Thursday, December 29, 2022

Microsoft's acquisition of Activision Blizzard unconditionally cleared by Chile's competition authority FNE: no substantial lessening of competition, no consumer harm

The Federal Trade Commission (FTC) of the United States is--at this point--opposing Microsoft's $68.7 billion purchase of Activision Blizzard King, thereby supporting Sony, which actually isn't even afraid of Microsoft's GamePass subscription service (though it pretends otherwise). I have seen reports according to which the European Commission's Directorate-General for Competition is widely expected to issue a Statement of Objections (SO) next month, though it would be out of character for DG COMP not to work out the equivalent of a U.S. consent decree. And in the UK, the Competition & Markets Authority (CMA) is also conducting an in-depth probe, with consumer responses overwhelmingly favoring the transaction. But things have gone pretty smoothly in a few other jurisdictions:

And today a fourth unconditional clearance decision became known: the Fiscalía Nacional Económica (FNE; "National Economic Prosecutor") of Chile announced (in Spanish) that it has approved the deal at the end of a Phase 1 investigation.

Here's my translation of the FNE announcement, as I haven't been able to find an official English translation:

FNE has approved in Phase 1 the concentration consisting in the acquisition of a controlling interest in Activision Blizzard, Inc. (ABK [i.e., Activision Blizzard King] by Microsoft Corporation (Microsoft) after ruling out that the transaction would be capable of substantially reducing competition.

These companies are active in the same market segments: the development, publishing and distribution of video games; and this is the case at different levels, with Microsoft making the Xbox console and other video game platforms, such as GamePass, which is why the companies' activities overlap horizontally as well as vertically.

The FNE has concluded that the transaction is not capable of a substantial lessening of competition in consideration of--among other types of evidence--buyers and consumer preferences for video games in Chile.

In its analysis of horizontal effects, the investigation ruled out risks, given that in the markets in which the parties' activities overlap (development and publishing of video games, distribution of video games for computers and the sale of merchandising items and digital graphical advertisements) the tresholds for the concentration of market share established in the [agency's] 2022 Guidelines for the Analysis of Horizontal Concentrations are not reached and that a large number of relevant competitors as well as a dynamic market have been identified.

In the evaluation of vertical risks, a potential input foreclosure--a scenario of Microsoft ceasing to provide, after the consummation of the transaction, games like Call of Duty to its competitors, was ruled out. Among other arguments, it was taken into consideration that ABK faces competitive constraints from market actors such as Electronic Arts, Take Two, Ubisofot, Epic Games, Sony, and Nintendo, and that the relevance of Call of Duty was deemed relatively smaller in Latin America than in other parts of the world.

It was also part of the consideration that the number of consumers who would elect to switch consoles in response to a foreclosure strategy would also be smaller, which was established by means of a survey of Chilean consumers, and that the substantial revenues that the PlayStation generates for ABK would serve as a disincentive for the adoption of a foreclosure strategy.

In its analysis, the FNE also ruled out the risks of a tipping point in the commercialization of next-generation consoles and subscription services (such as GamePass), as ABK's video games, while important, are not the most relevant ones for Latin American consumers and because the actors in this market offer highly differentiated services.

A tipping occurs when, after a determined scale of a transaction, markets tend to gravitate toward concentration and to eventually close under a single market actor or a single dominant one.

With respect to a hypothetical risk of a foreclosure of customers, the FNE concluded that Microsoft's demand for video games published by third parties would not come to an end, as the market for the distribution of computer games has proven to be very dynamic with the entry of new relevant actors. In that regard it bears highlighting the enduring leadership position of Steam.

Finally, in the market for the distribution of video games for consoles one can observe substantial competitive constraints from Sony and Nintendo, which would discipline the combined entity and serve as substitute demand for competing publishers, which include a diversity of market actors, some of which are particularly relevant.

[skipping the part that describes the two parties to the transaction at a high level]

The report and the respective order will be available on the web in the coming days as soon as any potential requests for confidential treatment that the notifying parties may present have been addressed.