Dive Brief:

• Meta can move forward with its acquisition of Within Unlimited, a maker of a virtual reality fitness app, dealing a blow to the Federal Trade Commission’s effort to use antitrust law to block mergers in emerging markets even before actual harm is shown.
• “The idea that this acquisition would lead to anticompetitive outcomes in a dynamic space with as much entry and growth as online and connected fitness is simply not credible,” a Meta spokesperson said after the ruling by Judge Edward Davila of the U.S. District Court for the Northern District of California.
• Meta had sought to dismiss the case but the judge ruled that, even though the FTC was unlikely to prevail, the agency had met a threshold standard of evidence. The agency was granted an emergency stay of a week while it decides whether to appeal or pursue an administrative review of the deal.

Dive Insight:

Meta sees the fitness app market as a way to broaden the appeal of virtual reality to women and move beyond young men, who use it mainly for gaming. 

“It was a very different demographic, and . . . we had always been in search of expanding VR beyond gaming into more of a general computing platform,” a Meta executive had testified. 

Even so, the company was unlikely to make the investment to build its own app. Even though it had the money and engineering resources to make a go at it, the market is so specialized that the company would have had to build expertise and develop an infrastructure that it wasn’t prepared to do. 

“Financial and engineering capabilities alone are insufficient to conclude it was ‘reasonably probable’ that Meta would enter the VR dedicated fitness app market,” the judge said. 

For a while the company entertained the idea of adding a fitness component to its successful Beat Saber gaming app, possibly through a partnership with Peloton, but the idea never moved beyond the conceptual stage. 

“Enthusiasm for the Beat Saber-Peloton proposal had ‘slowed down’ before Meta’s decision to acquire Within,” the judge said

Because of what’s entailed in offering a fitness app, the market appears to be concentrated and the FTC succeeded in making a prima facie case about that, the ruling said. In addition to engineering, it requires an expertise in fitness and a specialized production studio to enable the release of new content on a regular basis to support a subscription model. 

What the FTC didn’t show, though, is that by acquiring Within, Meta had decided against entering the market on its own or through a partnership, which would have expanded real and perceived potential competition in the space. 

“The objective evidence does not support a reasonable probability that firms in the relevant market perceived Meta as a potential entrant,” the court said. “Even if it did, the court finds that there is no direct or circumstantial evidence to suggest that Meta’s presence did in fact temper oligopolistic behavior or result in any other procompetitive benefits.”