This is the web version of dot.LA’s daily newsletter. Sign up to get the latest news on Southern California’s tech, startup and venture capital scene.
Sponsor message: Unlock coworking spaces near you with WeWork All Access. Enjoy 25% off monthly membership fees for up to 5 months with code ALLACCESS25. Terms apply. Visit wework.com to get started.
After months of closed-door deliberations and speculation, on Thursday, the Federal Trade Commission (FTC) formally announced plans to file suit, at least temporarily blocking Microsoft’s planned acquisition of gaming juggernaut Activision Blizzard. The $68.7 billion all-cash deal was first publicly proposed back in January, and would find Microsoft paying $95 per share for the game publisher, which owns the “Call of Duty,” “Candy Crush,” “World of Warcraft,” “Diablo,” “Overwatch,” “Crash Bandicoot,” “Tony Hawk’s Pro Skater,” and “Guitar Hero” franchises, among many others.
The deal brings with it some clear and immediate benefits for both companies.
Activision Blizzard remains mired in an ongoing string of controversies and scandals, and could certainly use a public rebranding and a change in management. Microsoft, on the other hand, needs more popular content to fill in its Xbox Game Pass subscription service, which missed its subscription target numbers in 2021. Not to mention the company could use a boost from mega-hit titles like “Call of Duty.” Microsoft also exited the pandemic with a tremendous amount of cash on hand and the deal would soak up some of the $137.7 billion in reserves sitting on the company’s balance sheet.
What does this mean for consumers?
Less clear, though, is whether or not the merger would benefit consumers, or result in higher prices and stifled competition.
In a statement explaining the move, the FTC cited anti-competition concerns specifically regarding Microsoft’s XBox gaming console, and the company’s various gaming subscription services. As Microsoft already controls the distribution of games to its console, theoretically, it could show favoritism toward its own titles while suppressing games from rivals, among other strategies for influencing the gaming market.
Microsoft’s chief rival, Sony – owners of the PlayStation console – has emerged as the merger’s fiercest non-government critic, telling a UK regulator in November that it’s incapable of replicating the runaway success of the “Call of Duty” franchise with its own “Battlefield” first-person shooter games. In Sony’s view, the uncatachable success of “Call of Duty” combined with Microsoft’s considerable market power shuts down any newcomers in the entire genre, even if its owner honors its pledge to technically make the came available on rival platforms. Basically, Microsoft, and by extension Xbox, essentially runs the board on military first-person shooter games moving forward, even if another developer comes up with an ingenious new concept.
It’s also possible that Microsoft could exert anti-competitive market influence in a number of other, more subtle ways. For example, by coordinating prices between its various brands, driving up the overall price of some titles or entire categories of games. In addition, Microsoft could decline to publish Activision Blizzard games on rival subscription services, both limiting the ability of consumers to access new games on their favorite consoles, and diminishing the quality of popular non-Microsoft game streaming services.
These aren’t just theories, either, but similar strategies to those Microsoft and its competitors have employed in the past. In August, Microsoft made the case to a Brazilian regulator that Sony had paid game publishers specifically to stop developing content for the Xbox Game Pass system. Additionally, documents filed as part of the Epic Games vs. Apple lawsuit in 2021 reveal that Microsoft executives had considered offering game publishers a more favorable revenue split if they agreed to grant the company exclusive streaming rights. These anti-competitive attempts to influence the market artificially limit the choices and options available to consumers in terms of where they can buy games and how much they’ll have to pay.
Should Activision Blizzard games become exclusive to Windows-based cloud streaming services, the thinking goes, then consumers would be generally discouraged from buying non-Windows PCs.
How is Microsoft responding?
Microsoft has attempted to head off some of these concerns rhetorically, by assuring gamers and other companies that it will continue to make popular Activision Blizzard titles widely available on rival platforms moving forward. The company offered a 10-year pledge to sell “Call of Duty” games for Sony’s PlayStation console, should the Activision Blizzard merger get approved, and agreed to sign a contract to that effect with regulators in the US, UK, and the EU. More recently, Microsoft offered similar proposals regarding Valve’s Steam gaming platform and Nintendo consoles. (This would notably make “Call of Duty” entries available on Nintendo systems for the first time.)
Still, this was not enough to convince the Biden Administration’s FTC, which has taken a significantly more aggressive stance toward pursuing antitrust action under new Chair Lina Khan. The former Columbia University Law School professor also took aim just this week at Ticketmaster owner Live Nation, on behalf of angry Taylor Swift fans, and Meta, which her agency hopes to block from acquiring the VR company Within Unlimited and its fitness app, Supernatural. - Lon Harris
NASA's Newest Robotic Arm that Could Change How We View Our Moon
Before the end of this decade, Pasadena-based JPL will conduct a critical test of a new robotic arm that could lead to some breakthrough discoveries about our Moon.
Meet TukTuk, LA's Latest E-Scooter Startup
TukTuk is the latest arrival to the Los Angeles e-scooter wars, hitting the streets just as Lyft and Spin bow out.
Get Tickets to the #LongLA Holiday Party with dot.LA
Join dot.LA and other great organizations for the #LongLA holiday party on Thursday 12/15! More information and tickets available here.
What We’re Reading...
- Disney Plus’ lower-cost ad-supported subscription tier launched in the U.S. on Thursday.
- Virgin Orbit once more delayed the first-ever space launch from the United Kingdom – which will deploy satellites over Cornwall – due to licensing issues.
- Element Resources plans to open an energy plant in Lancaster, California, which will produce renewable zero-carbon renewable hydrogen power.
- Thousand Oaks-based biotech company Dantari closed a $47 million Series A round led by Westlake Village BioPartners.
How Are We Doing? We're working to make the newsletter more informative, with deeper analysis and more news about L.A.'s tech and startup scene. Let us know what you think in our survey, or email us!