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Forbes is spot-on that Sony doesn’t want Microsoft to keep Call of Duty on PlayStation: it wants to do its own exclusive deals with an independent Activision Blizzard (as does Google!)

This is an exception from my focus on primary research (tapping court dockets). I’m now going to comment on what Forbes opined on what the New York Times reported.

The NYT article revealed that Microsoft offered Sony a 10-year contract to continue to make Activision’s Call of Duty available on the PlayStation: a full decade beyond the term of the current agreement. Microsoft’s willingness to make such a binding commitment in order to eliminate concerns over its acquisition of Activision Blizzard King was already well known, but the exact term of such a commitment was not.

Forbes’ Senior Contributor Paul Tassi says the length of the term doesn’t even matter because Sony is “never” going to reach an agreement with Microsoft. Mr. Tassi explains it in a way that reminds me of game theory: If Sony as the sole vocal opponent says it’s satisfied, the deal goes through. If Sony doesn’t, there are only two possibilities: the transaction is consummated anyway, or it falls through. In the former scenario, Microsoft will keep CoD on the PlayStation anyway (as a Qualcomm economist also explained, not on the chipmaker’s behalf but in her role with a tech policy think tank), so Sony doesn’t need any assurances. What Sony really optimizes for is the second scenario:

“[R]egulators shut down Microsoft’s Activision Blizzard acquisition, nothing changes, as Call of Duty remains third party, and will in fact be desperate for cash if that deal falls through, opening them up to continue to do deals like they one they’ve had with Sony for the past few years.”

When I commented on the European Commission’s decision to open an in-depth investigation two weeks ago, I said–and I repeat here–that the types of deals Sony has in mind “are not in the interest of consumers.” Apart from making it harder for the Xbox to compete with the market leader (PlayStation), The latest Call of Duty title that just launched–Modern Warfare II–comes with a host of PlayStation-exclusive benefits, some of which even distort competition in a different sense: competition between gamers as PlayStation users will make progress more quickly than Xbox users.

In the final paragraph of his Forbes pieces, Mr. Tassi–whom I commend for having described very precisely what Sony really wants and why–notes that “[t]his will all come down to regulators in the end,” so it doesn’t matter whether “Sony may look petty for snubbing [Microsoft’s offer].” I’d like to nuance that part a bit by adding some information.

This may look like just a procedural detail, but the final decision is made by regulators only if they approve. If they try to block the deal, the decision will be made by the courts of law. Why does this matter? Because regulators don’t look good if they are overruled, and if an acquirer makes a generous offer that a complainant rejects, competition authorities have every right and every reason to simply clear the transaction–and if they have no more good reason to block the deal, the judges will tell them. For that reason alone, I beg to disagree that there is anything “absurd” about a deal that (as Mr. Tassi rightly notes) Microsoft “do[es] not need to put on the table at all.”

It is indeed the name of the game that complainants always want something more, but there comes a point where antitrust enforcers stop taking a transparently unconstructive complainant seriously. And even prior to that point, they conclude that the complainant lacks a legitimate concern. In this case, it’s even worse: it’s not merely that Sony has no legitimate objective; it’s that Sony’s objective–the one that Forbes correctly identified–is downright anticompetitive.

I don’t know why the European Commission announced the extension of the merger review deadline by 10 working days, but it could mean that DG COMP wants to focus on working out a solution, which requires constructive parties and not just naysayers.

At some point, Sony should also think about whether it may at some point really need help from competition authorities. I can’t give a specific example, but at an abstract level, it’s not inconceivable that Sony may at some point have a real problem. Just imagine a scenario in which Apple with its Apple TV and its overall market power would decide to eat Sony’s lunch in some ways. You never know.

The other aspect I’d like to highlight here is that the other known complainant is Google–and just like Sony, Google is interested in the very opposite of preserving or fostering competition. Google paid Activision Blizzard King $360 million for a three-year contract that ensured ABK’s loyalty to the Google Play Store. Theoretically, ABK could have tried to compete, but practically, it would have been a surefire failure as end users would have had no incentive whatsoever to give a rival app store a chance. So just like Sony, Google wants Activision Blizzard King to remain independent and receptive to deals where the right to compete is sold for a few hundred million dollars.

Mr. Tassi is right that if Microsoft’s purchase of Activision Blizzard fell through (which I can’t imagine as there is no theory of harm that the courts would agree with, but let’s assume that scenario for the sake of the argument), the game maker would be even more receptive to all sorts of deals that restrict and distort competition “for a fistful of dollars” or “for a few dollars more” like in those 1960s movie titles (1, 2). Maybe it would make sense for them, but for the competitive process it would be a bad deal.

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