Except it wasn't always this way, and it may not be for much longer. Even before the Biden administration took office, Facebook was attracting more anti-trust scrutiny and that 2012 merger approval came to be regarded as a ghastly mistake that led to a major lawsuit that currently threatens to break-up the company. But literally today, the same day Microsoft lifted the covers on its purchase of Activision, the head of the Justice Department's antitrust division Jonathan Kanter and FTC chair Lina Khan announced they're changing the merger guidelines their respective agencies use to evaluate proposed mergers. Crucially, Khan had previously been focused on changing guidelines around "vertical" acquisitions while the DOJ has been looking to change policy on both vertical and horizontal mergers. And what's really interesting about Microsoft acquiring Activision is that it's kind of both at once.

Rob: I don't disagree that the track record suggests this would sail past regulatory scrutiny, but I also couldn't imagine a worse moment in the last few decades to try and close a deal like this because that track record itself is being re-evaluated by the people who make decisions like this and it's not quite a neatly partisan issue anymore. Even beyond the right-wing whining that happens every time one of their dipshit Wormtongues violates a platform's TOS and gets kicked off, there is a wing of the conservative movement that's become skeptical of Big Business and its tendency toward monopoly.

Ever since the days of Robert Bork we've been ruled by this really narrow "consumer welfare standard" when it comes to how regulators evaluate mergers. Planet Money gave a really good primer on how antitrust used to be administered and what changed in the 80's, but the long and short of it is that for about forty years, as long as business lawyers could semi-plausibly argue that consumers wouldn't see higher prices, the government had no business intervening to stop a merger even if the resulting entity would have an enormous amount of market power. Prior to that, however, regulators could consider things like the amount of influence over market prices a merger would likely give a company, or how difficult other firms in the sector would find it difficult to compete, or whether it would make it impossible for new, competing companies to start-up and bring choice and innovation to consumers. None of that mattered as long as the prices would probably stay flattish, never mind that if anything a properly competitive market probably sees prices come down over time rather than stagnate.

On the other hand, check out how weird this merger may look to regulators. Microsoft owns the Xbox platform and exerts tremendous influence on the PC via Windows, and it has increasingly tried to unite that power under the banner of Microsoft Gaming and turn Xbox into an umbrella term covering a wider ecosystem. One of the tools they have used to drive that is Game Pass, a subscription service that gives you access to a rotating library of games that Microsoft has licensed for the service. To feed that service, however, Microsoft has spent now tens of billions of dollars to acquire IPs, studios, and entire publishers. They also make several games of their own that compete or used to compete with other products from publishers and developers around the industry. With Activision, one of the predominant publishers in the space becomes just an important pillar supporting Microsoft's platforms.

We've always wondered, long-term, whether Game Pass would be a net positive for people who make and sell games, or whether it would just condition players to play what's on Game Pass and wait-out games that are selling at their full price. Maybe if you're under the Microsoft umbrella, this doesn't matter, but I think developers and publishers will see a lot to worry them in Microsoft's ambitious form of platform capitalism. I'd already heard, anecdotally, that Game Pass licensing deals aren’t exactly putting much profit in the hands of developers in recent years, and a lot of third-party games might end up there mostly to recoup potential losses on under-performing games. But there's a vicious cycle there, right? It's only going to be harder to sell games when a cheap subscription service is offering them all "for free" with the cost of your sub.

In a different business environment you might see companies like EA or Ubisoft screaming bloody murder and preparing to fight this but my guess is, just about every board member and C-suite executive is daydreaming about selling to a similar acquisition, because it's a hell of a lot easier to sell a company and take the price for the shares than it is to create and sell games year in, year out. But the fact that a lot of corporate stakeholders want to see deals like this go through doesn't change the fact that, if you're looking at this from the standpoint of what preserves a fairly competitive playing field for existing companies, Microsoft acquiring Activision represents at best a sea change and at worse an accelerating monopoly roll-up.

And for people who mostly see this as a good thing because it means more cool games will reach Game Pass, I hear that. It's an amazing service. It's also a service that benefits a lot from the games industry ecosystem that Microsoft is radically altering. Put another way, do you think Game Pass is as interesting in five or ten years when Bethesda, Activision, Blizzard, and all Microsoft's other studios are all coordinating releases to stay out of each other's way and have all been reduced in size and scope in order to save money on the corporate bottom line?

Even if consumers are unmoved by that, employees shouldn't be. I think you're probably right, Patrick, that this will likely dilute the push for unionization at Activision, if only by making some of the issues seem less acute or like they might plausibly get better under new management down the road. But that's an awful lot of games industry jobs that will be put under one roof, and as a rule, oligopolists don't bid against themselves for talent. Blizzard famously underpaid people for years because the brand was so strong that people were willing to endure far too much to continue working there. Just imagine how it'll play out once a lot of the companies that were competing for that kind of talent are now part of the same organization as Blizzard. Wage-fixing won't even require the collusion of the Silicon Valley wage theft scandal anymore.

But Game Pass has been around long enough that you can almost make judgement calls on the quality of a game, based on whether Microsoft acquires it right before it’s released. This happened most famously with Outriders last year, a perfectly fine game that almost immediately sputtered out—but was a huge hit on Game Pass for a hot minute. It’s hard not to draw the same conclusion about Rainbow Six Extraction, the long-in-development spin-off that, at the last second, is coming to Game Pass. At one point, you might have assumed that’s because Microsoft wants to make a splashy play, but now, maybe it’s just Ubisoft trying to sell the cable rights to their video game, while Microsoft waits for folks to come knocking.

Source: Vice News

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