It’s been a very bad year so far for Meta, the company formerly known as Facebook, in an extremely unique way to be one of the biggest technology companies in the world. Despite still making nearly $7 billion in profits in recent months, TikTok is eating its lunch, the stock price is in shambles, and even the The Kardashians have revolted. Now Meta is also being sued by the Federal Trade Commission for its monopoly in VR technology. It’s a shocking deal that could have ramifications for other big gaming acquisitions.
Filed same day as Meta latest bad earnings reportthe FTC is seek an injunction against the company’s attempted takeover of Within, a virtual reality startup with a successful workout app called supernatural. The agency literally called it an “illegal acquisition to expand [Meta’s] virtual reality empire » in his press release. Meta responded, saying in a statement that the FTC’s argument is based on ideology rather than evidence, and will hurt future VR developments.
“It’s a riskier business, but one that they believe is worth carrying because if they are successful, it will help push the frontier of enforcement,” said William Kovacic, former president of the FTC. Told The New York Times Wednesday. The case will be decided in the coming weeks and months in court for the Northern District of California.
Why the FTC’s Meta Lawsuit Was a Surprise
Considering that Within would barely 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 to roll 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 and other failures, the FTC (and the DOJ) are now scrambling to catch up, spending an enormous amount of time and resources on prosecutions in an attempt to unwind deals and stop abuses of monopoly,” wrote Ron Knox, researcher at the Institute of Local Government’s anti-monopoly, in a thread yesterday. “[FTC Chair] Lina Khan, in this lawsuit against the merger Within, said: no more.
In 2020, Meta controlled 62% of the market for VR headsets. In the first quarter of 2021, its shipments of Oculus headsets represented 75% of the market (and just this week he announced that he would increase the price by $100). This directs users to 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 ethos, like that of 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’s technology, Oculus Rift, was originally developed by Doom lead designer John Carmack and others, and paid for in part through crowdfunding on Kickstarter. In 2014, Meta bought it for $2 billion. One of the most popular VR games of all time was beat the saber. Meta bought it in 2019. The company has since taken over a bunch of other VR studios.
“If Meta is allowed to buy Within, this competitive pressure will ease,” the FTC wrote in its announcement yesterday. “This lessening of competition violates antitrust laws.” The agency goes on to say that the trend itself discourages other designers from innovating in the space.
What this could mean for games
It’s hard not to see parallels with Microsoft’s current offering for buy Activision Blizzard. The company went on its own spending spree, gobbling up studios to fuel endless content oven which is Game Pass. In some ways, the strategy goes back to buying Minecraft in 2014. But the acquisition of Obsidian, InXile, Ninja Theory and others in recent years shows that buying content instead of creating your own was not unique. With Bethesdahe has achieved successes like To fall, Ancient Scrollsand Loss. With Activision Blizzard, it will acquire Call of Duty, Diabloand candy Crush.
A key difference is that Microsoft doesn’t have the same grip on gaming hardware that Meta does on virtual reality. The Xbox maker has also gone out of its way to try to reassure the FTC that nothing he does is anti-competitive. In February, Microsoft engaged to a list of “Open App Store Principles” and reported to the FTC that it wouldn’t make games like Call of Duty and Surveillance platform exclusives. In June, he pledged to remain neutral on union activity and convinced the Communication Workers of America to express support for the OPA.
Notably, Sony’s acquisition of Bungie also went off without a hitch. This could be because the FTC is focusing on conventional tech 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 still only trades at $79. The deal is expected to close by June 2023 and Microsoft has would have already shared all the information the FTC was looking for. Once Activision Blizzard does the same, the agency will have 30 days to complete its review.