Wedbush Securities analyst Michael Pachter was recently interviewed about the Microsoft – Activision deal, particularly the CMA regulation. In this new interview, he explains why the CMA has no leg to stand on to reject the deal, and will ultimately have to accept.
Of course, we must address Pachter’s notoriety in the past years, as a media talking head that’s made a lot of gamers angry with his comments. Because of his past rancor, gamers have documented very well when he has made incorrect predictions in the game industry.
But to be fair to Pachter, right or wrong, making those judgement calls is precisely his job. And his job also means he has to have an understanding of how the industry works, and even thinks, so there is value to his insight.
In this specific case, we are covering a credible argument which he bases on evidence, something that Microsoft themselves can use to defend their deal to the CMA and other regulators.
In an interview with Destin, he had this to say:
“So the reason that the CMA can’t really make this stick is that the CMA didn’t block the Amazon acquisition of MGM movies. And, they didn’t block the Disney acquisition of Fox movies and TV. They could have, but they didn’t say a word.
Why did Amazon buy MGM? To put their content on freebie and on Amazon Prime video. Why did Disney buy Fox? To put the content on Disney Plus. The Simpsons and Family Guy are on there right now, and the CMA said nothing about that.
Is that unfair to Netflix? Absolutely, it’s unfair to Netflix. Did Netflix complain? No, because they’re not a bunch of big babies.
So, the CMA can try to litigate and when Microsoft goes to court and says, wait a minute, you guys didn’t object to Amazon and MGM and– oh, by the way, Amazon-MGM is really analogous to Activision-Microsoft. MGM is literally about three or four percent of the movie market. Disney-Fox, Fox is like 20 (percent) –it’s a
giant acquisition and you said nothing in either case. You’re going to single us out because Sony’s whining?
No, sorry so no, I honestly think they’re going to win in court.”
For clarification, the UK CMA doesn’t really work like a court. While parts of its investigation appear to be similar to a court case, they are still a regulatory agency, an independent department under the UK government. Pachter happened to be wrong to characterize it that way, but this error does not invalidate his argument.
Pachter’s argument is simple. The CMA did not raise objections to other vertical mergers, and named two such mergers in the TV and movies industry.
Both of those mergers (Amazon buying MGM and Disney buying Fox) shook up that industry, and directly affected Netflix, that did still have some MGM and Fox shows and movies. In fact, these mergers also affected other players, such as Apple, which had Fox and MGM shows and movies, such as Alien and James Bond, for decades.
Those mergers went through, as did Microsoft’s most recent other big merger with Bethesda, and the same can be said of Sony’s acquisition of Destiny 2 developer Bungie.
What is important here, is not so much what other examples of vertical mergers can be named, but the fact that the CMA approved these other mergers.
You can watch Destin’s interview with Pachter below.
