The Growing Integration of the Games Industry, or, Why The Free Hand of the Market isn’t Working

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An Underregulated Industry

As the entertainment industry grows and the amount of capital available multiplies, by an order of magnitude, year-on-year, the risk of consolidation and toxic business practices grows. Legislative regulation of the gaming industry has been exclusively targeted on a so-called morality basis, limiting the amount of violence or pornographic material that can be shown on-screen, largely as a result of Columbine. This focus means that anti-trust or consumer regulation has, in effect, not existed.

In the United States, video games have been and remain an unregulated paradise where business practices are concerned.

Consider this: the gambling industry has a market value of $59 billion dollars, while the video games industry has a far higher value of $90 billion. Yet gambling operations must obey labyrinthian regulations insofar as mergers, competitiveness, monetization, and business practices are concerned. Various gaming commissions issue diktats from odds on slot machines, the weight of dice, the manufacturing standards of poker cards, and so on and so forth.

It is impossible to find comparable oversight in the video games industry.

Why the Activision-Blizzard Acquisition is Problematic

Even excluding the ways many games openly copy gambling monetization practices, a problematic trend emerges. Microsoft is increasingly engaging in what’s called vertical integration, where a company acquires wholesale operations either up or down the supply chain. This is far more problematic than horizontal integration – think the Activision-Blizard merger – because consolidation of this type denies the use of that part of the supply chain to competitors.

Microsoft Games functions as a console manufacturer and gaming service provider, first and foremost, they differ from a traditional publisher in the sense that they also control an avenue through which consumers can play games.

The purchase of a publishing behemoth like Activision-Blizzard seems blatantly problematic to many people but they can’t put their finger on precisely why, so let me give a cross-industry example.

Consider an acquisition where Apple purchased Verizon. They not only acquire exclusivity over Verizon’s entire service network and 5G infrastructure, denying them to competitors, but also acquire Verizon’s storefronts, backend infrastructure, and consumer base. In such a hypothetical, how could Samsung, Huawei, or any mobile manufacturer hope to compete in the US telecommunications market going forward?

Even if Apple solemnly promised open and free access to all. I’d take a few grains of salt with that.

And, after all, Phil Spencer is famously anti-exclusivity in gaming:

I find it completely counter to what gaming is about to say that part of that is to lock people away from being able to experience those games. Or to force someone to buy my specific device on the day that I want them to go buy it, in order to partake in what gaming is about.

GamesIndustry

Instead of producing platform-specific games, Microsoft is now opting to purchase entire portions of the supply chain. These Rockerfellian business practices have a certain appeal.

“I can’t wait to play Spyro on Xbox,” or, “Maybe WoW will come to Game Pass.”

But this is a short-sighted and dangerous reaction. Microsoft Games is now throwing the entire financial weight of their parent company behind wholesale vertical integration.

Content is King

Monopolies no longer function like they did in the late 19th century. A company doesn’t have to own an entire supply chain, from petroleum drill to gas station, to lock down a consumer market. Content is king in entertainment and so long as a monopolized funnel exists – Call of Duty, Elder Scrolls, WoW – the effect is startlingly similar.

Of course, this effect happens in gradients. Elder Scrolls being a privileged asset of Xbox does not a monopoly make, nor Call of Duty, World of Warcraft, or Overwatch. But as consolidation increases and the content funnel widens, something very similar in function to a monopoly emerges. How do you compete against a content service when the provider controls half of the market?

We are seeing the beginning, or the end of the beginning, of the Great Gaming Partition. Much in the way that the promise of streaming television and movies didn’t deliver a consumer-friendly haven of open content, nor will increasing publisher control of content funnels bring any good to the average consumer. On aggregate, when market consolidation like this happens, consumers, as a whole, lose access to products, prices increase, market segregation entrenches and one or two big entities end up divvying up entire industries.

All this is to say that the gaming industry is woefully underregulated. Legislature hasn’t even begun to, let alone successfully, tackle the issue of predatory monetization practices in games targeting children, which is politically simple, let alone broader business practices.

Early reports are that this acquisition will undergo anti-trust scrutiny. And all I can say is: about damn time the regulators took the business side of gaming seriously.

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