Clifford Chance

The expansion of the video gaming industry has drawn increased scrutiny by competition authorities. In this article, we summarise recent competition law developments in the gaming industry. 

Gaming under the competition spotlight

In the first quarter of 2022, the global gaming market already surpassed the deal value of the entire year of 2021 with over USD 98 billion in total value of announced/closed deals. This is part of a broader expansion of the industry which is expected to be worth USD 321 billion by 2026. However, the recent boom in the video game industry has drawn increased scrutiny by competition regulators. In this article, we summarise recent competition law developments in the video games industry.

Key developments

Mergers and acquisitions in the gaming industry

In January 2022, both Sony and Take-Two Interactive announced intended acquisitions of Bungie Inc. (developer of the Destiny franchise) and Zynga Inc. (a mobile/social media games developer) respectively. This was quickly followed by Embracer Group acquiring the game studio, Saber Interactive, and through a subsequent bolt-on, acquiring AAA PC and console developer, 4A Games. The flurry of activity in the gaming industry has also interested one of the largest sovereign wealth funds in the world, the Saudi Public Investment Fund, which (through its gaming company, Savvy Games Group) has already acquired ESL Gaming and FACEIT. Savvy Games Group has also announced that it has earmarked an additional USD 13.3 billion for further activity in this industry, stating that it intends to set up as many as 250 gaming companies in Saudi Arabia by 2030.

However, perhaps the most notable development in this sector is Microsoft's intended acquisition of Activision Blizzard, Inc. Microsoft, which already has a strong presence in the gaming industry through its Xbox console and its online gaming platforms, Xbox Store and Xbox Game Pass, is seeking to bolster its presence by acquiring Activision, a games developer, with key franchises including Call of Duty, World of Warcraft and Candy Crush.

The proposed acquisition is being examined by a number of competition authorities including, amongst others: the Administrative Council for Economic Defence in Brazil who recently approved the acquisition (October 2022); the UK Competition and Markets Authority ("CMA") where the acquisition was referred to a Phase II investigation (September 2022); and the European Commission ("EC") which began its Phase II review in November 2022.

Sony PlayStation faces legal claim worth GBP 5 billion

In September 2022, an application to bring a class action against the UK and EU subsidiaries of Sony Interactive Entertainment ("Sony") was filed in the UK Competition Appeal Tribunal ("CAT") for Sony's alleged abuse of a dominant position. The claim has been brought by the proposed class representative ("PCR") and "consumer champion" Alex Neill, on an opt-out basis for UK-domiciled members of the class and on an opt-in basis for non-UK domiciled members of the class. The PCR argues that Sony has abused its dominant position by imposing unfair terms and conditions on game developers and publishers, which have resulted in excessive and unfair prices for end consumers for each purchase of digital games or in-game content from the PlayStation Store. In particular, the PCR argues that (i) Sony does not permit other third-party operating systems or applications to be used on PlayStations to play games; (ii) digital game and add-on content for use on PlayStations can only be purchased through the PlayStation Store; and (iii) Sony charges a commission on all purchases of games and add-on content made through the PlayStation Store which has largely been set at 30%. The action has yet to be certified by the CAT, which is expected to do so in the coming months.

European Commission fines Valves for geo-blocking practices

In January 2021, the EC fined Valve and five video game publishers EUR 7.8 million for geo-blocking practices. Valve was found to have restricted cross-border selling of certain PC games based on the geographical location of the users in the EEA. In its press release, the Executive Vice-President Margrethe Vestager noted that geo-blocking "deprive[s] European consumers of the benefits of the EU Digital Single Market and of the opportunity to shop around for the most suitable offer in the EU."

Games development company makes a claim against Valve

In April 2021, another claim was filed against Valve, this time by games development company Wolfire Games. The action includes a claim that Valve's digital gaming distribution platform, Steam, included most favoured nation provisions within the Steam Key Price Parity Provision. Such provisions prevented developers from listing their games for a lower price than what such games were listed for on Steam. In September 2022, Valve filed its response to Wolfire Games' claims (which was amended following an attempted dismissal).

Other developments

In November 2022, the CMA launched a market investigation relating to the distribution of cloud gaming services through app stores on mobile devices, in addition to the supply of mobile browsers and browser engines.

Looking to the future

Some key themes emerge from recent competition issues in the gaming industry. First, app store owners and game distribution platforms are under increasing scrutiny by both regulators and games developers. Second, a wave of merger activity will lead competition authorities to review more deals in the gaming sector. Third, competition authorities will monitor the development of new sources of innovation. We now await the outcomes of various studies and claims which will further shape the industry.