FTC Sues to Block Meta’s Bid to Buy Virtual Reality Firm

Meta’s strategy of acquiring competitors in fledgling industries is drawing more attention from antitrust enforcers.

In a lawsuit filed on Wednesday, the Federal Trade Commission sued to block Meta, formerly known as Facebook, from buying game developer Within in a bid to limit the company’s reach in the virtual reality market. The complaint advances relatively untested theories arguing that antitrust laws account for actions taken by a firm that isn’t yet a monopolist but is positioned to become one. The legal action potentially indicates a pivot from the agency toward limiting acquisitions by dominant firms in markets for growing technologies.

“This Acquisition poses a reasonable probability of eliminating both present and future competition,” the FTC wrote in the complaint, which was filed in California federal court. “That lessening of competition may result in reduced innovation, quality, and choice, less pressure to compete for the most talented app developers. And Meta would be one step closer to its ultimate  goal of owning the entire ‘Metaverse.’”

Meta acquired Within, which owns a highly popular fitness app called Supernatural, last year for an undisclosed sum. The purchase was a part of chief executive Mark Zuckerberg’s bet on the so-called Metaverse.

According to the lawsuit, Meta is trying to corner the market for virtual reality fitness apps as part of a larger campaign to dominate the entire virtual reality market.

Meta’s virtual reality product division has been “growing at breakneck speed,” the FTC claimed, generating $2.3 billion in revenue in 2021 — a two fold increase from the previous year. Two of the company’s most significant purchases in the industry came in 2014, with the acquisition of virtual reality headset manufacturer Oculus VR, and in 2019, with the acquisition of game developer Beat Games.

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The agency pointed to Meta’s strategy of acquiring a series of studios behind popular virtual reality apps. Since 2020, the company has bought six game developers, including Ready at Dawn Studios, Downpour Interactive and Twisted Pixel.

The FTC argued that the proposed acquisition will substantially reduce competition in the market for virtual reality-dedicated fitness apps because Meta would have no incentive to develop an app to compete against Supernatural.

“Letting Meta acquire Supernatural would combine the makers of two of the most significant VR fitness apps, thereby eliminating beneficial rivalry  between Meta’s Beat Saber app and Within’s Supernatural app,” the complaint states.

According to guidelines for horizontal mergers, deals “between an incumbent and a potential entrant can raise significant competitive concerns.”

The FTC claimed that the deal will result in less innovation, lower quality, higher prices, less incentive to attract and keep employees and less consumer choice. To block the deal, the agency will have to prove that the acquisition violates Section 7 of the Clayton Act, which prohibits mergers that may substantially lessen competition or “tend to create a monopoly.”

In a statement, Facebook said that the FTC’s case is “based on ideology and speculation” and not evidence.

“It’s always been clear that our acquisition of Within will inject new investment into the VR fitness space, improve the Quest platform to better support all fitness apps and expand the VR ecosystem as a whole – all to the benefit of people and developers alike,” the company said. “The FTC rests its arguments on a number of flawed premises and unsupported assumptions that do not stand up to scrutiny.”

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On Wednesday, Meta reported its first revenue decline since the company went public in 2010.

The lawsuit is the second from the agency against Meta. In 2020, the FTC and a coalition of 48 state attorneys general alleged that the tech giant stifled competition in the social media market by illegally collecting consumer data to identify and buy out emerging rivals. They offered new evidence unknown to the agency when it reviewed Facebook’s acquisitions of Instagram in 2012 and WhatsApp in 2014, bolstering allegations that the firm purchased the companies primarily to squash competition.

In a email cited in the lawsuit, Zuckerberg detailed his motivation to buy Instagram. “Even if some new competitors spring up, buying Instagram, Path, Foursquare, etc now will give us a year or more to integrate their dynamics before anyone can get close to their scale again,” he wrote in the message. “Within that time, if we incorporate the social mechanics they were using, those new products won’t get much traction since we’ll already have their mechanics deployed at scale.”