I thought this was interesting because it raises some new points of discussion in relation to this acquisition but also about the future consolidation of the industry.
The Congressional Research Service, a Congress' think tank that provides insight and non-partisan analysis of issues of public debate (since 1914), published a few days ago (August 3rd) a report about the ABK acquisition.
The Congressional Research Service operates within the Library of Congress and works primarily and directly for members of Congress and their committees and staff on a confidential, nonpartisan basis. It is one of three major legislative agencies that support Congress.
The report is public and it's called "Microsoft's Proposed Acquisition of Activision Blizzard: In Brief".
It's very well documented (although they still mention Starfield as coming in November :p) and it focuses on the US market (although some of the concerns are valid on a worldwide scale):
- First it includes an analysis of the video game industry (developers, publishers and distributors, gaming by device, subscription services, cloud gaming, etc.)
- Then we have some data: the famous "Game Pass makes up about 60% of the video game subscription market" that Sony used in Brazil comes from here (an Ampere Analysis report).
Among video game publishers in United States, Microsoft has the highest market share with 23,9%. Activision Blizzard is second with 10%. In any case, they say that this info may not accurately reflect competition in these markets, given that ABK and MS compete at a global level.
- Potential concerns from the acquisition:
1) If Microsoft is going to restrict the availability of Activision Blizzard's video games to its consoles and its streaming and cloud gaming services. They mention how MS has stated that Call of Duty and other popular Activision games will be available on competing platforms like Sony's PlayStation. But those commitments are unclear about other subscription or cloud gaming services (we know that Europe is asking about the compatibility and accessibility of Game Pass on rival platforms).
2) The availability of other games that are or will be under development, in this case they mention the case of Starfield (we know that the FTC is also looking into the Bethesda acquisition now).
3) If Microsoft will have a market dominance regarding PC digital stores because they will operate the MS Store and Battle.net. They don't believe so because Valve controls at least 75% of PC desktop game distribution
4) If Microsoft allows other subscription or cloud gaming services to distribute Activision Blizzard's video games, will they charge these providers a fee to do so, meaning potential competitors could face an additional cost that Microsoft would not?
5) Some long term effects of the acquisition, for example if other subscription and cloud gaming service providers are unable to increase their market shares (because MS has accumulated too much valuable content), and then MS could potentially increase prices (beyond what is reasonable) in the future.
6) Microsoft could have a competitive advantage in markets that may develop, like the metaverse. Although Microsoft has been investing in AR and VR, Activision Blizzard hasn't. They mention the recent complaint (July 27th) from the FTC filed in federal court to block Meta Platforms' acquisition of Within Unlimited, a software company that develops apps for VR devices. In its complaint, the FTC states that the acquisition "poses a reasonable probability of eliminating both present and future competition". The focus on "future competition" is an interesting point, they believe.
7) Microsoft's acquisition could reduce the number of potential employers in the video game industry, what is called "Labor market monopsony".
A monopsony exists when a single buyer dominates a market. In labor markets, an employer with monopsony power dominates demand for workers able to perform certain jobs, enabling it to pay lower compensation than might be required to attract workers in a competitive market
They say that at an FTC forum in May 2022, an Activision Blizzard employee raised concerns that consolidation in the industry could enable firms to hire employees at lower wages than in a competitive market.
They think that if Microsoft allows Activision Blizzard to essentially operate as a separate entity within Microsoft (as they did with Bethesda), the acquisition might not significantly affect the labor market for developers.
Furthermore, some employees may have skills that would be easily transferrable to firms outside of the video game industry, which could limit Microsoft's ability to control wages.
They also mention the labor neutrality agreement signed in June between the Communications Workers of America and Microsoft to enable workers "to freely and fairly make a choice about union representation".
In any case, in the last two decades only 5% of the transactions received a second request for additional information (this is the phase where MS - ABK are now). And only a portion of these in-depth investigations resulted in one of the agencies contesting the transaction.
Finally, it includes some considerations for US Congress:
A) Some bills introduced in the 117th Congress and related to mergers and acquisitions (S. 225, S. 3267, H.R. 7101, S. 3847 and S. 1074), if passed into law, could affect Microsoft's proposed acquisition. For example, because they explicitly prohibit monopsony or would prevent firms of a certain size or share of a defined market from making any acquisitions.
B) Some other bills not focused on mergers and acquisitions (H.R. 3816, S. 2992, S4201 and H.R. 7858), if passed, likely would not affect Microsoft's proposed acquisition now (although maybe futures ones). These bills want to prohibit large firms from engaging in specified forms of discriminatory conduct or would create a new federal commission to regulate digital platforms.
Anyway, some good food for thought about this acquisition and the future of the industry in the US and beyond.
The Congressional Research Service, a Congress' think tank that provides insight and non-partisan analysis of issues of public debate (since 1914), published a few days ago (August 3rd) a report about the ABK acquisition.
The Congressional Research Service operates within the Library of Congress and works primarily and directly for members of Congress and their committees and staff on a confidential, nonpartisan basis. It is one of three major legislative agencies that support Congress.
The report is public and it's called "Microsoft's Proposed Acquisition of Activision Blizzard: In Brief".
It's very well documented (although they still mention Starfield as coming in November :p) and it focuses on the US market (although some of the concerns are valid on a worldwide scale):
- First it includes an analysis of the video game industry (developers, publishers and distributors, gaming by device, subscription services, cloud gaming, etc.)
- Then we have some data: the famous "Game Pass makes up about 60% of the video game subscription market" that Sony used in Brazil comes from here (an Ampere Analysis report).
Among video game publishers in United States, Microsoft has the highest market share with 23,9%. Activision Blizzard is second with 10%. In any case, they say that this info may not accurately reflect competition in these markets, given that ABK and MS compete at a global level.
- Potential concerns from the acquisition:
1) If Microsoft is going to restrict the availability of Activision Blizzard's video games to its consoles and its streaming and cloud gaming services. They mention how MS has stated that Call of Duty and other popular Activision games will be available on competing platforms like Sony's PlayStation. But those commitments are unclear about other subscription or cloud gaming services (we know that Europe is asking about the compatibility and accessibility of Game Pass on rival platforms).
2) The availability of other games that are or will be under development, in this case they mention the case of Starfield (we know that the FTC is also looking into the Bethesda acquisition now).
3) If Microsoft will have a market dominance regarding PC digital stores because they will operate the MS Store and Battle.net. They don't believe so because Valve controls at least 75% of PC desktop game distribution
4) If Microsoft allows other subscription or cloud gaming services to distribute Activision Blizzard's video games, will they charge these providers a fee to do so, meaning potential competitors could face an additional cost that Microsoft would not?
5) Some long term effects of the acquisition, for example if other subscription and cloud gaming service providers are unable to increase their market shares (because MS has accumulated too much valuable content), and then MS could potentially increase prices (beyond what is reasonable) in the future.
6) Microsoft could have a competitive advantage in markets that may develop, like the metaverse. Although Microsoft has been investing in AR and VR, Activision Blizzard hasn't. They mention the recent complaint (July 27th) from the FTC filed in federal court to block Meta Platforms' acquisition of Within Unlimited, a software company that develops apps for VR devices. In its complaint, the FTC states that the acquisition "poses a reasonable probability of eliminating both present and future competition". The focus on "future competition" is an interesting point, they believe.
7) Microsoft's acquisition could reduce the number of potential employers in the video game industry, what is called "Labor market monopsony".
A monopsony exists when a single buyer dominates a market. In labor markets, an employer with monopsony power dominates demand for workers able to perform certain jobs, enabling it to pay lower compensation than might be required to attract workers in a competitive market
They say that at an FTC forum in May 2022, an Activision Blizzard employee raised concerns that consolidation in the industry could enable firms to hire employees at lower wages than in a competitive market.
They think that if Microsoft allows Activision Blizzard to essentially operate as a separate entity within Microsoft (as they did with Bethesda), the acquisition might not significantly affect the labor market for developers.
Furthermore, some employees may have skills that would be easily transferrable to firms outside of the video game industry, which could limit Microsoft's ability to control wages.
They also mention the labor neutrality agreement signed in June between the Communications Workers of America and Microsoft to enable workers "to freely and fairly make a choice about union representation".
In any case, in the last two decades only 5% of the transactions received a second request for additional information (this is the phase where MS - ABK are now). And only a portion of these in-depth investigations resulted in one of the agencies contesting the transaction.
Finally, it includes some considerations for US Congress:
A) Some bills introduced in the 117th Congress and related to mergers and acquisitions (S. 225, S. 3267, H.R. 7101, S. 3847 and S. 1074), if passed into law, could affect Microsoft's proposed acquisition. For example, because they explicitly prohibit monopsony or would prevent firms of a certain size or share of a defined market from making any acquisitions.
B) Some other bills not focused on mergers and acquisitions (H.R. 3816, S. 2992, S4201 and H.R. 7858), if passed, likely would not affect Microsoft's proposed acquisition now (although maybe futures ones). These bills want to prohibit large firms from engaging in specified forms of discriminatory conduct or would create a new federal commission to regulate digital platforms.
Anyway, some good food for thought about this acquisition and the future of the industry in the US and beyond.
