The Corner Newsletter: January 28, 2022
Welcome to The Corner. In this issue, we take a closer look at Microsoft’s move to buy gaming giant Activision Blizzard and the Klobuchar-Grassley bill targeting self-preferencing — which recently advanced out of the Senate Judiciary Committee.
To read previous editions of The Corner, click here.
Why Enforcers May Target Microsoft’s Move on Activision
Luke Goldstein
Right before Microsoft faced an antitrust case in the 1990s for attempting to monopolize the internet browser, the corporation’s Chief Technology Officer Nathan Myhrvold made a famous faux pas. In an interview, he used a mafia term — the "vig" (a type of gambling fee) — to describe the monopoly profits Microsoft planned to collect on all online commerce.
Microsoft has tamped down the organized crime rhetoric. But it's making yet another aggressive play to dominate a new technology. In the 1990s, it was the World Wide Web. This time it's gaming, as the corporation last week announced plans to buy Activision Blizzard, the powerhouse that owns such popular games as Call of Duty, World of Warcraft, and Candy Crush.
Thus far, however, the Activision deal has not yet drawn much attention from law enforcers.
It’s a testament to the success of Microsoft's effort to rebrand itself as a do-gooder tech giant, at least in comparison to such newer and — in certain ways — more aggressive tech behemoths as Google, Facebook, and Amazon.
In part, it’s also because other Big Tech corporations have already made moves to capture larger shares of the gaming market, which has exploded from 200 million gamers 15 years ago to 2.7 billion today. Apple controls the app store for mobile gaming, the single-largest segment of the gaming market. Between Amazon's Twitch and Google's YouTube video, the two companies have locked up video game streaming. And Facebook wants its Oculus to lead the way in the emerging virtual reality market. Indeed, even after the Activision deal, by certain measures Microsoft would still be only the third-largest gaming corporation in the industry.
But if law enforcers want to target Microsoft, they will find plenty to work with. Big takeovers have long been a staple for Microsoft. Rather than innovate, the corporation tends to buy out competitors to chase market share. Just last year, it acquired 15 companies in cloud computing, software development, and cybersecurity. Activision itself is the product of a mega-merger with gaming giant Blizzard. That makes this deal a rollup of rollups.
Further, Microsoft already controls best-selling video game console Xbox, and has grown its Game Pass subscription service by 30 percent in the past year to reach 25 million subscribers. By bringing more than 30 game studios under one roof, Microsoft would control one of the most expansive libraries.
Another potential line of litigation would target Microsoft's growing chokehold over U.S.-based game developers. Relatedly, fewer corporations developing new video games will likely also lead to a rise in prices and a decline in quality available to consumers.
Law enforcers may also see potential harms in Microsoft’s move toward a subscription model similar to the video streaming platforms. The corporation’s current CEO Satya Nadella has even said Microsoft wants to build a "Netflix for gaming." Under his leadership, the corporation has spearheaded this effort with its Game Pass subscription, which makes a large number of its video games unavailable for use on other consoles and platforms, such as Sony's PlayStation.
Enforcers may also fear that Microsoft will exploit its dominance in gaming to unfairly drive business to its cloud computing and software development empires.
Klobuchar Bill Targeting Self-Dealing by Big Tech Gets Boost From Republicans
Last week, the Senate Judiciary Committee, in a bipartisan 16-6 vote, advanced the American Innovation and Choice Online Act out of committee. The bill, which bans dominant platforms from engaging in self-preferencing or prioritizing its services over third-party rivals that rely on their services, will be sent to the Senate. The legislation was heavily attacked by Amazon, Google, Apple, and other corporations, including through extensive targeted advertising. Even so, the bill — which was spearheaded by Sen. Amy Klobuchar (D-Minn.) and Sen. Chuck Grassley (R-Iowa) — attracted surprisingly wide support from Republicans. (CNBC) Read Open Markets’ statement on the bill here. The statement was quoted in Bloomberg Law.
🔊 ANTI-MONOPOLY RISING:
Earlier this week, Assistant Attorney General (AAG) for Antitrust Jonathan Kanter delivered his first major speech since taking office, to the New York Bar Association. AAG Kanter modeled the speech on a similar address in 1937 by law enforcer Robert Jackson during America’s last monopoly crisis, at the height of the New Deal. The speech was important in terms of goals — Kanter made clear that the core purpose of law must always be the protection of ‘political and economic democracy. The speech was also important in its resounding rejection of the Reagan-era ‘consumer welfare’ philosophy. Read the Open Markets statement on the speech here. Common Dreams reprinted the statement.
Last week, the Federal Trade Commission and the Antitrust Division of the Department of Justice announced plans to seek public input to update the guidelines they use to help determine when to block mergers. The joint inquiry aims to update guidelines for both horizontal and vertical mergers. Both agencies have emphasized the importance of considering competition effects that are neglected when evaluating deals, such as effects on labor markets, innovation, quality, and potential competition. (The Hill) Open Markets released a statement applauding the announcement. The statement was quoted in The Washington Post, PBS, The Los Angeles Times, U.S. News, Common Dreams, Spectrum News 1, Nation World News, Spokesman and more.
On Tuesday, the FTC announced it would sue to block aerospace company Lockheed Martin Corporation’s $4.4 billion acquisition of rocket engine manufacturer Aerojet Rocketdyne Holdings. The FTC argued that Lockheed’s purchase of Aerojet - the last independent supplier of rocket motors - would enable Lockheed to cut off the supply of vital equipment to rival rocket assemblers. (PBS)
Four dozen state attorneys general, led by New York Attorney General Letitia James, appealed the dismissal of their lawsuit against Facebook for using illegal tactics to suppress competition in the social media market. The states’ cite Facebook’s acquisition of Instagram and WhatsApp, and its tactics to harm rivals such as Vine. (The New York Times)
Earlier this month, EU competition officials blocked shipbuilding giant Hyundai Heavy Industries $2 billion acquisition of Daewoo Shipbuilding & Marine Engineering Company. Officials said the newly formed entity would have a market share of at least 60% and reduce competition in the market. EU antitrust chief Margaret Vestager stated the deal would have led to “fewer suppliers and higher prices for large vessels transporting LNG.” (Reuters, Financial Times)
Last week, the FTC and a group of states announced an investigation into anti-competitive practices by Facebook’s virtual reality unit Oculus. The investigation focusses on whether Oculus is engaging in discrimination against third parties that compete with software by Oculus. The inquiry also involves Facebook potentially lowering the price of Oculus to undercut competitors. (Bloomberg)
📝 WHAT WE'VE BEEN UP TO:
Claire Kelloway published an article in Time Magazine about long-term food supply chain resiliency. “Congress and the Biden administration need to consider regulations that make corporations put workers’ well-being and resiliency above short-term profiteering for investors, such as passing the PRO Act to strengthen unions and give workers a greater say in business decision-making,” she wrote.
Alexis Goldstein’s testimony before the Joint Economic Committee showcasing concentration within cryptocurrencies was cited in The New York Times’ DealBook. “More than 95 percent of the coins that are used for governance on those two platforms are owned by just 1 percent of token holders, said Alexis Goldstein, the financial policy director of the progressive think tank Open Markets, in recent testimony to the Joint Economic Committee in Congress. ‘While cryptocurrency industry insiders promote the “democratized” benefits of digital assets,’ Ms. Goldstein testified, ‘in truth, crypto concentrations of money and power match or surpass those in traditional financial markets.’”
Claire Kelloway submitted a comment to the House Subcommittee on Antitrust, Commercial, and Administrative Law about “Reviving Competition, Part 5: Addressing the Effects of Economic Concentration on Americas Food Supply.” “Food companies and some economic analyses argue that decades of consolidation promoted efficiency and brought down food prices. Recent supply chain disruptions reveal the tradeoffs of prioritizing efficiency over resiliency, diversity, and safety nets. Reviving antitrust laws will help break these brittle and exploitative market structures.”
Barry Lynn’s statement in support of President Joe Biden’s nomination of Sarah Bloom Raskin and Dr. Lisa Cook for open federal reserve seats was quoted in Politico. “’Bloom Raskin and Dr. Cook are the kind of leaders the Federal Reserve needs to guarantee that the economic recovery works for all people,’ said Barry Lynn, executive director of the Open Markets Institute, a progressive think tank.”
Daniel Hanley told Vox’s Recode that the Microsoft-Activision Blizzard merger shouldn’t just be looked at in terms of where it will put Microsoft in the gaming market now, but the potential it has to disadvantage its competitors. “It’s about what can Microsoft do with its portfolio of products and services, with this company, against its rivals and for the market?” Hanley said. “And what will happen to the market after Microsoft does this?”
Open Markets was mentioned in The Financial Times for advocating for reshaping antitrust policy in favor of fair competition. “Meanwhile, American competition activists including Barry Lynn, founder of think-tank the Open Markets Institute, are pushing for the EU to adopt some of the “new Brandeis” legal thinking about digital markets. It eschews price as the key metric for competition, which would bring Europe more into alignment with the US.”
Barry Lynn applauded the court decision allowing the FTC to pursue the breakup of Facebook in The Guardian. “Barry Lynn, executive director of the Washington-based Open Markets Institute, which researches the impact of monopolies and how to strengthen competition policy, says a break-up will weaken Mark Zuckerberg’s empire. ‘The power of the corporation vis-a-vis the government, vis-a-vis advertisers and vis-a-vis users becomes much less because you have broken it into three parts.’”
Open Markets’ concentration data continued to receive coverage, including in The Frederick News-Post, Progressive.org, and more. “A recent report by the Open Markets Institute found that, over the last three decades, the four largest poultry processors went from holding 35 percent to 54 percent of total market share. In beef processing, that figure went from 25 percent to 85 percent and, in hogs, 33 percent to 70 percent. The dairy industry, as of 2017, saw its four largest cooperatives control more than 53 percent of all unprocessed raw milk sales.”
Johnny Ryan’s expertise on digital fraud was referenced in Ad World. “There are other factors in play too. Experts such as Dr Johnny Ryan and Dr Augustine Fou have highlighted the scale of potential fraud in technologies such as programmatic advertising.”
Open Markets’ amicus brief urging the U.S. Court of Appeals for the 10th Circuit to reverse the district court’s faulty decision in Sanofi’s lawsuit against pharmaceutical giant Mylan was mentioned in Courthouse News Service. “The Open Markets Institute and the Allergy & Asthma Network submitted amicus briefs on behalf of Sanofi, while the U.S. Chamber of Commerce sided with Mylan.”
Nikki Usher’s book News for the Rich, White, and Blue was mentioned in Truthout. “University of Illinois professor Nikki Usher, in her book News for the Rich, White and Blue, points to another likely cause: Many journalists now come from professional, upper-class families, have college degrees and live in big cities.” The book was also mentioned in a report by Politico titled “Is the Media Doomed?”
📈 VITAL STAT: 285
The number of mergers announced in December 2021. This is the highest monthly number in a decade. It helped ensure that the total number of mergers for the year hit 4,130, roughly double the number registered in 2020. (Politico)
📚 WHAT WE'RE READING:
Bigger is Not Better: Preventing Monopolies in the National Cannabis Market (Drug Enforcement and Policy Center, Shaleen Title): The author describes how applying antitrust principles to federal cannabis reform can prevent and inhibit monopolization of the industry and recommends eight policy solutions.
Nikki Usher’s New Book:
News for the Rich, White, and Blue: How Place and Power Distort American Journalism
Nikki Usher, a senior fellow at Open Markets Institute’s Center for Journalism & Liberty, has released her third book, News for the Rich, White, and Blue: How Place and Power Distort American Journalism. In her latest work, Usher offers a frank examination of the inequalities driving not just America’s journalism crisis but also certain portions of the movement to save it.
Open Markets Employment Opportunities
You can find the full job listings here.
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