Game On!

Yesterday, the Federal Trade Commission announced that it would seek to block Microsoft’s $69 billion acquisition of Activision, the video game behemoth behind Call of Duty, a franchise that has generated almost $30 billion in revenue from game sales and microtransactions since 2003.

It’s a curious development for two very different reasons. First, according to a story in today’s Wall Street Journal, Microsoft has been engaged in a charm offensive with every regulator that will sit down with it, an effort led by its vice chairman and president, Brad Smith, who joined the company back in 1993. To allay regulators’ concerns, Microsoft has made many promises, the most important of which is that Call of Duty will be available on other platforms, such as Sony PlayStation. 

Perhaps a more important reason that the FTC’s move came as a surprise is that courts have been skeptical of challenges to so-called vertical mergers, or mergers in which two businesses don’t compete directly. Although the landmark Paramount case famously barred vertical integration in the movie business, in which studios tried to control production, distribution, and exhibition of feature films, the justice system has looked the other way when it comes to other vertical mergers. One famous albeit dated example is the AT&T / TIme Warner merger, which was ultimately allowed. 

Given how many concessions Microsoft has made to help this deal go through, Daniel Francis, an assistant professor of law at New York University and a former F.T.C. official, thinks the FTC has overplayed its hand. “Courts have been surprisingly solicitous about the kind of things that Microsoft has offered here,” he told the New York Times.

The Times also notes that the FTC’s leader, Lina Khan, has been very aggressive in pursuing novel novel or little-used arguments to challenge deals.

Still, any parent of a thirteen-year-old StrictlyVC intern who plays NBA 2K can tell you that Xbox and PlayStation don’t always play well together, especially when it comes to fast-twitch games like Call of Duty. 

No matter how much Microsoft protests that Call of Duty will not tilt the scales in its favor, we can definitely see why regulators and Sony are so concerned

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