Meta faces a new setback in its metaverse plans from the FTC

Earlier this week, the Federal Trade Commission filed an injunction to block Meta, Facebook’s parent company, from buying the virtual reality company Within. It makes a VR fitness app called Supernatural.

The FTC says Meta is trying to “illegally acquire” the software firm. It already owns a similar VR app called Beat Saber, and the FTC says that the acquisition would hurt competition.

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Marketplace’s Marielle Segarra spoke with Adi Robertson, senior reporter for The Verge, about these two VR apps, the reasoning behind the agency’s lawsuit and what this suggests about how the FTC will scrutinize Meta going forward.

The following is an edited transcript of their conversation.

Adi Robertson: Beat Saber, technically, is what the FTC is calling an incidental fitness game. Essentially, you are playing with lightsabers to the sound of music. It’s a rhythm game. Facebook acquired it — it was then Facebook — in 2019. And then Supernatural is something that is mechanically similar to Beat Saber. You have these two wands in your hand, and you’re waving them around to the beat. But it’s much more focused on fitness, and it’s explicitly subscription based. It’s more coded as a workout app.

Marielle Segarra: So the FTC is arguing that these two games are competitive, and that if Meta buys Within, it’ll have no incentive to improve its existing app?

Robertson: Yeah. So the FTC is saying you have Meta here, they have their own incidental fitness app. And they have a really strong incentive to compete with Within if it stays separate. If they buy it, then they’re reducing the incentive to create more things that are like Supernatural. And they aren’t incentivized to create their own thing that could offer more alternatives.

Segarra: And what does Meta say to that?

Robertson: Meta has called this legally baseless and ideologically motivated. Its argument is sort of that the FTC is going after it because it’s so big and just doesn’t want it buying things, and that Supernatural and Beat Saber are actually very different, and that Meta has been trying to pump resources into VR so it clearly has an incentive to develop its own apps.

Segarra: This lawsuit is different than previous ones the FTC has filed against Meta and other tech companies, right?

Robertson: Yeah, a lot of these lawsuits so far have focused, first of all, on acquisitions that happened quite a while ago, something like Facebook buying Instagram. And they have been much more about social networking. Meta has been recently moving into what it calls Metaverse services, and a lot of that is VR. And this is one of the first times that we’ve seen a U.S. regulatory agency move into that space in the same way.

Segarra: What do you think the case means for other mergers and acquisitions that are happening in the VR space?

Robertson: There aren’t actually that many mergers and acquisitions in VR that are not specifically Meta related, is the funny thing. What it does potentially raise some questions around is companies acquiring game studios. Microsoft, for instance, is trying to acquire Activision Blizzard. And this is going to raise questions about, well, does the FTC see it buying this game studio as akin to Meta buying Within? Or does it think these are different cases?

Segarra: Do you think this signals anything about the FTC strategy toward big tech companies?

Robertson: It definitely seems to signal that if Meta tries to acquire anything, the FTC is going to scrutinize those deals very carefully. And acquiring things has been one of the key ways that Meta has really done anything for the last decade.

Segarra: Now Meta saw its revenue drop for the first time recently in the decades since it went public. Why are they seeing a loss?

Robertson: Meta itself has been in this transition period where Mark Zuckerberg sees the company’s future as being Metaverse and VR services. And they’re trying to build up this hardware ecosystem that they can control in a way they never have [with] mobile, but they’re having a rough transition from their traditional social networking. So they’ve been trying to sort of feel out the future for traditional services like Instagram and Facebook, and it’s not necessarily clear that they’re completely sticking the landing on this transition.

Related links: More insight from Marielle Segarra

You can read Adi Robertson’s reporting on the lawsuit here as well as Meta’s official response to the lawsuit.

And a recent “Marketplace Tech” interview between Kimberly Adams and FTC Chair Lina Khan about — among other things — the agency’s plans to change its enforcement manual. That’s the way it identifies unlawful deals.

Meta’s plans to capitalize on the metaverse seem to be a top priority — I mean, Mark Zuckerberg didn’t change the name from Facebook to Meta for no reason, right?

The company is spending heavily on virtual reality. Its latest quarterly earnings show that it lost more than $2.8 billion on its VR division.