Unfair Game: Microsoft-Activision deal sounds competition and privacy alarm bells

February 6, 2022

3 min read

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What's going on here?

The $68.7bn bid for the acquisition of video-game developer Activision by tech giant Microsoft has drawn attention from US and EU antitrust regulators for privacy and market dominance concerns.

What does this mean?

This announcement comes on the back of Microsoft’s $7bn acquisition of ZeniMax last March. Zenimax was the parent company of the Bethesda Softworks game developers who created the popular “Fallout”, “Doom” and “Wolfenstein” franchises. Both of these acquisitions speak to an increase in tech giants taking over the reins of smaller gaming companies in order to assert dominance in the gargantuan gaming market.

Following calls by critics for regulatory action to strike down the deal, Microsoft shrewdly pointed fingers in a statement claiming that it isn’t the only mammoth competitor, with other companies increasing their control in different areas of the gaming supply chain. It stated: “Mobile game distribution runs through Apple and Google, who can generate more money from consumers who purchase games than the actual studios and developers who make the games”.

However, the sheer size of the acquisition, and of Activision’s gaming library, is bound to be acted upon by competition authorities. Activision is celebrated for its megahits such as “Call of Duty”, “Candy Crush”, and “World of Warcraft” which even gaming novices are likely to have heard of. Microsoft notably owns the gaming console Xbox, and the merger between the two puts Microsoft in a prime position to limit the millions, if not billions, of consumers who play these games to Xbox consoles.

What's the big picture effect?

With the potential swathe of new consumers under the wing of Microsoft, critics including Yale Law fellow Tiffany Li have underlined the risk to privacy this poses. An increase in market share in the tech world means a vast increase in biometric data, intellectual property, and consequently privacy breaches. The ability to adapt games precisely to an individual consumer’s usage behaviour may have a snowball effect for market dominance, making it more difficult for rivals to compete.

So, who are the regulators and what might they do? Antitrust agencies headed by Lina Khan at the US Federal Trade Commission (FTC) and Jonathan Kanter at the US Department of Justice (DOJ) have recently been outspoken about tackling anti-competitive practises by big tech companies. In fact, only hours following Microsoft’s announcement, the FTC launched a clampdown on a tide of illegal mergers and acquisitions in a bid to “modernise” rules, meaning this new Microsoft-Activision deal could be primed for a test case to get the ball rolling.

This wouldn’t be Microsoft’s first time under the microscope: in 2001, US authorities won the “case of a century” against the corporation asserting the abusive practice of using its Windows dominance to oust competitor Netscape. Across the Atlantic, the merger has pricked the ears of EU officials, given the worldwide scope it has for consumers. This harks back to a previous EU multi-million Euro fines imposed on Microsoft in 2003 and 2007 for non-compliance with browser choice commitments.

Nonetheless, this isn’t likely to be a slam-dunk. Bill Baer, former head of the DOJ antitrust division, has highlighted the leniency of the courts in relation to similar mega-merger cases across the tech industry. Furthermore, vertical mergers, like this one, are notoriously difficult to dispute in court. In 2019, the DOJ was unsuccessful in challenging the $80bn AT&T acquisition of Time Warner in the US federal appeals court.

Do the positives of going to court outweigh the negatives? Khan, of the FTC, thinks so, maintaining that having the deal picked apart would be worth any risk of loss. Likewise, Herbert Hovenkamp of PennLaw (University of Pennsylvania) notes that the complexity of the vertical merger seems apt for regulatory reform and new laws. After all, it isn’t the easy cases to win that set a precedent, rather those with novel elements and close calls.

Activision also came under the spotlight in 2021 having been sued by the California Department of Fair Employments and Housing following harassment and discrimination claims. This has sparked pockets of employee unionisation and walk-outs with further claims of discrimination and unfair dismissals.  So, with all eyes on both Activision and Microsoft, it’s a matter of watching this space for either US or EU antitrust developments.

Report written by James Evans

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