disney and Sony seem to own 80% of the Box Office; six of the 10 highest-grossing films of the past year were produced by one of these two companies. Amazon somehow owns both a network of game studios and a national chain of grocery stores, proof of the company’s unrivaled reach. We’re caught in the middle of an emerging tangle of fiefdoms in the Streaming Wars, but ultimately, a small handful will win. The tech industry has always been defined by relentless, all-consuming growth, but I don’t know if any of us expected to inherit an economy where everything we touch is owned by a shrinking handful of people. ‘uber-oligarchs.
Microsoft Acquires Activision Blizzard: The Story So Far