Microsoft Cleared To Buy Activision/Blizzard: Why The FTC Block Made No Sense

There is a lot of concern about tech companies getting bigger, but it makes no sense to cripple a US tech company in a competitive market particularly if the beneficiary of such an action would likely be a non-US company or if the result would be the failure of another US Company. This was one of several FTC cases in recent years, another was the Qualcomm case (which they lost on appeal), where the FTC seemed to be out of touch with the needs of the Nation and was seemingly operating on the policy that US tech companies needed to be punished without any consideration for how much damage such punishment would do to the nation.  

Let’s look at this recent Activision/Bizzard effort and suggest that the FTC needs to have a far deeper understanding of the competitive dynamics in a market before acting against any company’s best interests let alone a company like Microsoft which is critical to assuring US dominance in tech.   

Gaming Competitive Landscape

If Microsoft was massively dominant with their Xbox gaming system and were they abusing this dominance against other US gaming vendors, the FTC would have had grounds to block this merger, but neither is the case. While Microsoft’s reputation back in the 1990s was one of a company abusing monopoly power, they have changed out virtually all their senior managers and board members since then and are currently poster children for good behavior, interoperability, Open Source, and they even aggressively support Linux.  

Currently, and it appears the courts agree, there isn’t any real evidence that Microsoft is behaving badly. In addition, they aren’t dominant in gaming. They have the only US gaming platform and compete against two platforms out of Japan Nintendo and Sony PlayStation with PlayStation arguably the most powerful of the three.   

And the entire segment is under threat from Smartphone gaming and the potential for a VR gaming effort from Apple which will again challenge Sony much like they did with the iPod years back. Apple is a US vendor but currently not a major gaming player but they aren’t being restricted by Microsoft, more by their own software store practices which have led to litigation about Apple’s alleged misbehavior where Apple appears to have prevailed. 

So other than just wanting to make sure Microsoft got no bigger (and getting bigger isn’t currently illegal) the FTC didn’t appear to have a case.  

Saving Activision/Blizzard

What made the FTC action particularly disturbing was that Activision/Blizzard was in deep trouble and needed a significant change in operational management or it was likely to go under resulting in both substantial US job loss and an overall weakening of the US’s technology leadership in gaming.  The company has strong titles, is storied, and is worth saving for its position in the gaming market and as a large US employer.

While Microsoft has often struggled with non-software companies like NOKIA, they tend to do far better with software companies having acquired and integrated many of them over the years. In addition, Microsoft’s culture was once in deep trouble as well and they, under Satya Nadella, largely turned that culture around suggesting they have the internal skills to fix Activision/Blizzard, and the company desperately needed fixing. The gaming industry in general has been highlighted as problematic ever since Gamergate highlighted practices that should have long been unacceptable to any industry but have clearly not been discontinued timely at Activision/Blizzard. It is my belief that had this merger not been approved that Activision/Blizzard would have likely failed making the likely outcome of the FTC’s success significant damage to the US tech market positions.  

The FTC action didn’t make sense for competition, it didn’t make sense for the acquired company, and were it successful, it would only damage the US’s competitive position without any apparent upside other than being able to say “we took down another US tech company” which shouldn’t be the goal for a US regulatory body. 

Wrapping Up:

I’m not arguing that large Tech companies don’t need to be regulated, we’ve certainly seen the massive unintended consequences of giving Social Media companies too little oversight, and clearly, Microsoft did mis-act in the past and needed to be brought to heal. However, just looking for opportunities to block US interests shouldn’t be what drives regulatory bodies like FTC, it should be protecting US citizen interests and preserving competition which is where they shine. 

But I think the FTC’s leadership wanted to show they were being hard on big companies with this and the Qualcomm action without fully researching the related market and making the logical determination that their actions would have a positive impact on the US and thus again lost their way. Where regulatory bodies go wrong is when they are driven not by the needs of the people they protect or the countries they operate in, but by political imperatives to show they are doing something regardless of what is done.  

In this instance, the FTC in their rush to punish someone mistakenly went after this Microsoft deal and the courts ruled, again, as they did in the Qualcomm case, that they were out of line. I expect this will continue to happen, until and unless the FTC focuses back on protecting the US and US Citizens rather than trying to look like they are only focused on trying to punish big companies from wanting to get bigger (which, again, isn’t illegal yet). In this case, the merger was good for Microsoft, good for Activision/Blizzard, and by increasing Microsoft’s competitive gaming posture against two Japanese companies, good for the US. The FTC needs to pick its targets more carefully.