Hours after the surprise announcement that Microsoft will attempt to purchase Activision
Blizzard for an eye-watering $68.7 billion dollars, the FTC announced plans to dramatically
overhaul the process by which corporate mergers and buyouts are approved.
This wasn’t a direct response to the Activision deal, but it wasn’t entirely unconnected.
Over the past couple of years, a turbulent economy has seen more and more power consolidated
among fewer and fewer companies within the tech industry.
Even with the law as it currently stands, analyst David Cole thinks that the Activision
buyout is a regulatory nightmare.
He said: “There will be a great deal to work out
here and getting it past government regulators will be a major hurdle.
This includes not just the US, but around the globe where Activision Blizzard products
are sold including the European Union, China etc...
The approval process is likely to be long and not guaranteed.”
The reason regulatory bodies are so antsy is because this kind of deal is inherently
anti-consumer.
It’s bad news for everybody.
Before we explore this further, we want to make it clear that this isn’t an attack
on Xbox.
Quite the opposite, in fact.
We know that a vocal portion of the Xbox community can be very defensive of these kinds of deals,
and if you’re just happy that Call of Duty will now be “free” as part of your Game
Pass subscription, that’s entirely valid.
What we want to focus on, instead, is the long-term effects that this kind of acquisition
can have on the gaming industry as a whole.
Historically speaking, these deals come with complications.
First things first: many of you have asked that we simply answer the question: why is
the buyout happening in the first place?
It’s simple: Activision Blizzard is too small.
No, really.
That’s what Activision CEO and alleged bad guy Bobby Kotick has claimed in interviews.
He said: “You’d think, oh, we’re this big company
and have just these great resources.
But when you’re comparing us to, you know, $2 trillion companies and $3 trillion companies
and trillion dollar companies and $500 billion companies, you realize, we may have been a
big company in video gaming, but now, when you look at the landscape of who the competitors
are, it’s a different world today than ever before.”
This is the problem at the heart of the buyout: even as one of the biggest companies in gaming,
Activision is struggling to compete with increasingly powerful competitors in the tech sector - hence
the buyout.
The concern is that this only makes the matter worse.
If you’ve ever played the board game Monopoly, you’ll understand why it’s monopolies
aren’t all that much fun.
The first half of the game involves a mad dash to consolidate resources, then the second
half of the game is a long, drawn-out slog, as the player with the best stuff slowly gobbles
up everyone else.
This, in essence, is the danger before us.
For a practical example, let’s talk about the movie industry.
In the early 20th century, the Hollywood studio system saw the entirely of the American movie
industry controlled by just five studios.
Paramount, RKO, MGM, Warner Bros, Fox.
The so-called “Big Five” controlled more than just movie production – they also owned
movie theatres, and in some cases, even celluloid film manufacturing.
Because the Big Five controlled every aspect of movie production and distribution, nobody
could challenge them.
They set the terms of actor contracts, they decided which films were shown in which cinemas,
and when.
This led to poor working conditions, high ticket prices, and a general lack of innovation
and artistic freedom.
This is known as vertical integration, and it’s terrible for everyone except company
owners.
The studio system was ultimately abolished in 1948, following the United States vs Paramount
lawsuit.
It was ruled that this level of vertical integration was too poisonous to the industry to be allowed.
Microsoft, Nintendo, and PlayStation have achieved a similar level of vertical integration
– they make games, they own console hardware, and they own storefronts in which these games
are sold.
At present, though, there’s still plenty of triple-A game studios that remain independent.
According to analysts, Call of Duty alone creates anti-trust issues.
This game series, the most popular console franchise, is played by around 50% of all
Xbox and PlayStation owners each year.
Said David Cole: “The big issue is if [Call of Duty] becomes
a Microsoft exclusive.
Right now, I don't think [it will].
For one thing, it would be hard to get it past regulators if they want to lock the competition
out.”
If Call of Duty can only be played on Xbox, then the balance of power shifts too far into
Microsoft’s hands.
Fans will be forced to buy Xbox hardware or a Game Pass subscription, and that means they’re
forced to accept Microsoft’s terms.
The concern is that, once in control of a large enough portion of the gaming market,
and as the only company offering a substantial games subscription service, Microsoft can
then raise prices to whatever they choose.
The company already tried this last year, attempting to increase the cost of Xbox Live
so as to strongarm subscribers into simply switching to the slightly more expensive Game
Pass.
The reason these efforts failed was because of Xbox’s competitors – both Sony and
Nintendo offer far cheaper online subscription services, so consumers refused to pay Microsoft’s
higher price point.
As much as the game industry is divided into factions – Xbox, PlayStation, Nintendo,
that one guy who’s still proud of his Sega for Life tattoo – the truth is, multiple
platforms are good for everyone.
If any one company controls too much of the industry, the result, historically, is always
anti-consumer.
That’s the moral of the story: diversity makes things better for everyone.
The more variety there is across the gaming industry, the more fun everyone can have.