The Federal Trade Commission is paying close attention to the video game market, which has undergone an unprecedented level of consolidation over the past few years during a period of record M&A activity.
Speaking with Protocol, FTC Chair Lina Khan said the game market is "top of mind" for the agency and its renewed regulatory efforts, especially fast-growing markets such as augmented and virtual reality.
"I think these types of nascent, expanding markets are definitely on our radar and top of mind," Khan told Protocol. "Especially in as much as VR or AR [are] also becoming a major part of how some of these games are functioning for users and [how] users are interacting."
AR and VR in particular are "an area where we've been fortunate to be able to bring on more technologists that are embedding with our attorneys and with our teams," Khan added, "to make sure, just at a fundamental level, we're able to fully grasp how these technologies are even working."
"Having that expertise and skill set on board is really, for us, a critical first step," Khan said.
The game industry has been a hotbed for acquisitions and funding since 2020, when the pandemic created a new surge of consumer interest and spending on games. That has, in turn, invited a new level of regulatory scrutiny for an industry that, despite generating nearly $200 billion of global revenue in 2021, has largely gone unchecked over the past few decades.
Six of the 10 largest video game acquisitions in history have happened or been announced since early 2020. There has also been brewing concern that Facebook parent company Meta, which captured roughly 80% of the virtual reality hardware market in 2020, may have a monopolistic hold over the VR industry. That market share is thanks to a series of crucial acquisitions Meta has made since buying Oculus VR in 2014. Meta now has plans to expand aggressively into the AR and mixed-reality markets before competitors like Apple can beat it to the punch.
In 2021, there were nearly 1,200 video game deals valued in total at more than $85 billion — a jump of 161% in deal value compared to 2020, according to an April report from investment firm Drake Star Partners. In just the first three months of 2022, there have already been 387 deals totaling close to $100 billion, with a majority of the record deal value coming from Microsoft's planned $69 billion acquisition of World of Warcraft and Call of Duty publisher Activision Blizzard, the largest-ever deal in the industry.
Khan and the FTC are in the process of investigating the Activision deal, as well as Sony's much smaller proposed acquisition of Destiny developer Bungie. While both deals are expected to proceed, antitrust experts say the FTC may ask for behavioral concessions from Microsoft and Sony on areas such as platform exclusivity.
"We take a lot of care to make sure that we are being attentive to not just some of the past harms that already been identified, but some of the new and oncoming harms," Khan told Protocol. "And so obviously, [gaming] is an area where we're seeing M&A activity. It's an area where we're putting resources to make sure that we are anticipating what are going to be the next set of challenges and to make sure that we're fully prepared and able to identify how some of our authorities and tools are able to protect people in this context."