Microsoft, a major video game developer through Xbox gaming, announced in January 2022 that it is seeking to acquire rival game developer Activision for $69 billion.[1]

This was the largest acquisition of that year in any industry,[2] and is the largest tech acquisition ever.[3]

Here is why antitrust enforcers at the Federal Trade Commission and UK Competition Markets Authority are challenging this blatantly unlawful deal.

It is a merger between direct competitors in an already-concentrated industry:

• Microsoft
  • The third largest game developer globally, behind its main competitor Sony, and Tencent, a Chinese mobile app developer it does not compete with.[1] Microsoft already owns around 30 gaming studios[2]
  • Revenue for Xbox gaming (excluding hardware) was $12.518 billion in 2021[3]
• Activision Blizzard
  • Has acquired around 25 studios, including a 2008 merger with video game giant Blizzard Entertainment.
  • Revenue for Activision Blizzard was $8.803 billion in 2021[4]
• If the merger is approved, Microsoft need to compete less and would be freer to cut costs, reduce its investments in game development, and produce worse products.

Microsoft can leverage the merger to unfairly advantage itself over other consoles:

• In acquiring another large video game developer, Microsoft could restrict the availability of games for competing consoles like Sony’s PlayStation or Nintendo Switch to consolidate Xbox’s position. This concern was expressed to the FTC by a range of consumer, antitrust, and worker groups (including CWA) earlier this year.[5]
• Microsoft often turns software products into subscription services (like Office 365), which in this case would be its “Game Pass” service, which it could turn into a walled garden of games developed exclusively for Xbox.
• Microsoft is likely losing money on Game Pass, but it does push competitors out of the market through predatory pricing, as it’s subsidized by Microsoft’s overall profitability outside of video games.[6]

Labor and Monopsony

• Microsoft’s planned business model of subscription services through Game Pass is akin to the subscription services of the Hollywood streaming giants like Netflix, AT&T, or Disney Fox. Even in Hollywood, which is broadly unionized, the merger deals created in that business model have been a disaster for workers and consumers, as shown by a report from the Writers Guild of America West.[7]
• According to a letter to the FTC signed by the Communications Workers of America (CWA), this deal is anticompetitive, will vertically integrate the industry, and will harm consumers.[8]
• The Communications Workers of America (CWA) has previously pointed to this merger as an example of a mega-merger that harms workers and consumers to the benefit of executives,[9] highlighting a Treasury report showing that corporate consolidation depresses worker power and wages.[10]
• The law against anticompetitive mergers in the United States, the Clayton Act, helps workers by prohibiting mergers which can give the employer the power to anticompetitively suppress worker wages. It does not approve mergers based on promises of benefits to labor that are conditional on merger approval.

[1] https://www.gamespot.com/articles/playstation-xbox-and-nintendo-gaming-revenue-compared-sony-leads-the-way/1100-6500267/

[2] https://www.wsj.com/articles/microsoft-activision-deal-likely-to-face-close-antitrust-scrutiny-11642538691?mod=hp_lead_pos3

[3] https://www.statista.com/statistics/1338144/microsoft-gaming-revenue-segment/

[4] https://www.statista.com/statistics/269660/activision-blizzards-net-annual-revenue/

[5] https://www.citizen.org/article/microsofts-activision-blizzard/

[6] https://www.gamespot.com/articles/xbox-game-pass-is-not-a-big-moneymaker-right-now-b/1100-6480241/

[7] https://www.wga.org/news-events/news/press/writers-guild-of-america-west-releases-new-report-examining-the-harms-caused-by-media-mergers

[8] https://www.citizen.org/article/microsofts-activision-blizzard/

[9] https://cwa-union.org/news/releases/cwa-endorses-sen-warrens-prohibiting-anticompetitive-mergers-act-ahead-of-critical-ftc

[10] https://home.treasury.gov/news/press-releases/jy0634

[1] https://www.cnn.com/2022/01/18/tech/microsoft-activision-blizzard-acquisition/index.html

[2] https://dealroom.net/blog/biggest-m-a-deals-2022

[3] https://www.cnbc.com/2022/01/18/biggest-tech-deal-ever-microsoft-activision-set-69-billion-record.html