January 27, 2023

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Meta battles US antitrust agency over the future of virtual reality By Reuters

©Reuters. FILE PHOTO: A person uses a virtual reality headset at the Meta booth during the Ninth Summit of the Americas in Los Angeles, California, U.S. June 8, 2022. REUTERS/Mike Blake/File Photo

By Diane Bartz and Katie Paul

WASHINGTON/SAN JOSE, Calif. (Reuters) – The Federal Trade Commission, which enforces antitrust laws, is on the verge of a real court battle over virtual reality.

A high-profile trial begins Thursday in which the FTC will seek to block Facebook parent company Meta Platforms Inc (NASDAQ:) from banning virtual reality app developer Within Inc.

The FTC sued in July to stop the deal, saying Meta’s acquisition of Within would “tend to create a monopoly in the virtual reality (VR) fitness app market.” It has asked the judge to order an injunction that would stop the proposed transaction.

The trial, which begins Thursday, will serve as a test of the FTC’s quest to avert what it sees as a repeat purchase of the company for dominance, this time in the emerging virtual and augmented reality markets.

The FTC is separately trying to force Meta to reverse two previous acquisitions, Instagram and WhatsApp, in a lawsuit filed in 2020. Both were in relatively new markets at the time the companies were purchased.

A government victory could hamper Meta’s maneuverability in an area of ​​emerging technology that Chief Executive Mark Zuckerberg has identified as the “next generation of computing.”

If Meta were prevented from making acquisitions in this space, it would face greater pressure to produce its own hit apps and give up the gains — in revenue, talent, data, and control — that came with the In-house integration of innovative developers.

Developed as part of popular subscription-based virtual reality workout app Supernatural, advertised as a “complete fitness service” with “expert trainers”, “beautiful travel destinations” and “workouts choreographed to the best music available”.

It’s only available on Metas Quest devices, which are headsets with immersive digital images and audio, which market research firm IDC estimates account for 90% of global shipments in the virtual reality hardware market.

The majority of the more than 400 apps available in the Quest App Store are produced by external developers. Meta owns the most popular virtual reality app on the Quest App Store, Beat Sabre, which it acquired in 2019.

Meta is expected to argue that the FTC has done a poor job of defining the relevant market and that it competes with a whole range of fitness content, not just VR-specific fitness apps.

The FTC is also expected to have underestimated the competition in the VR-specific fitness app market.

The social media company agreed to buy Within in October 2021, a day after it changed its name from Facebook to Meta, signaling its ambition to build an immersive virtual environment called the Metaverse.

Meta didn’t disclose the price for the deal, but tech publication The Information reported it was about $400 million.

Zuckerberg will be a witness at the trial. Other potential witnesses include Within CEO Chris Milk and Meta Chief Technology Officer Andrew Bosworth, who heads the company’s metaverse-focused Reality Labs unit.

The trial is taking place in the US District Court for the Northern District of California.

In addition to defending the Within acquisition, Zuckerberg is expected to be questioned about Facebook’s parent company’s strategy for its VR business, as well as the company’s plans to support third-party developers, according to a court document.