It appears that Lina Khan is serious about putting the brakes on tech industry mergers. Much to the surprise of many, many pundits and LawTubers, the FTC is suing to block Microsoft's acquisition of Activision Blizzard King (ABK).
The consensus of opinion seems to be coalescing around the idea that the FTC's case is weak. This consensus essentially takes Microsoft's position at face value:
- that Microsoft Gaming is a much, much smaller player in the video games industry than either PlayStation (owned by Sony) or Nintendo;
- that Microsoft have no presence in mobile gaming at all, unlike ABK, or any of ABK's major competitors in the mobile space, like Tencent or NetEase;
- that Microsoft's control of ABK will have no competitive impact on the industry, since they're going to leave Call of Duty (CoD) available on competing platforms, including both Sony's PlayStation and Nintendo's Switch, for ten years.
If you assume that this argument is 100% true, then Sony appear to be freaked out over the deal for essentially no reason at all, and the FTC's objections to the deal appear to be entirely political. At best, the collective thinking goes, suing to block the deal is effectively a bargaining ploy: the entire process of resolving the suit could prolong the process of getting the deal done for months or years, and cost Microsoft hundreds of millions of additional dollars in penalties (per the deal) and legal fees. Faced with this prospect, Microsoft might be more amenable to the types of concessions the FTC might ask for.
I'm going to be the contrarian in the room, though, and point out that the FTC might be looking at a bigger picture than just this deal between Microsoft Gaming and ABK. Real talk here: taken as an independent entity, Microsoft Gaming, third-place purveyor of money-losing consoles and the games that people can play on them, probably don't have 68.7 billion US dollars to spend buying ABK or anyone else. This deal is only possible because Microsoft Gaming isn't an independent entity; it's only possible because Microsoft Gaming is merely the gaming division of a much, much larger entity.
Microsoft Gaming isn't buying ABK. Microsoft Corporation is buying ABK. And, viewed through that longer lens, the picture looks a lot different.
Let's look at the market caps of the dozen or so largest players in the video game industry; I'm including Valve Software, even though Valve are not publicly trading, and therefore don't have a market cap (I've used Bloomberg's estimate of their value instead). From largest to smallest:
Microsoft's line is highlighted in red, as are ABK's current market cap, and the value of Microsoft's acquisition offer. I've also added a line for the total value of all players except Microsoft, in blue.
Microsoft Corp. is larger than all of the other major players in the video game industy, combined. The numbers for Tencent, NetEase, and Sony don't only include their gaming business, either -- much like Microsoft, all of those players have other irons in the fire. None of them are as large as Microsoft. Sony Corp. is only 5% of Microsoft's size, and only 45% bigger than ABK.
Sony are not freaking out because Microsoft might end up owning Call of Duty. Sony are freaking out because Microsoft have the resources to buy the entire video game industry. If the other players were willing to sell, and if regulators were willing to approve the deals, Microsoft have the resources to become literal monopolists in this market, not through having better video game products, but by swallowing every smaller fish in the pond. There are no bigger fish in this game than Microsoft.
This is the bigger picture that Lina Khan and the FTC are looking at. And with this larger frame for the issue, Microsoft's assertion that they're tiny players in the space aren't merely ridiculous; they verge on being downright deceptive.
And this is where is becomes an issue that Microsoft has a history of antitrust violations and anti-competitive practices. Yes, it was a while ago, but this kind of history is the sort of thing that regulators are going to have in mind when your entire argument for letting your latest deal go through is built on a specious foundation, and can best be summed up as, "have we ever lied to you?"
Now, it could be argued that I've omitted two very large players in the video game industry. Apple, Amazon, Meta, and Google are generally not considered to be particularly large or influential in console gaming, but they do a presence in mobile gaming, and they are all large companies. If we assume that Microsoft would have to compete with either of them, or all of them, to acquire the other major players in the industry, then it matters that Amazon, Apple, Google, and Microsoft are all close to each other in size:
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This turns the video games industry into a four-way race (or six-way, if one includes the half-sized Tencent Holdings, and the troubled Meta nee Facebook), which likely ends with an oligopoly situation with the same handful of tech firms controlling the largest entertainment business on the planet... in addition to all the other economic segments which these same firms also control between them. This is exactly the scenario that the FTC is looking to prevent; their position is that these firms already control too much of the economy, and too much of our communications and cultural activities, in particular.
All of this leaves open the question of whether this line of argument is persuasive. US antitrust law is notoriously terribly written; the letter of that law is often described as both overly broad and vague, and it was reigned in almost immediately by the courts, who essentially replaced the letter of the law with a "rule of reason" which has prevailed since the late 1800's. But the rule of reason is not the letter of the law; they are merely one interpretation of that law, and not the only possible one, and the law itself hasn't been changed.
Lina Khan's FTC is using the MSFT/ABK merger as a wedge, attempting to push back against the "rule of reason" which is currently treated as law, but which isn't actually part of the statute, and claw back some of the antitrust authority which the law as written would give them to limit the further growth of Amazon, Apple, Google, and Microsoft. Will it work? Who knows? Could it work? The FTC seem to think so, and I'm not sure they're wrong about that.
I am not a lawyer, and I don't work in mergers and acquisitions, so I could well be wrong here, but I don't think the FTC's case is as weak as pundits seem too be assuming, and I don't think it's merely politics, or merely a bargaining move. I think the FTC is serious about this; I think there's a case to be made here; and I think there's a non-zero possibility that they could prevail, and effectively rewrite antitrust law in the process.