Microsoft’s US legal battle to acquire gaming giant Activision Blizzard continued Tuesday with courtroom testimony from Jim Ryan, CEO of Sony Interactive Entertainment, a company likely to be hit hard if the deal goes through.
The US Federal Trade Commission in December challenged the acquisition, arguing that the proposed $69 billion tie-up would harm competition in the online gaming market. The UK Competition and Markets Authority (CMA) did the same in April.
The big issue is that Microsoft has its Xbox gaming console brand and owns a ton of game studios – like Rare and Bethesda – and now wants to absorb Activision Blizzard. That’s bad news for rivals, such as Sony.
We (Microsoft) are in a very unique position to be able to cost Sony out of business
Microsoft indicated to the FTC that it would not attempt to complete the deal until European regulators weighed in, which happened in May. EU competition authorities said they would approve the deal, subject to certain guarantees.
Concerned that Microsoft intends to try to complete the acquisition despite the FTC’s pending administrative review and Britain’s CMA order, the FTC on June 12 filed a complaint [PDF] in San Francisco, California, federal court to obtain a preliminary injunction against the mega-takeover.
A court hearing to decide the matter began last week and led to some shocking revelations, through documents introduced as evidence.
In an internal business update on June 22, 2022 [PDF] on page 38, Microsoft says one of its goals is to “build on Windows 365 to enable an entire Windows operating system streamed from the cloud to any device,” something the IT giant teased in May of this year. Redmond is also talking about developing custom silicon to ensure Windows and Surface remain competitive.
Microsoft’s attempt to convince the court that the Activision deal isn’t a competition killer won’t be helped by an email message [PDF] from Matt Booty, head of Xbox Game Studios, to Microsoft Gaming CFO Tim Stuart, suggesting that “we (Microsoft) are in a very unique position to be able to cost Sony out of business.”
A Microsoft Gaming CSA’s [Consumer Solutions Area] April 2020 Strategy Review [PDF]although somewhat dated now, shows Microsoft hopes it won’t be able to break into the Google Play and Apple App Store ecosystems and suggests more resources should go into supporting a browser-based gaming experience – a something of a contrarian view given previous rejections of web apps by the likes of Facebook.
It says, “Our initial strategy for iOS and Android centers on a native application distributed through each platform’s mobile store, as usual. However, Apple and Google clearly recognize the financial and ecosystem importance of gaming and have put policies in place that are detrimental to our ability to distribute and operate xCloud through a native application in their mobile stores. Despite ongoing discussions, a resolution through commercial negotiations, or otherwise , will not appear imminent.”
Regarding its iOS and Android Plan for Xbox Game Pass – a cloud gaming subscription service that in 2020 will not be distributed through Google Play or Apple’s iOS App Store – Microsoft said, “we are focused on accelerating our browser-based efforts on multiple fronts.”
But a year later, Xbox Game Pass is available on Android and there’s hope that the European Digital Markets Act will force Apple to be more responsive to cloud gaming services as well.
‘We don’t have a strategy to win organically in mobile gaming’
A memo on February 15, 2019 [PDF] from Microsoft Gaming CEO Phil Spencer, paints a dire picture of Microsoft’s mobile gaming prospects.
He wrote, “First, we’re exactly like Polaroid. We’re basically gaming without exaggerating its TAM. [total addressable market] (similar to film photographers) while mobile gaming MAU [monthly active users] WW is growing [worldwide] at a significant rate (as digital photography is growing.
“We don’t have a strategy to win organically in mobile gaming. I can’t come up with one.”
Much of the internal communication in the competition lawsuit discussed the importance of popular game content and the market advantages afforded by platform-exclusive titles – important context given Microsoft’s attempt to buy one of the leading makers of game. There is a fear that Microsoft will ensure that future titles from Activision Blizzard only appear on the Xbox and not, say, Sony’s PlayStation.
Microsoft previously offered promises to Nvidia, Sony, and Nintendo that it would allow things like GeForce Now, PlayStation, and Switch to get those games within a certain number of years, and cannot be locked out, in part to appease monopoly watchdogs. Sony denied that.
A note [PDF] from Pete Hines, SVP of global marketing and communications for game studio Bethesda Softworks (acquired by Microsoft in 2021), highlights the limitations of Microsoft’s commitment to “continue to make Call of Duty available on PlayStation and other popular Activision Blizzard titles.”
Hines asked, “Oh [Microsoft’s statement] not the opposite of what we’ve been asked (ordered) to do with our own titles?” His concern was that game director Todd Howard was going to the DICE Summit focused on gaming and that a journalist might ask if why having multi-platform is an option for existing titles like Tawag ng Tanghalan and other Activision Blizzard titles but not for upcoming ones like The Elder Scrolls 6 or Starfield from Bethesda.
It emerged in court testimony on Tuesday when PlayStation boss Ryan said he did not view the exclusive Xbox availability of Bethesda’s Starfield – a highly anticipated game – as anticompetitive.
That makes sense since Sony PlayStation also has exclusive titles. And FTC competition expert Robin Lee, a Harvard economics professor, hedged, proverb Exclusive deals can have both pro- and anti-competitive effects.
The court hearing is expected to continue at least until Thursday. ®
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