There’s been no shortage of excellent analyses on why Microsoft agreed to buy Activision Blizzard this week for a staggering $70 billion in cash. It could be a simple strategic fit in the fast-growing video games industry or an opportunistic acquisition in the midst of a sexual harassment investigation that’s dented Activision’s stock. Others surmised it filled a need for Microsoft to bulk up against other bigger competitors and, naturally, something about the metaverse, which feels like the justification for everything these days. But one reason sticks in my mind: Because Microsoft can.
The software and services behemoth has the money (and more) as one of the most valuable entities on the planet — just behind Apple. Moreover, it has the technological expertise in artificial intelligence, cloud computing and devices — its Xbox journey has been an unqualified hit, unlike some of Microsoft’s other endeavors — to handle the complex operations that gaming requires.
If I were the head of a cash- and stock-rich company like Microsoft right now, gobbling up all the juicy bits is about the only thing I would be focused on — given the ease at which mergers continue to sail through the system.
So, so many mergers. In a pandemic year, when one might imagine deal-making would weaken as companies focus on operational matters, just over 4,100 mergers were in front of the Federal Trade Commission and the Department of Justice. That is double the number in 2020, with the last month of 2021 clocking close to 300, the highest number in a decade.
While the Microsoft-Activision transaction will surely be scrutinized by an array of federal agencies, the sheer flood of deals has made it nearly impossible for regulators to do much except in the most egregious cases. Despite all the bluster from Congress and the White House about reining in Big Tech, Microsoft’s lawyers must not feel very worried if they are moving forward with a buyout of that size.
The problem seems to stem in no small part from underinvestment in regulatory agencies. Staffing at the F.T.C. has remained static, according to F.T.C. chair Lina Khan in a joint interview she did this week with me and Andrew Ross Sorkin for the Times and CNBC.
“We are severely under-resourced,” Khan said, noting that she presided over 1,100 employees, which is only two-thirds the size of the staff in the 1980s. “We have the same number of people responsible for investigating these transactions, [yet] the number of transactions has dramatically increased,” she said. “That creates significant strain.”
“We have to make very difficult choices about which billion-dollar deals we’re going to ensure we’re closely investigating, but they’re very real trade-offs, in terms of what that work is going to come at the expense of.”
And when I later asked about what she needs the most, she quickly said, “resources,” which are not actually coming. The much-needed $500 million that Congress had moved to send to the F.T.C. was tied up in the recently failed social spending bill. And another bipartisan bill drafted by Senator Amy Klobuchar, Democrat of Minnesota, and Senator Chuck Grassley, Republican of Iowa, that would raise funds via merger filing fees, part of an innovation and competition bill that passed in the Senate, is idling in the House.
Meanwhile, tech outfits like Microsoft have money burning giant holes in their khaki pockets, since the pandemic has been very, very good to them. Valuations and cash flow have grown massively in the past year ($3 trillion Apple was merely a $2 trillion company last August). That’s created an urgency to cull the herd and pick up needed assets for the next stage of development before competitors do.
So it ought to come as no surprise that the F.T.C.’s Khan and the like-minded Jonathan Kanter, the D.O.J.’s antitrust head, announced a push for new merger guidelines this week, ironically the same day that Microsoft and Activision announced their pending nuptials. It’s an attempt to rethink their approach in the absence of legislation that might overhaul antitrust laws dating from a hundred years ago.
Importantly, the F.T.C. is trying to rethink how its evaluation of mergers “may underemphasize or neglect” other impacts such as labor, innovation and what Khan referred to as “quality degradation” via privacy incursions and more. In other words, will consumers, and smaller competitors, suffer from a bad deal that appears to be a good deal?
Tech companies were singled out in the guidelines request, with a whole part asking for comment on whether digital competition should be treated differently. That will be crucial, given how much data these networks have on us and how many of them are on both sides of the market, as both platforms and sellers.
It’s daunting, even as Khan appears frank about the challenges. “I think it takes courage. These are enormously well-resourced companies. They are not shy about deploying those resources. And I think in these moments, it’s important to ensure where we’re really showing these companies, but also showing the country, that enforcers are not going to back down because of these companies flexing some muscle or kind of trying to intimidate us,” she said. “But I think what we can see is that inaction after inaction after inaction can have severe costs, and that’s what we’re really trying to reverse.”
Khan has a short amount of time to do so and a continuing flood of mergers. If you think investment bankers and their tech clients aren’t sharpening their pencils over a range of possible targets in gaming and well beyond (hello, Pinterest!), you haven’t been paying attention.
One tech exec gamed out the current situation said to me, in a startling moment of honesty: “They look at [these deals] and grind everyone for a bit and say yes.”
The question is: How do our beleaguered watchdogs, when it counts, get to no?
4 Questions
I reached out to Jonathan Greenblatt, chief executive and national director of the Anti-Defamation League. He discussed his new book — “It Could Happen Here: Why America Is Tipping from Hate to the Unthinkable — and How We Can Stop It” — and social media’s role in spreading hate. I’ve edited his answers.
Your book paints a scary picture of the future, as radical elements continue to gain strength and upend democracy. What is the single biggest reason for that growth, in your opinion?
A lot of this stems from an increasing distrust from many sectors of society of our longstanding democratic institutions — whether it be Congress or elections or the courts — and this distrust is fueled by misinformation, disinformation and conspiracy theories that, to a large extent, have been disseminated and continue to proliferate on social media. We always have dealt with antidemocratic forces attempting to sow distrust in our system; that is not unique to this moment. However, what is new is that these bad actors now have social media to amplify their message. And without proper guardrails in place to regulate these platforms, the problem will metastasize into real-world violence.
The “it could happen here” threat has grown over the past few decades, but the advent of social media is the new factor you identify in the timeline. What do you view as the most dangerous part of its power?
The most dangerous part is its sheer power. Social media is ubiquitous with almost unimaginable and instantaneous reach. It’s insatiable, because the business model drives clicks and earns returns like a beast that you can never satisfy; and it’s unchecked with virtually no editorial boundaries or regulatory guardrails. This is a toxic combination. For these reasons, we have called for policymakers to reform Section 230 [of the Communications Decency Act] and to do it dramatically and urgently. We need to make social media companies legally accountable when their algorithms, product features or policies promote hate, terrorism and/or give rise to civil rights violations. No other industry in America is so exempt from responsibility.
Your organization was part of a group that led an ad boycott effort against Facebook. Yet, today Facebook is bigger than ever. What impact do such efforts have?
Stop Hate for Profit was not a long-term boycott, per se, but designed as a one-month ad pause. And I believe that it was a serious wake-up call for Facebook and all of Silicon Valley. It was the first time in memory that advertisers, organizations, advocacy groups and the public came together to send a message to Big Tech that they had to stop the rising tide of disinformation and hatred on their platforms.
It successfully raised public awareness of the severity of the problem and the need for real reforms. It brought together a broad coalition of civil rights groups, major advertisers, nonprofits, marquee celebrities and others who all shared the same goal: to press Facebook to stop profiting off hate. It had the effect of convincing other social media companies to step up their game in removing hate speech and disinformation. Many of them have made significant changes to their platform policies since last summer.
And, perhaps most importantly, Stop Hate for Profit pressured Facebook to start making its own changes that had been sought for years. We believe many of the policy reforms Facebook has made over the past year (banning Holocaust denial; removing QAnon content; taking Donald Trump off the platform in the wake of the insurrection; releasing its Civil Rights Audit; hiring a vice president of civil rights) can be ascribed to the pressure brought to bear during and after the campaign’s monthlong ad pause. Still, policies are only as good as their enforcement and what we have learned is that Facebook’s policies are lackluster at best. So, we will not relent, and instead, keep up the pressure.
What else can be done to turn back this trend toward authoritarian impulses? Are there any hopeful signs?
I have tremendous hope that we can turn back the tide of hate in this country. The good news is that there are many good people who are willing to get into the trenches to fight back against pernicious stereotypes. We saw this after Pittsburgh, when so many good people came forward — Christians, Muslims, Jews and people of no faith — to help support the community and turn a tragedy into an opportunity to do good. We see this happening now in the wake of the hostage crisis in Colleyville.
Lovely & Loathsome
This is a new feature I will post from time to time calling attention to the worst and also the best things to happen in tech and media this week.
Lovely: The huge success enjoyed by the epic animated movie, “Encanto,” from Disney and, most especially, the fertile imagination of Lin-Manuel Miranda, due to his earworm of a song, “We Don’t Talk About Bruno.” As The Times noted, “the song recently topped the Spotify, Apple Music and iTunes charts in the United States and reached No. 1 on the global YouTube music videos chart.” It currently sits at No. 4 on the Billboard Hot 100. A lot of that has been due to explosion as a meme on social media, especially TikTok, where creators are having a ball paying tribute. It’s a moment that shows just how good digital music can be. And don’t miss this side-by-side of the reference choreography on YouTube and TikTok.
Loathsome: The Beijing Olympics next month may come with a giant dose of digital surveillance. Chinese authorities are trying to create a zero-Covid bubble for the athletes, but, one report noted, “researchers at the University of Toronto’s The Citizen Lab said a virus-monitoring app all attendees must use was found to have a ‘simple but devastating’ encryption flaw that could allow personal data including health information and voice messages to leak.” Count me a fan of The Citizen Lab, despite The International Olympic Committee and The Beijing Winter Olympic Organizing Committee saying the software problems have been fixed.
