More from FTC v. Microsoft: all the news from the big Xbox courtroom battle
We’re now talking about the pricing of subscriptions. The FTC references a March email between Tim Stuart, Xbox CFO, and Amy Hood, Microsoft CFO. The email discusses Sony’s subscription pricing, a “Game Pass competitor” after its announcement last year.
The email also includes a table of information and Stuart comparing Game Pass and Sony’s subscription. It’s not clear exactly what the figures are without seeing the table, but Stuart apparently says day and date games are a key differentiator for Game Pass.
The FTC brings up the phrase “dump trucks of money,” as it’s questioning Tim Stuart about Microsoft spending lots of money on gaming content.
FTC: Have you ever heard the amount of money that’s been spent? Like you’ve said, dump trucks of money?
Stuart: I have a friend of work that likes to say dump trucks of money. I referred to him.
Steve Singer, SVP of developer relations at Nintendo, is appearing in court by video deposition. As the video contains lots of confidential information Judge Corley will view it in closed court.
Nintendo has been at the center of an ongoing battle about whether the Switch is competition to the Xbox and PlayStation.
Microsoft also signed a deal with Nintendo to bring Call of Duty to the Nintendo Switch if the Activision deal closes. We learned yesterday that this would also include a future Nintendo console, so it’s a shame we won’t hear more about Call of Duty on Switch today.
The FTC is questioning Tim Stuart about console market share from April 2022. A confidential document share excludes Nintendo Switch and Xbox One / PS4 consoles. It also measures just the US alone. Tim Stuart is asked about Japanese markets, as the data doesn’t include these markets. “The data is not that reliable,” for other markets, argues Stuart.
We’ve seen references to Project Denali in the exhibits list, and now the FTC begins by questioning Tim Stuart, Xbox CFO, who confirms Project Denali is the codename for the Activision Blizzard deal.
The FTC continues to question Stuart around whether his team has done any financial analysis on the Sony agreement for Call of Duty or the Nintendo and Nvidia + other cloud deals. Stuart confirms they have not done financial analysis of the effects of the deals.
The Competitions and Markets Authority (CMA) in the UK filed to try and delay Microsoft’s appeal of its Activision Blizzard acquisition decision yesterday. The Competition Appeal Tribunal (CAT) immediately responded with a no, so the hearing will continue on July 28th. The CMA was trying to push it all the way back to October, and the CAT ruled this would be “contrary to justice and fairness.” The timing comes curiously right in the middle of this FTC case.
We’ve heard Tim Stuart referenced in a lot of internal emails over this five-day hearing and now we’re going to get to hear from him directly. The Xbox CFO is responsible for managing the finances of Microsoft’s gaming business, so expect to hear a lot of questions around the business side and perhaps why Microsoft is increasing Xbox Game Pass prices.
The FTC has decided not to question Amy Hood, Microsoft’s CFO.
Microsoft has already submitted a written declaration for Hood where she says Microsoft wants to increase Xbox operating margins to match other Microsoft businesses. She also says Microsoft never assessed removing Call of Duty from PlayStation and that the Activision deal has to immediately make money.
Welcome to the fifth and final day of FTC v. Microsoft. While we wait to see if there’s going to be a season two of this epic series, the hearing concludes with a final day of witness testimony and closing arguments. Today we’ll hear from:
• Xbox CFO Tim Stuart
• Microsoft CFO Amy Hood
• Nintendo’s Steve Singer (video deposition)
Witness testimony starts at 8:30AM PT / 11:30AM ET. The plan is to finish evidence by noon and closing arguments at 2:30PM PT / 5:30PM ET.
If you’ve missed this five-part series so far, here’s where to catch up:
And remember:
🎶 We’re leaving together, but still, it’s farewell
And maybe, we’ll come back to Earth, who can tell?
I guess there is no one to blame
We’re leaving ground
Will things ever be the same again?
It’s the final countdown 🎶
FTC v. Microsoft day four was all about Satya Nadella and Bobby Kotick.
We heard earlier this week that Microsoft was seriously looking at acquiring Sega to bolster Xbox Game Pass. Now Sega co-chief operating officer Shuji Utsumi has responded “no, not now” when questioned by Bloomberg about whether the company is open to acquisition talks. “We are very close with Microsoft and have a great relationship with its management team,” Utsumi said. “Microsoft particularly has a high regard for us.”
Microsoft has filed its written declaration from CFO Amy Hood in lieu of her appearing at the witness stand for Microsoft’s lawyers. The FTC will still cross-examine Hood, though.
In the declaration Hood says Call of Duty exclusivity wasn’t part of Microsoft’s rationale behind the proposed Activision Blizzard acquisition:
The possibility of making Call of Duty exclusive to Xbox was never assessed or discussed with me, nor was it even mentioned in any of the presentations to or discussions with the Board of Directors. I understood the necessity of keeping Call of Duty on other platforms. The Acquisition’s strategic rationale and financial valuation are both aligned toward making Activision games more widely available, not less.
Hood also says Xbox has historically had a lower operating margin (profits) than Microsoft’s other lines of business. “Over time, we are striving to increase Xbox’s operating margin to bring it closer to those of Microsoft’s other lines of business.”
The Activision Blizzard deal must also immediately make money for Microsoft:
Another important component of the financial analysis was that the purchase had to be financially accretive to Microsoft’s shareholders in year one, meaning that the acquisition must immediately contribute to an increase in earnings per share.
We’ve heard from multiple witnesses today, including Activision CEO Bobby Kotick and Microsoft CEO Satya Nadella. If you want a recap of Bobby Kotick’s testimony it’s right here and here’s a recap of Dr. Elizabeth Bailey and Nvidia’s Jeff Fisher. Let’s recap Nadella first:
• The FTC started out by quizzing Nadella on Xbox market share
• Nadella also got asked about Microsoft’s gaming targets
• Cloud gaming includes Xbox Live, argues Nadella
• Nadella wants to take cloud mainstream
• Nadella commits to shipping Call of Duty on PlayStation
• Nadella says he wants to end Xbox exclusives but blames Sony
Let’s recap Dr. Dennis Carlton, an economics expert that Microsoft is relying on:
• The FTC pokes holes in Dr. Carlton’s report and reveals he’s getting paid $2,000 an hour (I’m clearly in the wrong job here)
• We’re back on the Call of Duty argument
• Some tense exchanges as Dr. Carlton struggles
• Dr. Carlton is forced to admit he hasn’t read many of Microsoft’s cloud agreements
See you tomorrow at 8:30AM PT / 11:30AM ET for the final day of testimony and closing arguments.
Microsoft had some brief questions for Dr. Carlton, but the day is done and dusted. Judge Corley is now trying to figure out the final day of this hearing tomorrow. It looks like we’re going to hear from Xbox CFO Tim Stuart, Microsoft CFO Amy Hood by written declaration, and Steve Singer, SVP of developer relations at Nintendo, by video deposition.
The plan is to finish evidence by noon and closing arguments at 2:30PM PT / 5:30PM ET.
Dr. Carlton admits he didn’t base his assessment or analysis based on Eisler’s comments on the Nvidia agreement.
Judge Corley: were you aware of them? [the comments]
Dr. Carlton: I don’t recall seeing this
Judge Corley: I understand
It’s getting towards the end of the day and the FTC is questioning why Dr. Carlton didn’t include the countries where Microsoft’s cloud gaming agreements have been signed. This is important because this is a US case and the FTC wants to exclude global cloud gaming agreements that were signed with companies outside the US.
Dr. Carlton also didn’t take into account Google’s testimony about cloud gaming latency the further away gamers are to servers.
Dr. Carlton cites a Verge article in his report and the FTC wants to know why (why not I say!).
FTC: The Verge article is a public article, correct? It does not include all of the terms of the Nvidia agreement, correct?
Dr. Carlton: I would assume so, yes
FTC: Especially since the terms of that agreement is confidential
Judge Corley: Did you read the Nvidia agreement?
Dr. Carlton: I can’t remember. My recollection is that I was trying to characterize the agreement, and this article characterized the agreement, therefore I relied on this article rather than me reading the agreement and me characterizing it.
Microsoft’s expert, Dr. Carlton, is struggling here after the FTC’s lawyer questioned his expertise and how much he’s being paid. I sense that Judge Corley is frustrated at some of his answers and at some of the FTC’s questioning.
FTC: You are not an expert in the technology of video games?
Dr. Carlton: Correct.
FTC: You’re not an expert on the quality of a COD game on Nintendo Switch?
Dr. Carlton: I’m not offering an opinion on that.
Carlton has called putting Call of Duty on Game Pass a “prime” motivation of the merger, and he’s said Sony can avoid any ill effects by signing a deal with Microsoft. (Sony, very publicly, has not signed the offer.) He’s also claimed Sony is more motivated by blocking the merger than actually getting a good deal.
The FTC is prodding at all these claims, but unfortunately, much of what it’s asking him to read is under seal — so we aren’t hearing any of the details. What we do know is that the FTC is insinuating Carlton didn’t meaningfully analyze the actual proposed deal, something Carlton denies.
The early questioning of Microsoft’s expert involves jabs about how much Carlton’s getting paid ($2,000 an hour), which “percent of the academic sources you rely upon are written by you” (30 percent), and the number of federal cases (five) where at least some of his testimony as an expert witness has been excluded. This line of questioning isn’t unusual for expert witnesses — we saw it in the Epic v. Apple trial, for instance.
Microsoft lawyer: Will Microsoft forego sales of Call of Duty on PlayStation by withholding access?
Nadella: It makes no economic sense or no strategic sense. Our goal with Activision in particular, in their content and our content, is to get it on more platforms. That’s what we’ve done with Office and that’s what I want to do with gaming
Microsoft: Will you commit to continue delivering Call of Duty on PlayStation?
Nadella: 100 percent
Microsoft’s lawyers have nothing more to ask. Nadella’s questioning was light work from both the FTC and Microsoft today.
Carlton is here to contest the FTC’s claims about competition and the Microsoft acquisition. An FTC attorney is questioning him, asking him to lay out the evidence that’s gone into his expert opinion.
Nadella talks about cloud gaming as expanding gaming to more platforms:
One mechanism we wanted to use was cloud streaming as a way to bring more competition to mobile platforms and bring sort of more opportunity for more publishers even so that has been a goal
The FTC’s questioning was fairly lightweight there, and we’re on to Microsoft’s own lawyer talking to Nadella. He talks about exclusives:
If it was up to me I would love to get rid of the entire exclusives on consoles, but that’s not for for me to define especially as a low share player in the console market. The dominant player there [Sony] has defined market competition using exclusives, so that’s the world we live in. I have no love for that world.
It’s hard to understand exactly what the FTC and Nadella are looking at right now, but it appears the FTC is showing Microsoft’s cloud strategy and its cloud gaming competitors. We might find out more about this once the redacted evidence is available.
Either way, the FTC is digging into Microsoft’s internal targets and strategy for cloud gaming here.
One particular email includes a conversation from November 2022 between Kareem Choudhry (xCloud chief), Sarah Bond, and Nadella and it references converting users to Game Pass.