The wave of massive mergers in the video game industry has provoked some questions none of us ever expected to ask. Will Destiny stay on PCs now that Bungie is a Sony studio? Is World of Warcraft about to be ported to consoles? What lies ahead for Electronic Arts? Is that the next domino to fall? All of these hypotheticals are fun and fascinating, but they ignore the elephant in the room. Once Microsoft’s acquisition of Activision Blizzard is complete, the company will stand as one of the three largest gaming publishers on earth. That is an earthquake in the market, and with uncertainty about how federal regulators are interpreting antitrust laws — which aim to break up corporate monopolies in the market — experts believe that the deal will earn a thorough investigation.
“The Federal Trade Commission and the Department of Justice looks at mergers to see if there’s been a substantial lessening of competition, and whether prices will rise for consumers,” said Jeffrey Jacobowitz, the chair of the antitrust practice at the law firm Arnall Golden Gregory LLP. “This deal narrows the market, and the government looks at market power. So they’ll scrutinize this merger carefully, I believe. They’ll look for any overlaps and competition, to see whether the consumer is being harmed.”
From a bird’s eye view, the Microsoft-Activision deal matches the same pattern that has powered the games industry for decades. There’s never been a shortage of first-party publishers absorbing other development houses into an overarching portfolio. Microsoft has been a frequent buyer over the last few years, picking up Obsidian, DoubleFine, and InXile, restocking an inventory of talent that was fallow during the Xbox One years. The company’s biggest acquisition, prior to the Activision blockbuster, was Bethesda, which will be bringing the forthcoming Starfield exclusively to Microsoft platforms. You might be asking if that deal didn’t raise any antitrust suits, why would anything change if the Gates estate releases the next Diablo? These are all valid points, says Greg Day. a professor of legal studies at the University of Georgia. He tells me that both 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 both of those 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 complimentary with each other. They’re in the same business.” Day noted that horizontal mergers tend to attract more legal attention than vertical mergers, but also said that “it isn’t impossible” for top-down industry integrations to spark some red flags from antitrust agencies.
This is, at least, the academic interpretation of antitrust law. From a purely textual analysis, you are left to believe that Microsoft was likely in the clear. But the legal experts I spoke to each mentioned that there is new leadership in charge at the FTC under the Biden administration, and in Jacobowitz’s words, “they’re coming out and saying they’ll be aggressive. There’s uncertainty in the marketplace of mergers and transactions.”
In particular, the FTC and DOJ have made it clear that they’re eager to take a more adversarial stance against Big Tech — Fortune reported that the U.S. government is currently fielding an antitrust suit against Facebook’s parent company, Meta. Obviously, a games publisher acquisition differs in texture and scope from Facebook’s all-out social media dominance between Instagram and WhatsApp, but there is certainly a degree of anxiety about what Microsoft can expect if the regulators intend to back up their talk.
“The Antitrust Division shares the FTC’s substantive concerns regarding the vertical merger guidelines,” said DOJ Assistant Attorney General for Antitrust Jonathan Kanter, in an interview with CNBC. “Those guidelines overstate the potential efficiencies of vertical mergers and fail to identify important but relevant theories of harm.”
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The specifics of what those “substantive concerns” are remain vague for now, though CNBC mentions “labor market effects and elements of competition that aren’t tied to prices, like innovation and quality,” as focuses for the departments going forward. When I read that statement, it sounds like a transition from mere consumer protection to something more ethereal — you feel concepts like “innovation and quality” in your soul, rather than your bank account. Could the Microsoft-Activision merger snap a tripwire in an antitrust environment that isn’t exclusively animated by prices? It’s hard to say, but it is clear that a queasiness about Big Tech mergers is emanating 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 gamers and for our business,” it reads. (Conspicuously, the title of the post is, “Adapting ahead of regulation.”) Clearly, Microsoft is expecting a few phone calls from the government.
All of this leaves me with one fundamental question. Why are we living in an era of mass consolidation? This is a topic that’s much bigger than the video game ecosystem. Disney and Sony seem to own 80 percent of the Box Office; six of the 10 top-grossing films from last year were produced by one of those two companies. Amazon somehow is the proprietor of both a network of game studios and a national grocery store chain — evidence for the company’s unparalleled reach. We are caught in the middle of an emerging tangle of fiefdoms in the Streaming Wars, but eventually, a small handful will win out. The tech sector has always been defined by relentless, all-consuming growth, but I’m not sure if any of us expected to inherit an economy where everything we touch belongs to a dwindling handful of uber-oligarchs.
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