International Tax Panorama

In a rare historic moment in the gaming industry Microsoft agreed to acquire Activision Blizzard, a video game maker, for whooping $ 75 billion. This deal — if it gets finalised — is both horizontal and vertical integration, pairing Microsoft’s Xbox console business, which already owns huge game franchises like Minecraft and Halo, with one of the world’s most valuable gaming companies, which owns giant titles like Call of Duty, World of Warcraft, and Candy Crush. 

The purchase would place Microsoft as the third-biggest games publisher in the world, thereby also building a strong position in the development of the “metaverse.” Microsoft sees this as crucial to the concept of spending time in a virtual world. 

“Gaming is the most dynamic and exciting category in entertainment across all platforms today and will play a key role in the development of metaverse platforms,” 

Microsoft CEO Satya Nadella said.

Possible scrutiny under the US Antitrust law

However the largest deal in Microsoft history will also be under scrutiny of the US antitrust agencies. In recent time most tech industry have come under such scrutiny (like Meta/Facebook, Google, Amazon, and to a lesser extent Apple) except for Microsoft. There is a possibility that federal agencies will take a very close look given the focus of their leaders, the scale of the acquisition and the potential harm to others in the gaming industry.

If the agencies sued to block the deal, they could say, for example, that Microsoft could “harm competitors” by owning popular Activision games. Call of duty or world of cans Carrier said it was only played on his Xbox and not on Sony’s PlayStation.

The Microsoft-Activation deal would not represent the kind of direct market share concern that drives most antitrust measures. Instead, as a “vertical fusion” of software suite distribution systems and video game maker content, it presents a more challenging case.

 A key question will be how regulators define the relevant market or markets, whether it’s gaming as a whole or specific segments such as mobile gaming or console gaming.

The broader view of the market would help Microsoft, which could argue that it would still have less than 15% market share.

New Merger rules for Big Tech

Meanwhile the US Federal Trade Commission and Justice Department have begun rewriting merger rules to better handle the impact of Big Tech acquisitions on things like innovation and data exploitation. 

The new will “modernize federal merger guidelines to better detect and prevent illegal, anticompetitive deals in today’s modern markets,” part of a broader change in approach brought on by the Biden administration.

Illegal mergers can inflict a host of harms, from higher prices and lower wages to diminished opportunity, reduced innovation and less resiliency. The goal is to ensure that the merger guidelines accurately reflect modern market realities and equip us to forcefully enforce the law against unlawful deals.

Conclusion

However, the size and timing of this deal mean it will get a very close look, at least, from agencies in the U.S. and elsewhere.  

While cases against vertical mergers are among the most difficult to win, they have begun to pick up in recent years amid stricter antitrust enforcement. This will be an interesting test case to see if agencies are prepared for the consolidation challenge that poses these vertical questions in the video game industry.