Kara Swisher
I'm Kara Swisher, and you're listening to "Sway." A special bonus episode of "Sway," in fact. My colleague Andrew Ross Sorkin and I just wrapped up a fiery interview with Lina Khan, the Federal Trade Commission chair. It was the chairwoman's first on-camera sit down since assuming the role, and she gave it exclusively to The New York Times and CNBC.
I spoke to Lina on "Sway" a while ago, before Biden won the election and before she got the big job. So I was excited to reconnect with her now, a year into the Biden administration and seven months into her new gig, to see whether, or how, she and the F.T.C. are going to ratchet back the power of big tech companies like Amazon, Google and Facebook, and to see how they're thinking about new mergers on the horizon— for example, Microsoft and Activision. Here's our conversation, taped this morning.
Andrew Ross Sorkin
We want to welcome Chair Khan for being here. So thank you.
Kara Swisher
Thank you so much.
Lina Khan
Thank you both. Great to be here.
Andrew Ross Sorkin
We're thrilled to be with you. We've been wanting— there's a million questions we have for you. But here's where we want to start, which is that this conversation is going to focus on your agency and the Department of Justice starting to rewrite this process of guidelines for mergers. And as we just mentioned, last year was such a big one for deals— nearly $6 trillion for the first time ever— and just yesterday, hours before you held a press conference to talk about all of this, Microsoft announced a massive transaction to acquire Activision Blizzard for nearly $70 billion. And Activision's C.E.O., Bobby Kotick, addressed the issue of competition and tie-ups on CNBC yesterday. I just want you to listen to this.
Archived Recording (Bobby Kotick)
And one of the motivations that we had for a partnership with Microsoft is the recognition of— it's a big market, but there's enormous amount of competition, whether it's Tencent, who has resources that are extraordinary and a global footprint, or Sony, or Facebook, or Amazon, or Apple, or Google, or Netflix, or Disney. When you think about the race for the metaverse and for more influence in gaming in the gaming ecosystem, we've now seen more competition than ever before.
Andrew Ross Sorkin
I want to start there. And I know you can't speak directly to this deal, but what's so interesting about this deal, and rethinking antitrust, is, here you have a big technology company in Microsoft going into an industry that's pretty fractured, and traditionally probably wouldn't get looked at by antitrust regulators in the way that two big companies coming together might, given the scale. But you're rethinking how all of this works. And so I— again, without necessarily speaking to this deal itself, how you think about a big tech company maybe going after a smaller company where you might not have monopoly power in the traditional sense, but maybe under some of the new metrics, you could.
Lina Khan
Yeah, this is a phenomenally important issue, and one that both agencies have been studying, in part because it's not new, right? It's something that we've seen for the last two decades, where the top five tech firms have made hundreds of acquisitions, many of which fell beneath the radar. The F.T.C., under my predecessor, initiated a study of these acquisitions to try to understand what did we miss, and what can we be learning to make sure that we are identifying accurately what types of deals may be illegal, even if they're not mapping onto the traditional way that we might have been looking at this? And that's really what our process to potentially revise the merger guidelines in tandem with D.O.J. is all about.
The laws on the books— Congress, in 1914, said, "Mergers that may substantially lessen competition or tend to create a monopoly are illegal." What that means in practice is going to change depending on the economy, the market conditions. And as we've seen the growth of new technologies, the market dynamics have changed. And so we need to make sure that the tools we're using, the frameworks we're using, the questions that we're asking, are actually still mapping onto the reality that we're seeing in these markets, and that's what our process is all about.
Kara Swisher
You started with 1914, which was a long time ago, if I can do my math correctly, and the changes in how this shifts— a lot of these companies have been providing things that are free to people. If you noticed, Bobby Kotick just said the word "competition" several times. He threw in "metaverse" for good measure. When I was talking to people about this deal yesterday, they kept saying "distant third," "competitive," often they'd say things like "China." They mentioned China several times, a global environment.
When you're thinking about these merger guidelines, are you thinking about this big tech expanding its tentacles to maintain dominance? Because they can do that as they shift and move, almost like a board to wherever they want to go.
Lina Khan
Look, it's a big question, and it's also not a new question, right? The Justice Department's landmark antitrust case against Microsoft was about this exact same dynamic, right? Microsoft had captured control over the operating system, and the reason it was able to maintain that dominance is because there was this— what was known as the application's barrier to entry, right? Operating systems, in order to be desirable, the consumers needed to have a base level of application. So there was a chicken and egg problem.
Here come along Java, Netscape, that threatened to loosen that dominance, because they provided an alternative platform on which you could have apps, and that's why Microsoft was threatened. So the Justice Department's case was alleging that the moves that Microsoft made were really designed to maintain its monopoly in the operating system, through kind of stifling these rivals. And so I think those are the same kinds of questions we need to be asking today, especially as we see the advent of new technologies of potentially alternative platforms.
I think whenever you see potential moments of transition, that's when enforcers need to be especially vigilant, because that's when incumbents often panic, and realize that to stay relevant, to stay dominant, you know, they may have to engage in tactics that ultimately end up being illegal.
Andrew Ross Sorkin
But when do you jump in? And I think that part of it— and you can look at Facebook, now Meta, in a way, when they made the Instagram acquisition. Now, they clearly were big in one space, didn't necessarily have a foothold in this other space. There were some people who thought that was going to be a failure of a merger in the end. And yet obviously, today you look back with hindsight and they had great success— arguably, in certain cases, maybe too much success.
And so the question is, when is the regulator supposed to say, this could work. And if it works, it's actually worked too well.
Lina Khan
It's an interesting question. And I think, for enforcers, the real question is, is this a deal that could lessen competition? And in hindsight—
Andrew Ross Sorkin
But don't all deals to some degree— all deals, to some degree, are going to lessen competition.
Lina Khan
Yes, substantially lessen competition, or tend to create a monopoly. And there's also indication that Congress wanted enforcers not just to act when the third and fourth companies are merging, or the first and second, but actually in the incipiency. When you see trends towards concentration, that those can also be important moments for enforcers to jump in. We— the F.T.C. has a lawsuit currently against Facebook, in part alleging that the Instagram and WhatsApp acquisitions were unlawful, that those also were designed to maintain its monopoly— in part because, as the lawsuit alleges, there was this moment of transition to mobile, and Facebook saw that it wasn't up to the task and it really needed to make this acquisition to survive that transition.
In hindsight, I think, looking back, looking at the documents, looking at the evidence that was available, now the agency was able to determine, that was an illegal transaction. But I think part of this process of revising the merger guidelines, of doing these studies to understand what did we miss, the goal of that is to help us answer precisely that question.
www.playstationlifestyle.net
