Microsoft's Big Game
If the Microsoft-Activision merger goes through, users can expect more lackluster, cash grabbing, and woke-approved games.
These days, while you wait for the next train on the New York subway, survival induces you to constantly look around, as jittery as a gazelle chancing it for a sip in some Serengeti pond. But before progressive prosecutors went gung-ho for social justice, while waiting on a subway platform you could crush the candy, ninja the fruit, and throw a bird or two at the bacon. Perhaps back then, undistracted by watching your back, you could more easily spot the significance of Microsoft acquiring the game-publisher Activision.
The global market for gaming (smartphone, console, P.C., tablets, etc.) in 2021 was estimated to be around $174 billion. By contrast, in 2019, before the pandemic, the global entertainment market, including anything from movie theater tickets to streaming services totaled $101 billion. Gaming is bigger than your Netflix, your HBO Max, and your local movie theater. And if not all of us are cognizant of that reality yet, it is only because our news media are part of that legacy ecosystem of Boomer tastes and proclivities, left behind in the dust of gaming and other new modes of amusement.
Microsoft has noticed. And the Federal Trade Commission has noticed as well. In December, the commission sued to block the acquisition of Activision by Microsoft. The agency “alleges that [the] maker of Xbox would gain control of top video game franchises, enabling it to harm competition in high-performance gaming consoles and subscription services by denying or degrading rivals’ access to its popular content.”
As a mega conglomerate with antitrust priors and a huge appetite, Microsoft has sent its own Mr. Smith to Washington, D.C. Last April, a Wall Street Journal piece, glorifying Microsoft President Brad Smith’s influence in the city, christened the company “Washington’s favorite tech giant.” Microsoft has come a long way since the late ’90s, when it was the leading target of antitrust authorities. Back then, Microsoft had attempted to use the near-monopoly status of its operating system in computers to establish another monopoly in the internet browser segment.
Microsoft today has set up shop in D.C. and has been ruthlessly working Washington’s political class and bureaucracy. When the Economist tried to delve into the financials of big tech, it “rifled through court documents, internal emails, analyst notes and leaked files about Alphabet, Amazon, Apple and Meta.” In the case of Microsoft it couldn’t get much information, though. As the Economist noted, “Microsoft has managed to avoid antitrust scrutiny this time around, so secret information about its finances is scarcer.”
Decades of investment Microsoft has made in Washington are expected to pay off as it pushes through the acquisition of Activision Blizzard, ranked number five in video games globally—Microsoft is number two—for nearly $69 billion. For most people, such a purchase has not even registered as an event. While the acquisition of Twitter by Elon Musk gathered a lot of attention, the Activision deal has occupied comparatively limited attention in the business press.
If the courts are unwilling to do anything, perhaps the new Republican House could do something. But last month, Republican Representative Ken Buck of Colorado was on the Tucker Carlson show. “I am sorry to say there are members of your party who looked the other way or actively defended [Big Tech],” Carlson noted. “We have an uphill battle with our Republican colleagues,” was part of Ken Buck’s reply. “These four giants, Amazon, Apple, Facebook, and Google, spent an over $150 million in a two-year period in races around the country, as well as buying off think-tanks on the right and the left in Washington D.C. “
As I was listening to the congressman, I revisited the Wall Street Journal report. The abovementioned Mr. Smith of Microsoft “has cultivated a relationship with Mr. Buck for years—grabbing breakfast with him soon after the Coloradan was first elected to the House in 2014.” Shortly after the announcement of the Microsoft deal to buy Activision last January, Congressman Buck went on Twitter, where he declared that “This acquisition still has to go through a legal review by the Federal Trade Commission and the Department of Justice, but the assurances I've received from Microsoft are encouraging,” adding that Microsoft said it would “emphasize access to gaming titles and competition in the marketplace."
Microsoft bulldozed its way into the gaming market. In 2001, it introduced the Xbox. It has spent billions trying to topple Sony’s PlayStation as the premier gaming console. When the Xbox was introduced, Microsoft lost somewhere between $5 to $7 billion. Even now, Microsoft is losing between $100 to $200 for every console that it sells. By contrast, Sony is covering the costs of the console and then some on each sale. Microsoft is burning a colossal amount of money, and it is hard to see how it will ever get a respectable return on those investments without extracting onerous terms from whatever game publishers remain independent or substantial sums from its customers when opportune moments arrive. Of course, that seems to be the point.
One may be inclined to compare Microsoft and Sony as gaming console companies and game publishers. But focusing on those terms might obscure important aspects of the story. It is an important element of the case that Sony is a $114 billion company, while Microsoft is a $1.9 trillion company. The other extremely profitable ventures of Microsoft have not only subsidized its gaming blitzkrieg, but have a direct connection to its gaming business and its future. Microsoft controls 75 percent of the desktop operating system market. Microsoft also owns Azure, which, along with Amazon Web Services, dominates the cloud market. Those two oligopolistic platforms, desktop OS and the cloud, are extremely important in giving huge competitive advantages to the gaming side of Microsoft.
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One of the most ignored features of how Big Tech operates is how monopolistic and oligopolistic positions and profits in one industry are used to establish, or more precisely, crash competitors—and thus, in the long run, customers—in another industry. Microsoft’s duopoly profits in its Azure cloud business, or in Windows and the Office products, fund its game business. In international trade, when foreign countries and competitors try to crash domestic producers by being willing to offer below-cost products, governments are expected to and often do take measures to protect a healthy functioning market. We are cognizant of the long-term game that is being played and its consequences internationally. Somehow, we are often blind when “domestic” oligopolistic conglomerates effect similar practices.
Bobby Kotick, CEO of Activision, is reported to have said that the “proliferation of platforms and new forms of distribution had made it difficult even for companies as big as his to keep pace with the technology requirements of today’s gaming market.” Activision is one of the largest game publishers in the world, its revenues are over $7 billion a year. The rapid concentration that is taking effect in the gaming industry won’t make things any better for the remaining independent publishers and game customers in general.
Gamers have already begun to complain about the decline in creativity in what are called AAA gaming titles, the “high-budget, high-profile games that are typically produced and distributed by large, well-known publishers.” Microsoft, a company known for its anti-creative ethos and a general commitment to mediocrity, will be anything but a force for innovation and progress in the sector. If the Activision purchase goes through, gamers can expect more lackluster, cash grabbing, and woke-approved titles.