FTC case against Microsoft, Activision Blizzard centers on PlayStation

In the end, Democratic members of the FTC answered with an emphatic “no.”

Eleven months after Microsoft announced its $68.7 billion purchase of Activision Blizzard, the studio behind Call of Duty, Candy Crush, and Diablo, federal antitrust regulators sued in administrative court Wednesday to stop the deal. The move marks FTC Chair Lina Khan’s most ambitious effort to curb Big Tech mergers, a well-known cornerstone of her political philosophy.

In seeking to halt the acquisition, FTC officials interestingly ignored the sheer size of the deal or the implications of Microsoft’s foray deeper into mobile gaming via its addition of Activision Blizzard titles.

Instead, they homed in on a single issue: the potential for Xbox parent Microsoft to undercut its lone rival, PlayStation parent Sony, in the so-called high-performance video game console business. (The FTC did not consider Nintendo part of the sector, owing to lower computing power and graphics processing on its devices.)

Microsoft could do this, FTC officials argued, by making Activision Blizzard titles exclusive to the Xbox console or degrading the quality of Activision Blizzard games available on PlayStation consoles. The developer’s console sales totaled $2.6 billion in 2021.

Microsoft officials have tried to head off this argument by proposing a 10-year deal with Sony to keep Call of Duty available on PlayStation. Company executives also announced this week a 10-year agreement with Nintendo to bring Call of Duty to future Switch consoles.

In addition, Microsoft president Brad Smith has claimed that taking Activision Blizzard titles off PlayStation would be bad business. About $1.3 billion of Activision Blizzard’s sales last year derived from Sony platforms, equal to 15% of the developer’s total revenue. Activision Blizzard also earned an undisclosed amount from sales of its PlayStation games through third-party retailers.

That, however, wasn’t enough for the FTC.

Federal regulators lent no credence to the 10-year pledges, focusing instead on Microsoft’s ability to manipulate the market well into the future. In particular, they hammered on Xbox’s ambitious efforts to reshape the industry through cloud-based gaming and a Netflix-style subscription service—two advances that could benefit from exclusive titles.

“Gaming is a growing and lucrative market opportunity and one in which Microsoft is already well-positioned,” FTC officials wrote in their complaint. “Microsoft already has a built-in incentive to promote its own products wherever possible, and it fully understands the competitive power that owning Activision’s leading gaming content would yield.”

To that end, federal regulators harped on Microsoft’s 2021 acquisition of video game developer ZeniMax Media and its subsequent decision to make three of the company’s titles—Starfield, Redfall, and Elder Scrolls VI—into Xbox exclusives. (Microsoft has argued, in part, that comparisons between ZeniMax Media games and Call of Duty aren’t valid given the enormous popularity and multiplayer functionality of the latter.)

The FTC’s case will require months of complex litigation to determine whether Microsoft’s acquisition stands to “substantially” lessen competition in the video game console market, the legal standard for stopping the acquisition. 

With Wednesday’s filing, the FTC put Lina Khan’s fundamental distrust in Big Tech into action. 

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Before we head into the weekend, the second parceling of the so-called Twitter Files on Thursday deserves some attention. A few brief observations follow.

First, it’s worth reiterating that Twitter is a private enterprise that’s well within its legal rights to censor, downrank, or deplatform users as it pleases (recent laws passed by Florida and Texas legislators make it more complicated in those states, but that’s a whole other matter). Remember, Elon Musk tweeted just last week that “negativity should & will get less reach than positivity” on the platform, whatever that means.

Second, outright dismissiveness of Thursday’s posts by Bari Weiss feels misguided. Social media companies have enormous power to shape the public discourse. More transparency around how tech platforms wield that authority is a good thing—especially if certain demographics are impacted more than others.

Third, the rollout of the Twitter Files by Musk, Matt Taibbi, and Bari Weiss has been a downright disservice to the public. Rather than producing a comprehensive, detailed report that gives its subjects the opportunity to respond, Taibbi and Weiss are publishing cherry-picked snapshots that lack context and broader scope. We can argue over the wisdom of Twitter’s content moderation actions, particularly as it relates to conservative users. But the piecemeal release of internal records only feeds into our worst suspicions about our political opposites, fomenting more divisiveness.

On that cheery note, have a great weekend, everyone. See you on Monday.

Want to send thoughts or suggestions to Data Sheet? Drop me a line here.

Jacob Carpenter

NEWSWORTHY

Rising up the food chain. Turkish fast-delivery company Getir announced Friday its acquisition of rival Gorillas Technologies for $1.2 billion, the latest example of consolidation in the struggling sector, Bloomberg reported. Gorillas, a Berlin-based firm operating in six countries, secured a $1 billion funding round in late 2021 but saw its valuation sink this year as fast-delivery companies fell out of investor favor. While the fast-delivery industry boomed during the pandemic, an inability to reach profitability led to several acquisitions and widespread layoffs this year.

What’s one more grilling? Former FTX CEO Sam Bankman-Fried agreed Friday to testify before the House Committee on Financial Services at a hearing next week, the Wall Street Journal reported. Bankman-Fried’s commitment follows tensions between the disgraced cryptocurrency entrepreneur and committee chair Maxine Waters, D-Calif., over an appropriate time for his testimony about FTX’s collapse last month. The Senate Banking Committee has asked Bankman-Fried to appear at a separate hearing next week, but he has not yet agreed to attend.

An easy UAW win. Workers at a battery cell factory co-operated by General Motors and LG Energy overwhelmingly voted to unionize, delivering a victory to organized labor leaders targeting electric vehicle manufacturing plants, Reuters reported Friday. Employees at northeast Ohio’s Ultium Cells facility voted 710-16 in favor of joining the United Auto Workers, federal labor officials said. The Ohio plant is the first of four facilities developed by General Motors and LG Energy to begin production.

A brief respite. Google’s ad management platform fell offline for a few hours Thursday evening, a rare outage that turned some corners of the internet into ad-free zones. Google officials confirmed the outage in an 8 p.m. Eastern Standard Time post and announced it had been resolved shortly before 11 p.m. Company executives did not disclose the extent of the problem, though users across the globe shared accounts of ad management issues on social media.

FOOD FOR THOUGHT

Within their rights? Just as the Federal Trade Commission launched one major tech battle, another reached a California courtroom. The Associated Press reported regulators opened their antitrust case Thursday seeking to stop Meta’s acquisition of virtual reality outfit Within Unlimited, the developer behind the VR fitness app Supernatural. FTC officials argue that the deal violates antitrust laws because it removes one of Meta’s competitors in the VR space and eliminates the tech giant’s incentive to build a competing app. Legal and industry observers have questioned the merits of the FTC’s case, particularly given the infancy of the VR sector. Still, the matter is seen as an early test of FTC chair Lina Khan’s campaign against Big Tech mergers.

From the article:

Regulators cite a 2015 email from Facebook CEO Mark Zuckerberg to Facebook executives saying that his vision for “the next wave of computing” — namely virtual and augmented reality — was control of apps as well as the platform on which those apps are distributed. The email said that a key part of this strategy is for the company to be “completely ubiquitous in killer apps,” which are apps that prove the value of the technology.

“Meta could have used “all its vast resources and capabilities” to build its own VR fitness app, said FTC lawyer Abby Dennis. Instead, she added, when Meta heard a rumor that Within was being pursued by Apple, it decided instead “to just acquire the market leader” in the space.

IN CASE YOU MISSED IT

Robots are coming—and it doesn’t look pretty for workers. Get ready for long hours, less pay, and fewer jobs, by Will Daniel

Elon Musk’s new Twitter policies forced female employees who weren’t laid off to quit, lawsuit says, by Bloomberg

Amazon is betting on the future of social e-commerce by launching a product that looks a lot like TikTok, by Matt Day, Spencer Soper, and Bloomberg

Goldman Sachs and the return of ‘Blockchain not Bitcoin’, by Jeff John Roberts

Why Lime’s CEO thinks cars are his true business rivals—not other scooter companies: ‘Our competition is getting a family to give up that second car’, by Phil Wahba

A Japanese billionaire will blast into space next year with a K-Pop star on an Elon Musk rocket, by Mari Yamaguchi and the Associated Press

BEFORE YOU GO

I’d LMAO if it wasn’t sad-emoji. Even the world’s highest-profile crypto bros have their own group text. The New York Times reported Friday that the CEOs of Binance and FTX traded heated messages on a crypto executive group text last month amid the latter company’s infamous meltdown. The most provocative back-and-forth involved Binance chief Changpeng “CZ” Zhao accusing then-FTX leader Sam Bankman-Fried of potentially harming the broader crypto market through a $250,000 trade of the Tether stablecoin by FTX’s sister hedge fund, Alameda Research. “My honest advice: stop doing everything. Put on a suit, and go back to DC, and start to answer questions,” Zhao wrote. To which Bankman-Fried curtly replied, “Thanks for the advice!”