Video Game Consolidation is Likely to Continue

By Garrett Handegan

Video game companies are consolidating at a rapid pace. In 2014 Microsoft acquired Mojang, best known for creating Minecraft.[1] In 2018 Microsoft acquired five new studios: Undead Labs, Playground Games, Ninja Theory, and Compulsion games.[2] In 2020 Microsoft acquired ZeniMax Media, a video game holding company responsible for producing some of the most popular video game experiences in the market.[3]

In January of 2022 Microsoft announced its intent to buy Activision Blizzard.[4] Activision Blizzard is a company responsible for producing many popular game series such as Overwatch, Diablo, and, of course, Call of Duty,[5] the game series at the heart of Federal Trade Commission v. Microsoft Corp, Case No. 23-cv-02880-JSC, 2023 WL 4443412 at *1. In December 2022, the Federal Trade Commission (“FTC”) filed an action seeking a preliminary injunction to enjoin the merger alleging that the merger violated Section 7 of the Clayton Act.[6] The FTC’s theory was that Call of Duty is a game series that is so popular Microsoft would make it an exclusive game series to its own game systems, the Xbox line, for its own economic benefit despite the detrimental impact this would have on the consumers.[7] Ultimately, the FTC’s efforts would prove unsuccessful and Microsoft acquired Activision Blizzard for $69 billion dollars; the largest deal in video game history and a continuation of a years long trend of consolidation in the video game industry.[8] After losing on appeal the FTC ultimately decided to withdraw from litigation rather than go to trial.[9] But how did the court reach this decision?

Under Section 7 of the Clayton Act the first step of analysis is to determine the relevant market of competition. [10] The Call of Duty series has traditionally been playable through many different mediums: the Microsoft game console, the Sony game consoles, Nintendo game consoles, mobile devices, and PCs.[11] For the purposes of this case, the relevant product market was the high-performance console market which excluded Nintendo consoles, mobile devices, and PCs due to the differences due to functional differences in how they operate.[12]

Further, under Section of the Clayton Act the court must also find that the combined firm must have both the ability, the incentive to foreclose the product and that competition would probably be substantially lessened as a result of the withholding.[13] The court found that there was no incentive to foreclose Call of Duty.[14] In doing so the court focused primarily on three categories: (1) the record contained evidence indicating that there were no plans to make Call of Duty an Xbox exclusive and that Microsoft had reached out to other companies in an effort to negotiate deals that would facilitate Call of Duty being available on multiple platforms, (2) When considering the purchase if Activision Blizzard Microsoft had taken into account cross-platform sales and testified that they viewed cross-platform sales as more profitable than exclusive sales; and (3) other established multiplatform games that have been acquired by Microsoft, such as Minecraft, were still being released on consoles other that Microsoft.[15]

These deals are not just being approved in the United States either. The European Union also approved the acquisition after a concession by Microsoft that another game company, Ubisoft, would have the cloud streaming rights for all Activision Blizzard games.[16] Under this deal people in EU countries are able to stream the game on any service. For other countries it is Ubisoft, not Microsoft, that controls whose streaming services Call of Duty and all other Activision games are on.[17] Microsoft also reached deals for streaming with various internationally based cloud gaming providers in order to appease the EU. [18]

Game company acquisitions are likely to continue. Microsoft is just one company, but this is happening throughout the industry at a rapid rate. In January of 2022, the same month that Microsoft’s intent to buy Activision Blizzard was announced, Take-Two Interactive bought Zynga for $12.7 billion, the largest acquisition in the industry’s history up to that point.[19] In the same month Sony, one of Microsoft’s biggest competitors in the gaming space, bought Bungie for $3.6 billion.[20] While video games made up 6.1% of the media sector in 2017, by 2026 it is expected to grow to 10.9% and be worth $321 billion.[21] At this point, for game companies, consolidation is just good business.

[1] Angela Moscaritolo, Microsoft Buys Minecraft Maker Mojang for $2.5 Billion, PCMag (Sept. 15, 2014), https://www.pcmag.com/news/microsoft-buys-minecraft-maker-mojang-for-25-billion.

[2] David Lumb, Microsoft bought five studios to fix its Xbox game problem, engadget https://www.engadget.com/2018-06-10-microsoft-bought-five-studios-to-fix-its-xbox-game-problem.html (Aug. 8, 2019).

[3] Jessica Conditt, Microsoft consolidating the video game industry is bad for everyone, engadget (Jan. 18, 2022), https://www.engadget.com/microsoft-xbox-activision-blizzard-consolidation-exclusives-222028443.html.

[4] Steve Kovach, Microsoft to buy Activision in $68.7 billion all-cash deal, CNBC (Jan. 18, 2022), https://www.cnbc.com/2022/01/18/microsoft-to-buy-activision.html.

[5] See Activision Blizzard https://www.activisionblizzard.com/games (last visited Nov. 11, 2023).

[6] Federal Trade Commission v. Microsoft Corp, Case No. 23-cv-02880-JSC, 2023 WL 4443412 *1, at *7.

[7] Id. at *1.

[8] Sarah Parvini, Microsoft acquires Activision Blizzard in $69-billion gaming deal, L.A. Times https://www.latimes.com/entertainment-arts/business/story/2023-10-13/microsoft-activision-blizzard-acquisition-deal (Oct. 13, 2023).

[9] Alexis Keenan, FTC backs down from legal challenge to Microsoft-Activision merger, yahoo!finance https://finance.yahoo.com/news/ftc-backs-down-from-legal-challenge-to-microsoft-activision-merger-113327652.html (July 21, 2023).

[10] Federal Trade Commission, 2023 WL 4443412, at *9

[11] See Eddie Makuch Call of Duty: Modern Warfare 3 Campaign Review Roundup, Gamespot (Nov. 6, 2023, 12:10 PM), https://www.gamespot.com/articles/call-of-duty-modern-warfare-3-campaign-review-roundup/1100-6518944/.

[12] Federal Trade Commission, 2023 WL 4443412, at *11

[13] Id. at *12

[14] Id. at *13-15

[15] See Id. at *13-15

[16] Tom Warren, Ubisoft and Activision Blizzard’s deal for cloud gaming rights, explained, The Verge (Oct. 13, 2023, 12:58 PM), https://www.theverge.com/2023/10/13/23915780/ubisoft-activision-blizzard-microsoft-cloud-gaming-rights-deal-explained.

[17] Id.

[18] Id.

[19] Nicole Carpenter, Microsoft, Sony acquisitions are just the start of massive video game industry consolidation, Polygon (Feb. 2, 2022, 3:50 PM), https://www.polygon.com/22914859/microsoft-activision-blizzard-sony-acquisitions-consolidation-2022.

[20] Id.

[21] Simon Read, Gaming is booming and is expected to keep growing. This chart tells you all you need to know, World Econ. F. (Jul. 28, 2022), https://www.weforum.org/agenda/2022/07/gaming-pandemic-lockdowns-pwc-growth/.