By: Anthony Rodriguez
The video game industry is a large often ignored entertainment industry that generates more revenue than classical entertainment industries.[1] The industry is decentralized and separated into four distinct markets; mobile gaming, portable consoles, home consoles, and PC gaming.[2] The gaming industry frequently sees multiple mergers and acquisitions. [3] At the forefront of recent acquisitions are two companies, Embracer Group and Microsoft.[4] Microsoft’s acquisitions often stir controversy because they hold a coveted and limited position within the industry; Microsoft is both a console developer and publisher.[5] Recently, Microsoft acquired Call of Duty publisher Activision Blizzard which sparked an antitrust lawsuit headed the Federal Trade Commission.[6]
The Court found the Microsoft-Activision merger did not violate vertical antitrust laws and removed all legal barriers allowing Microsoft to purchase Activision Blizzard.[7] For a court to find a vertical antitrust issue, there must be a probable anticompetitive effect because of the merger.[8] An anticompetitive effect may substantially lessen competition or tend to create a monopoly in any line of commerce.[9]
The FTC’s arguments were limited in scale and scope. The Court and FTC limited much of the discussion to the home console market.[10] The PC gaming market is the second largest video game market, but the FTC largely ignored it because they focused on the smaller home consoles and cloud streaming services markets. [11]The FTC should have expanded their arguments and discussed PC gaming storefronts in greater depth.
When discussing the relevant markets for the case, the FTC successfully claimed the PC market was an independent gaming market.[12] Microsoft introduced evidence that they intended to preserve the current PC gaming market by presenting a proposed deal to Valve Corporation, owners and operators of largest PC gaming storefront Steam. [13] This deal required Microsoft continue publishing Call of Duty on Steam.[14] The Court interpreted this action as Microsoft lacking the intent to foreclose Call of Duty from other markets, which supports finding the merger is not anticompetitive.[15] While this is a potentially valid interpretation of Microsoft’s actions, the FTC should have fought against such an interpretation by better articulating the state of PC gaming. Steam has faced staunch criticism for their practices from developers.[16] Steam is estimated by competitors to have an 85% market share of the PC gaming industry.[17] This market share was created naturally, but one of the few competitors within PC gaming is Battle.net, which is owned by Activision Blizzard.[18] Part of Battle.net’s appeal was its exclusivity.[19] Despite Battle.net being the exclusive platform for Call of Duty on PC for a five year period, Activision and Microsoft found the exclusivity was a financial flop.[20] This puts the future of Battle.net into question, especially if Microsoft’s trend of publishing previously exclusive titles on Steam continues, which could increase the likelihood they shut down Battle.net or merge it with another service.[21] Microsoft previously closed Bethesda’s PC storefront a few years after their acquisition.[22] Overall, the point of bringing this fact up is to illustrate a potentially successful argument the FTC failed to make while illustrating a larger issue when it comes to substantive lawsuits involving the gaming industry as a market. [23]
Many entities outside the industry simply do not know the industry well enough to challenge substantive claims about the industry. Compared to other entertainment industries, much of the information surrounding the gaming industry is kept internal, creating a veil that limits general knowledge of the industry.[24] Microsoft’s failure to properly redact multiple documents gave a rare peak behind the curtain.[25] This glimpse into the industry gave a clear understanding of the uphill battle the FTC faces when trying to regulate the gaming industry. The FTC cannot properly challenge gaming companies’ evidence nor make effective arguments if they have minimal knowledge of the industry. The legal issues within the gaming industry are only going to grow given its size and the increase in company mergers, and the FTC needs to prepare themselves for those challenges.
[1] Krishan Arora, The Gaming Industry: A Behemoth With Unprecedented Global Reach, Forbes (Nov. 13, 2023, 8:00 AM), https://www.forbes.com/sites/forbesagencycouncil/2023/11/17/the-gaming-industry-a-behemoth-with-unprecedented-global-reach/?sh=1cf50ea6512f.
[2] See also FTC v. Microsoft Corp., No. 23-cv-02880-JSC, 2023 U.S. Dist. LEXIS 119001, at *7-13 (N.D. Cal. July 10, 2023); See also David Pierce, Handheld Gaming is the Future – Again, The Verge (Nov. 6, 2023, 7:21 AM), https://www.theverge.com/23948529/nintendo-switch-steam-deck-handheld-consoles-gaming.
[3] Jordan Sirani, Embracer Group: What is the Company That Now Owns Tomb Raider?, IGN (Oct. 10, 2022, 7:25 AM), https://www.ign.com/articles/embracer-group-games-studios-games-acquisitions; Tyler Colp, Every game and studio Microsoft now owns, PC Gamer (Jan. 18, 2022), https://www.pcgamer.com/every-game-and-studio-microsoft-now-owns/.
[4] Id.
[5] Xbox, https://www.xbox.com/en-US (last visited Mar. 13, 2024).
[6] FTC, 2023 U.S. Dist. LEXIS 119001, at *1-8.
[7] Id. at *76-78.
[8] Brown Shoe Co. v. United States, 370 U.S. 294, 319-24 (1962).
[9] Id.
[10] FTC, 2023 U.S. Dist. LEXIS 119001, at *1-8.
[11] Id. at *11; Id. at *13-24.
[12] Id. at *11.
[13] Id. at *46-48.
[14] Id.
[15] Id.
[16] See Tim Colwill, Steam developers speak: Maximum profits for Valve, minimum responsibilities, Polygon (Oct. 19, 2018, 9:58 AM), https://www.polygon.com/2018/10/19/17959138/steam-valve-developer-support-pricing-reviews.
[17] See Tim Sweeny (@TimSweeneyEpic), X (Oct. 27, 2023, 3:58 PM), https://twitter.com/TimSweeneyEpic/status/1718039450255515940.
[18] Battle.net, https://us.shop.battle.net/en-us (last visited Mar. 13, 2024); See also Jacob Ridley, Steam developers speak: Maximum profits for Valve, minimum responsibilities, PC Gamer (Aug. 1, 2023), https://www.pcgamer.com/publishers-thought-they-could-take-a-bite-out-of-steam-yet-its-more-dominant-than-ever/.
[19] Battle.net, supra note 18.
[20] Tyler Wilde, Making Call of Duty a Battle.net exclusive was apparently a ‘resounding failure’, PC Gamer (Jul. 13, 2023), https://www.pcgamer.com/making-call-of-duty-a-battlenet-exclusive-was-a-resounding-failure-argues-microsoft/.
[21] See also Megan Spurr, Everything You Need to Know About Diablo IV Coming to Game Pass, Microsoft (Mar. 26, 2024), https://news.xbox.com/en-us/2024/03/26/need-to-know-diablo-4-with-game-pass/.
[22] See Jody Macgregor, The Bethesda Launcher will be shut down on May 11, PC Gamer (Apr. 23, 2022), https://www.pcgamer.com/the-bethesda-launcher-will-be-shut-down-on-may-11/#:~:text=You’ll%20be%20able%20to,to%20Steam%20from%20April%2027.
[23] FTC, 2023 U.S. Dist. LEXIS 119001, at *46-70.
[24] See, e.g., Harvey Randell, In 2018 a group of Valve staff tried to figure out just how efficient they were being—and found they were making more money per head than Apple, Facebook, and nearly every tech giant out there, PC Gamer (Mar. 14, 2024), https://www.pcgamer.com/gaming-industry/in-2018-a-group-of-valve-staff-tried-to-figure-out-just-how-efficient-they-were-beingand-found-they-were-making-more-money-per-head-than-apple-facebook-and-nearly-every-tech-giant-out-there/#:~:text=Turns%20out%2C%20Valve%20was%20making,%2C%22%20writes%20Valve’s%20Kristan%20Miller.
[25] See Jeremy Childs, Microsoft Gaming CEO discussed Nintendo acquisition, Xbox woes in leaked emails, Los Angeles Time (Sept. 22, 2023, 1:20 PM), https://www.latimes.com/entertainment-arts/story/2023-09-22/xbox-leaks-microsoft-emails-nintendo-sega-phil-spencer.
