The future of the U.S. video game industry is in the hands of California District Judge Jacqueline Scott Corley, who will make a decision in just days.
The U.S. video game industry is a $97 billion industry, of which $51 billion comes from California.
Unfortunately, however, according to the Milken Institute, a nonprofit California think tank, the state is facing increasing competition from other states and national governments, which could jeopardize over 33,000 California jobs and untold revenue for the state.
The worst of this threat is coming from abroad. According to nearly a dozen members of Congress across the political spectrum, international companies like Sony might be engaging in discriminatory trade practices that are providing a “serious barrier to U.S. exports.” That means fewer sales made by California companies and scores of its jobs at risk.
As the U.S. gaming industry’s clear leader, California has risen in saying, “enough is enough.” Its companies are taking action to strengthen their marketplace positions in a manner that would stop these rogue foreign actors in their tracks.
One of them is Activision, a California-based gaming company that makes some of the most popular games in the world, such as Call of Duty. To allow the American gaming industry to better compete with the Sonys of the world, which currently control over 95-percent of the high-end gaming market, it announced a merger with Microsoft, a U.S.-based gaming giant. This merger’s advancement could finally grant California and the larger U.S. gaming sector the upper hand in this industry. And California district judge Jacqueline Scott Corley is expected to make it happen sometime next week.
Naturally, however, Sony and other anti-California actors have blood in their eyes and are trying to stop the merger. They can’t imagine a gaming industry that’s not imbalanced in their favor and fair to California, so they have resorted to making non-sequiturs to convince Judge Scott Corley to stop the merger. She shouldn’t take the bait.
Principally, Sony argues that Microsoft would make Activision’s games exclusive to Xbox, which would reduce jobs and competition in the industry. But put simply, this isn’t true. Microsoft already struck a deal to distribute Activision games to Nintendo, and it offered identical terms to Sony, which has refused to sign the contract. What’s really hurting California is not Microsoft but Sony. The company has been accused of everything from predatory pricing to exclusionary deal-making to keep many top games off its competitors’ platforms. Judge Scott Corley approving this merger would help reverse that.
Activision’s labor union supports the deal, as does the European Union, Brazil, Chile, Japan, Serbia, and Saudi Arabia. There is no reason for the California court to think twice about the benefits this merger would provide to workers and consumers. In fact, in opining on this merger, New York University School of Business Assistant Professor Joost van Dreunen — widely considered the top academic in the video game industry — said that “virtually no one opposes the deal, except Sony.”
Mass layoffs continue to hit Silicon Valley. No company, big or small, appears immune from the economic issues currently facing the region, causing some analysts to report on a “vibe shift” while asking, “Is the party over for Silicon Valley?”
It doesn’t have to be. California has shown it can stand on its own two feet and fight back.
Activision’s proposed merger with Microsoft is the first significant example of the state doing this. It would be a shame if the courts intercede and undercut its efforts to remain on top. That would turn countless Silicon Valley innovators’ hopes and dreams into mere pixie dust. And that’s in no one’s interest.
Michael Busler, PhD, is an economist and professor at Stockton University