There has been one very bad year so far for Meta, the company formerly known as Facebook, in ways extremely unique for being one of the largest technology companies in the world. Despite TikTok still making nearly $7 billion in profits over the past few months, TikTok is eating its lunch, its stock price is in the doldrums, and even The Kardashians have rebelled. Now Meta is also being sued by the Federal Trade Commission because of its monopoly in VR technology. It is a shocking case that could have consequences for other major acquisitions in gaming.
Filed same day as Metas last bad performance reportis the FTC seeks injunction against the company’s attempted takeover of Within, a VR startup with a hit fitness app called supernatural. The agency literally called it an “illegal acquisition to expand [Meta’s] virtual reality empire” in its press release. Meta responded, claiming in a statement that the FTC’s argument is based on ideology rather than evidence, and will harm future developments in VR.
“It’s a riskier case, but one they think is worth bringing on because if they’re successful, it will help push the envelope of enforcement,” William Kovacic, a former chairman of the FTC, told New York Times on Wednesday. The case will be hashed out in the weeks and months ahead in the Northern District Court of California.
Why the FTC’s Meta Lawsuit Came as a Surprise
Considering that Within would barely even register as a rounding error on the billions that Meta currently invests annually in VR development, it seemed like an odd deal for the FTC to go into beast mode. But for antitrust advocates, it’s a perfect target for rolling back years of lax enforcement. After letting Meta gobble up competitor after competitor (most notoriously Instagram and WhatsApp), the FTC has to start somewhere.
“Because of these failures and others, the FTC (and DOJ) is now trying to play catch-up, spending enormous time and resources on lawsuits to try to wind up deals and stop monopoly abuse,” wrote Ron Knox, a researcher at anti. – monopoly Institute for local self-reliance, in a thread yesterday. “[FTC Chair] In this lawsuit against the Within merger, Lina Khan has said: no more.”
In 2020, Meta controlled 62% of the market for VR headsets. In the first quarter of 2021, the Oculus headset shipments were fulfilled 75% of the market (and just this week it announced that it would increase the price by $100). This takes users into the Oculus store for VR apps. One of them is Supernatural, a super popular immersive fitness experience that lets you box, meditate and do yoga in virtual reality. Meta’s philosophy, like other big tech companies, has long been “if you can’t beat ’em, buy ’em,” and its VR business is the clearest example of that.
The headset technology, the Oculus Rift, was originally developed by Doom’s lead designer John Carmack and others, and partially paid for by crowdfunding on Kickstarter. In 2014, Meta bought it for $2 billion. One of the most popular VR games ever Beat Saber. Meta bought it in 2019. The company has since snapped up a bunch of other VR studios.
“If Meta is allowed to acquire Within, that competitive pressure will diminish,” the FTC wrote in its announcement yesterday. “The reduced competition violates the antitrust laws.” The agency goes on to argue that the trend itself discourages other creators from innovating in the space.
What it could mean for games
It’s hard not to see some parallels to Microsoft’s current bid buy Activision Blizzard. The company has been on its own spending spree, gobbling up studios to feed its never-ending content oven that is Game Pass. In some ways, the strategy reverts to buying Minecraft in 2014. But the acquisition of Obsidian, InXile, Ninja Theory and others in recent years shows that it was not one to buy content instead of creating its own. With Bethesdagot the hit that Fall out, The Elder Scrollsand Downfall. With Activision Blizzard it gets Duty calls, Diabloand Candy crush.
A key difference is that Microsoft doesn’t have the same stranglehold on gaming hardware that Meta has on VR. The Xbox manufacturer has also gone out of its way to try to reassure the FTC that nothing it does is anti-competitive. In February, Microsoft engaged to a list of “Open App Store Principles” and signaled to the FTC that they would not make games that Duty calls and Overwatch platform exclusive. In June, it pledged to remain neutral on union activity, convincing the Communication Workers of America to do so express their support for the takeover offer.
Notably, Sony’s acquisition of Bungie also just went through without a hitch. That may be because the FTC is focused on conventional technology deals at companies like Apple and Google (the agency is also currently investigating Amazon). At the same time, if the Activision Blizzard takeover goes through, it would be the biggest acquisition in tech history. Oddly, Microsoft agreed to pay $95 per share, but Activision Blizzard stock is still only trading at $79. The deal is expected to end by June 2023, and Microsoft has done so allegedly has already shared all the information the FTC was looking for. When Activision Blizzard does the same, the agency will have 30 days to complete the review.