Microsoft buys Activision Blizzard

Just to reiterate a point that I think keeps getting lost: the FTC aren’t looking at the ‘video game market’ as a whole for evidence of monopolistic activity. Their complaint specifies three relevant markets they are concerned about:

  • Multi-Game Content Library Subscription Services
  • Cloud Gaming Subscription Services
  • High-Performance Consoles

All of them are affected by console exclusives, hence a focus on games like CoD.

That’s an important clarification, thanks. Does that fundamentally change the calculus I presented though? Does CoD constitute some major chunk of those markets?

And on the other side of controlling interest in those more narrowly defined markets, Sony will still be the largest player, even after the Activision acquisition, right?

According to the FTC it does, although personally I couldn’t say either way. In the complaint, they put forward evidence that the generous revenue share for Activision’s AAA output shows how valuable it is for the platform holders to drive engagement and adoption. Much of it is redacted, but it looks like they have quotes from Microsoft execs to also support the argument.

I don’t think so. For every case of a merger being blocked due to concerns from competition authorities, there’ll be dozens of cases of cartels, illegal bundling, using a dominant market position in one market to gain an advantage in another, etc.

You wrote “create a monopoly” like half a dozen times in that post. That’s not the relevant standard. Nor is the bar set at preventing competition, but at merely substantially reducing it. What’s substantial? The law doesn’t define it. It’s totally subjective and up to the regulators to decide when making a decision to sue, and for the judge to decide when making a verdict.

The chain of logic from why this acquisition will reduce competition is simple though. That’s why I asked the multiple-choice question that you didn’t answer. (I know you meant well in writing a long reply instead, but it just ended up obfuscating your position, and I still don’t understand where the core of the
misunderstanding is.)

The logic would be:

  1. Availability of games matters for which games console people buy.
  2. People buying games consoles care more about the availability of some games than others.
  3. Call of Duty is one of the franchises that the console audience cares the most about (probably not just “one of”, but really the most – FIFA and GTA are the only others I think could even be in competition)
  4. If Call of Duty is only available on one platform, or significantly advantaged on a platform. a large portion of console gamers will prefer that platform.
  5. Microsoft buying CoD and giving it preferential treatment on Xbox will disadvantage Playstation, their only competition in this market.

I think 1 and 2 are obvious common sense. 3 is easy to prove. 4 and 5 follow logically.

So why isn’t it anti-competitive for Sony or Microsoft to publish exclusives? Because the standard for a merger are different than the standards for normal operation of a company. It’s not anti-competive to just make a better product. (E.g. Facebook buying WhatsApp got a lot more antitrust scrutiny than Facebook launching their own messenger product). That’s not to say that a company couldn’t be so dominant in one market that they’re forced to cater to the competition, but the bar for that is a lot higher than Sony and consoles. (E.g. EU forcing Microsoft to add a browser selection dialog as a post-install step to Windows, and search engine selection to Android.)

Why isn’t it anti-competitive for Sony to buy Bungie (or hypothetically, e.g. for Microsoft to buy CDPR)? Because those companies have very few games, and those games aren’t important enough to drive purchasing decisions, and thus wouldn’t meet the bar for the reduction in competition being substantial enough. What’s the threshold for important enough? I suggested a list in the previous message.

Not the relevant market. Again, CoD alone is almost certainly bigger than all of Sony’s 1p games combined. Sure, Sony has a lot of revenue in gaming as a sector. But most of it is hardware, licensing fees, and subscriptions.

Now, Sony does have a larger console platform than Microsoft has. And there are areas where that larger platform could be used in an anti-competitive manner.

The ban on cross-platform multiplayer is an obvious case; preventing cross-platform play led to people having to buy the console that most of their friends had, which gave Playstation an unfair advantage since they had the largest initial user-base. No matter what improvements MS made after their initial disaster, that was a steep hill to climb. And this was a totally artificial restriction, with no real benefit to the users, saving Sony any resources. If Sony hadn’t lifted the ban, I think they would have ended up in an antitrust case and lost. (And that despite Sony not having a monopoly, because having or gaining a monopoly is not a requirement for something being anti-competitive!)

Ok, so here you are suggesting that the culmination of your 5 points ends up with this, being anticompetitive:

But this isn’t actually anticompetitive, right? As you say below:

The act of securing exclusive access to games is not anticompetitive at all… It’s the act of competing. That is the competition.

There seems to be a suggestion by many that any act that hurts your competition is anticompetitive, but that’s not true. Anticompetitive acts are those that prevent your competition from competing with you, like securing all of some necessary resource so no one else can enter a market, or acts which circumvent competition through collusion with other market players in order to agree not to compete with each other and fix prices.

So how would controlling CoD development be anticompetitive? Are we to believe that a console manufacturer could not exist without CoD? I don’t think that’s actually true, do you? Is it the case that Sony could not exist in the game market without access to all of Activision’s games? Again, I don’t think so.

And if it’s not true, then how is controlling Activision anticompetitive?

To be clear, I was using the term “monopolistic”, taking about when a corporation controls enough of a particular market that they can manipulate it. The vase of Sony that you’re describing there is that, right? Their advantage in marketshare allowed them to limit the entry of others into it. I think this would fall under the umbrella of monopolistic behavior, even though it is not technically a complete monopoly.

You keep using this kind of very absolute language. “Destruction of Sony and the Playstation”, “a console manufacturer could not exist”, “Sony could not exist”, “monopoly power”. That is a really high bar, and it is not the standard by which this merger gets judged.

The merger gets judged on whether it significantly reduces competition in the (non-portable) console market, not on whether it will cause Sony’s corporate headquarters to be burned and the grounds salted. And yes, it seems pretty obvious to me that a Xbox-only CoD would make it much harder for Playstation to sell consoles, i.e. to compete in the console market.

On the other hand, a company making their product better does not get judged on whether it reduces competition. That’s because the laws applying to mergers don’t apply companies’ internal operations.

This is a nuance I wasn’t aware of, and seems to be a hangup for many in this thread. Thanks for the explanation.

So, the FTC views it as their role to protect Sony due to their failure to create a compelling cloud gaming service? That doesn’t seem very pro-consumer.

Yes. Obviously the laws and processes differ between jurisdictions but at least in the West regulators generally have much more power (and will, and political cover) to intervene in mergers than in operational matters. Mergers automatically trigger an antitrust process (though of course not everything gets referred to investigation). Business decisions don’t, so there’s generally a much higher hurdle for intervention.

That’s true up until the point where a player becomes utterly dominant in a market (i.e. has out competed everyone), at which point the government can step in with antitrust.

Basically, the government role in antitrust is to a) prevent consolidation which harms competition and b) intervene in the market when it gets too consolidated (i.e. competition drops below an acceptable threshold).

The government is intervening in scenario a) here, claiming the consolidation would harm competition. I’m not entirely sold on that theory of the case, but it’s at least a reasonable argument to make. That said, there are plenty of “whatabouts” that one could throw around, and it seems a little bit unusual to have the also-ran competitor in the market (Microsoft, whose Xbox sales trail Playstation’s pretty badly in every generation except the 360, where the PS3 just edged out Microsoft) being targeted.

Given that the form of competition that every player in the market (including Sony) prefers and which generally characterizes the market – exclusives – is also fundamentally anticompetitive, the whole thing seems a little bizarre. You have one company (Sony) dominating the market in hardware sales, dominating the market with huge numbers of highly successful exclusive titles, dominating sales of the non-exclusive titles, and essentially choosing not to compete in the online streaming marketplace. Then you have another company (Microsoft) who is playing catch up in hardware and software sales, taking risky and innovative gambles in areas like online streaming, and that company is the target of the enforcement action. It makes sense, I guess, since Microsoft is the company trying to buy Activision Blizzard, but it’s a little unusual to have the losing company in the market being pursued for anti-competitive behavior.

Sure, I’m not saying they can’t or don’t intervene, but that there’s no automatic trigger, outside of specific situations like violating a consent decree. Whereas every merger is a trigger for potential intervention, and in practice the threshold for blocking or imposing remedies is going to be much lower than for going into an existing business and breaking it up, especially in the US for the last 40 years or so.

Would it?
What percentage of Sony’s current console base even plays CoD? Is it even a majority? I’m seeing numbers of ps5’s sold that suggest something like 32 million units.
How many total players of MW2 are there? I’m seeing around 10 million, across all platforms.

So there are a ton of people who bought the PS5, and have no interest in cod. And of the people who bought both, would they suddenly not buy ps5’s if CoD wasn’t on that platform? I don’t think even that is true, because they don’t buy that console just for that one game, and Sony has other exclusive offerings that they want to play.

Would being the exclusive home to CoD be an advantage? Of course, just like every exclusive title. That’s the point, right? World it be such an advantage as to prevent Sony’s ability to compete in the market? I do not think so, not by a long shot.

Of course, as you’ve said, ultimately this is what the courts are for. To decide these things. But I don’t think the FTC’s case here is strong at all.

There’s an interesting piece in today’s (Fuck the) New York Times about the politics behind the FTC’s approach. In particular, the following paragraph stood out to me:

One former enforcement official, who asked not to be named because his employer had not authorized him to comment, put it this way to DealBook: Regulators would rather fight to block a deal and lose than accept a compromise, because the political cost of agreement is too steep.

That could definitely explain at least some of the approach – it’s not just about the rationality of the approach, but also the politics which prevent any “fix” short of blocking the merger.

As someone who think that this deal isn’t “anti-competitive” I am not saying the FTC should not look at this deal. They need to be involved with all of these big deals asking the hard questions.

This case, while very large, doesn’t feel anti-competitive to me. The third place platform holder buying a company to become the 2nd largest games publisher doesn’t feel anti-competitive. It feels competitive. They are competing through purchasing.

The thing everyone in this thread seems to overlook is the “third biggest console maker” is also a company that has so much money they’ve been found guilty of monopoly power before. You can’t just keep saying Microsoft is this little entity that’s making videogames. They’ve got so much money in the bank they could buy ALL of videogaming.

More like Micro$oft am i right fellas?

Microsoft has 99b cash on hand as of the end of 2022.

This is a 70b dollar deal. They cannot buy “all of gaming” with the money they have in the bank.

I’m sure this is hyperbole on your part, but gaming is a wee bit larger than Microsoft’s cash reserves.

I think maybe it’s more accurate to say that Microsoft got in trouble for abusing their desktop OS monopoly with Windows, not the amount of money they had. :) So yes, they got in trouble when they leveraged the dominance of WIndows to crush Netscape in the browser arena. So “third biggest console maker” seems more relevant to me than cash on hand.

If any company were trying buy “ALL of videogaming” then I’d be a little more gung-ho for the FTC to intervene.

Regulators blocking a deal and losing vs. making a compromise is problematic. The more weak cases that are lost, the less strictly defined their loses become. Leading to further neutering of the FTC.

A conspiracy theorist could argue this is their goal since FTC chairs end up in the Private Sector working against FTC regulation.

Microsoft should be taking a look at what the litigation costs over the net three years will be versus just paying Activision for three years of exclusive rights to CoD. If in 3 years Sony is a smoking crater then the FTC was right to file suit. If Sony is still on top of console sales after three years, not so much. Of course that would mean spending billions on spite and Elon is the only one silly enough to do that.