MarketWatch First Take: After Microsoft defeat, ‘toothless’ FTC needs to pick better battles if it wants to rein in Big Tech

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The U.S. Federal Trade Commission’s defeat as it sought to block Microsoft Corp.’s acquisition of videogame maker Activision Blizzard is yet another setback for an increasingly toothless regulator that needs to pick better battles with Big Tech.

On Tuesday morning, a federal judge denied the FTC’s injunction that was seeking to block the software giant’s proposed $69 billion acquisition of Activision
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best known for its hit videogame “Call of Duty.” The FTC argued that Microsoft
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could withhold “Call of Duty” and other Activision games from rival console platforms such as Sony’s PlayStation, and keep the games on its Xbox only.

Microsoft, in a show of faith, committed in writing to keep “Call of Duty” on PlayStation on parity with Xbox for 10 years, agreed with Nintendo
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to bring “Call of Duty” to Switch and entered into several pacts to bring Activision content to several cloud gaming services, U.S. District Court Judge Jacqueline Scott Corley noted in her decision.

“With these 10-year contracts that Microsoft made across the board with so many vendors, Nvidia
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Nintendo and others, 10 years is a really long time, in my opinion,” said Sarah Hindlian-Bowler, an analyst at Macquarie Equity Research, in an interview Tuesday. “It is long enough to cover the arrival and maturity of the cloud gaming market….She understands  that 10 years is a very long long time to make a guarantee of this kind.”

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Hindlian-Bowler said that she had been in the minority of Wall Street analysts in not believing the U.S. government would be able to block this deal.

“The assumption that this somehow decreases the market is going to prove to be wildly incorrect,” she said, adding that she does not believe that the U.K.’s  Competition and Markets Authority will be able to block the deal either.

The latest upset at the FTC was also not too surprising to other Capitol Hill watchers, especially in the light of other high-profile setbacks by the agency and its once-heralded commissioner, Lina Khan. When she was sworn in as chair of the FTC in mid-2021, Khan was hailed as the sheriff who would rein in Big Tech.

“It’s hard to say I am surprised by the ruling because Khan has had a fairly unsuccessful track record,” said Owen Tedford, a senior research analyst at Beacon Policy Advisors. “The regulators are pushing the boundaries, deals that previously would have gone unchallenged have now gone challenged. And they are breaking precedent because Khan and company have expressed a dislike of settlements.”

The FTC’s attempts to sue Meta Platforms Inc.
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have had some defeats so far. In February, a California judge denied the FTC’s attempts to block Meta from buying a virtual-reality startup called Within Unlimited. The FTC’s suit to reverse Meta’s acquisitions of WhatsApp and Instagram, filed in 2021, is still plodding along.

Additionally, the FTC recently filed a suit against Amazon.com Inc.
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alleging that it is too difficult for consumers to cancel their Prime accounts, and the agency is reportedly also mulling another far-reaching suit against Amazon alleging that the e-commerce giant punishes merchants who do not use its logistics services. One analyst has already made a case that the FTC will lose that fight too.

“I think that the FTC is in need of some change, in need of some refreshing and in need of doing a much better job of picking their battles,” said Hindlian-Bowler. “This does feel toothless, a lot of the fights they are picking are toothless. And unfortunately, they are missing the real battle. They are missing TikTok, they are missing the real fights where we actually have national security at risk.”

In February, one of the Republican commissioners on the FTC resigned, and wrote an op-ed in the Wall Street Journal accusing Khan of disregarding the rule of law and due process.

Compared to the European Union, which has had far more success implementing regulation to rein in Big Tech, the U.S. is still much weaker. “The EU seems to be having somewhat more success, levying big fines, getting these companies to change,” said Beacon’s Tedford. “The EU has passed these bills, but the U.S., despite these efforts, has not gotten there and is not going to get there for the next two years.”

Money spent by Big Tech to lobby Congress in a huge part of the problem, whereas in Europe, “those lawmakers feel less beholden,” he added.

More than a century ago, President Teddy Roosevelt, known for his “speak softly and carry a big stick” foreign policy, also used his bully pulpit to bust industrial monopolies.

If Khan and her staff want to follow his lead and rein in Big Tech, they need to start picking their future battles more carefully — and carry bigger sticks.