Microsoft / Activision merger could ‘help break the mobile app distribution bottleneck in Europe’

On Thursday, December 8th, the FTC sued to block Microsoft’s $70 billion dollar acquisition of Activision Blizzard. Activision develops some of the world’s most popular video game franchises, including Call of Duty. The FTC’s concern is that this acquisition would allow Microsoft to manipulate pricing, downgrade player experience, or withhold “must have” content, thus driving people to Microsoft’s console offerings. [1] It should be noted that this is contrary to the position being taken by Microsoft, who have made assurances to regulators to not withhold games and have signed a ten year access contract with Sony and Nintendo for Call of Duty. [2] [3]

The Commission is, however, unwilling to take Microsoft’s at its word in this matter, and with some reason. Holly Vedova, the Director of the FTC’s Bureau of Competition, stated “Microsoft has already shown that it can and will withhold content from its gaming rivals”, referring to the company’s decision to make several of Bethesda Softworks’s titles exclusive, in spite of prohibitive commitments offered to European regulators. [4] 

The pro-competitive benefits are likewise hard to see. Activision currently offers its games to all devices and so long as its interests remain independent of a particular consumer, it will continue to do so.  

However, despite the strong structural arguments against the combination, Professor Scott Morton, who is currently acting as an economic expert for Microsoft in relation to the Activision acquisition, does put forward an interesting argument in its favour.  

See Professor Scott Morton’s paper on the ‘Principles for platform mergers with an application to Microsoft-Activision’ here

Professor Morton’s defense of the merger hinges on an argument that it is in Microsoft’s interest to distribute Call of Duty widely due to users’ preference for “cross-platform play”, hence its commitments to regulators to ensure wide distribution.  

But Professor Morton also, notably, points to the bigger bullies on the playground, in Google and Apple, outlining the potential for Microsoft, together with Activision, to drive competition in the cloud gaming sector.  

Professor Morton views the EU Digital Markets Act, which force Google and Apple to allow the sideloading of apps under fair and reasonable terms, as a welcome legislative remedy to the current duopoly in the app store market, but argues that, realistically, this legislation will not immediately facilitate competitive app markets. This is a concern MOW shares.  

Apple and Google might be legally compelled to open their operating systems to competing channels for developers, but there will inevitably be standards and rules and lobbying that will purposefully slow-up this process. Accordingly, a successful entrant ‘will need technological and legal skills’ as well as financial power to succeed – Microsoft and Activision just might fit the bill.  

This is certainly an interesting argument and one that should be considered. The outcome, in other times, might be undertakings that would allow cross platform compatibility – but the FTC seems to be looking to prevent the problem from arising so will likely be unwilling to accept that undertakings would be sufficient.

Meanwhile, regulators in the EU, but also the US, where the Open App Markets Act is in Congress, and the UK, where the CMA are investigating this issue, should consider the crucial matter of implementation.