More from FTC v. Microsoft: all the news from the big Xbox courtroom battle
The FTC reads a document from Microsoft saying it “continues to lead in the fast growing gaming cloud gaming market.” Nadella says:
As a software company, I always think software-first, so I always want to be able to work on all platforms.
Nadella is now looking at an email where he discusses Microsoft’s “north star vision” for cloud gaming with Xbox chief Phil Spencer.
Another email about Meta’s quest event, where Microsoft was part of the launch of a new VR headset and promised to bring Teams and other software to the device
I want to make it clear to the world that Microsoft is focused on cloud-first approaches. Teams, Windows 365, xCloud as the future... I want to basically use every opportunity to make cloud streaming more mainstream.
The FTC moves on to ask Nadella about cloud gaming and how it can be used on TVs. “Cloud streaming can essentially transcend any device but that’ll be one use case,” says Nadella.
I don’t think of it as strictly substitute for the console. I mean, at least the market feedback to date has been people love their consoles, people love their PCs, people love their phones and use cloud gaming as an adjunct.
Nadella says it’s “possible” for cloud gaming to become a breakthrough market, but that it’s not something that has happened yet.
Nadella says streaming is a “minor” part of his definition of cloud, which also includes Xbox Live:
Just to make sure that it’s clear. Whenever I think about the cloud in the context of the Xbox pillars of content, cloud, and community, Xbox Live is part of the cloud. So even when you’re thinking about a console or a PC, the cloud is actually very integral to the experience. So it’s not just streaming alone when I think about the cloud.
FTC is now referring to Nadella’s own self-assessment, which includes a senior leadership team (SLT) metric to track performance of top Microsoft leaders.
There’s also an SLT metrics slide for Microsoft’s gaming business, with a series of footnotes for the metrics. The document is confidential, and highlights Microsoft’s target for the gaming business and it’s actual achievement.
FTC: Microsoft exceeded its metric for the gaming business, is that correct?
Nadella: Yes, we set it low
The FTC is now digging into Nadella’s compensation.
Nadella is now looking at evidence the FTC is submitting. It’s a presentation about Xbox Series S / X consoles, and how Microsoft took share for two quarters in a row, and how Microsoft was the market share leader in the US, Canada, UK, and Western Europe.
Another document says Microsoft “sold more consoles life today than any previous generation of Xbox One” and was “the market share leader in North America for three quarters in a row among next-gen consoles.”
Nadella confirms that was all accurate.
The FTC’s lawyer is questioning Nadella first, before Microsoft’s lawyer will also speak to Nadella. We’ll likely hear Judge Corley asking Nadella questions, too.
Nadella is largely confirming facts about Microsoft’s senior leadership team and earnings calls right now.
Microsoft’s CEO is the most powerful figure testifying during this trial, and one of the few executives who’s not focused primarily on games. His name hasn’t appeared that much in the Xbox vs. PlayStation drama so far, but he’s in a position to get questioned about Microsoft’s role as a potential “Big Tech” monopolist, not just a gaming one.
We weren’t supposed to know Microsoft was looking to acquire Bungie, Sega, and others. After the court in FTC v. Microsoft cleared the documents following the Sharpie incident, it only has one document remaining that includes Microsoft’s acquisition targets.
It’s now heavily redacted compared to the version we saw the other day. There’s no more final “watchlist” for potential acquisition targets. Oops.
We have a 90-minute break until testimony continues with Microsoft CEO Satya Nadella. There’s an unfolding drama around a Sony document that wasn’t redacted properly, but inside the courtroom we’ve covered testimony from Microsoft’s economics expert Dr. Elizabeth Bailey:
• The Nintendo Switch argument kicks off again for the 1000th time
• Microsoft argues it’s how gamers spend their time that matter
• How many Xbox Game Pass Ultimate users actually use cloud gaming?
• FTC picks apart Dr. Bailey’s opinions
Then we heard from the vice president of Nvidia’s PC business, Jeff Fisher:
• Just listen to how Fisher says RTX 3080 Ti first
• Fisher thinks PC gaming will always be better than consoles
• Nvidia might be a little steamed about Xbox dismissing cloud gaming
We’ll be back at 1:30PM PT with Microsoft CEO Satya Nadella.
Microsoft’s witnesses have been reiterating that cloud gaming is a feature for Xbox, not a full present-day service. The FTC is using Fisher’s recorded testimony to rebut that idea. Here’s Fisher discussing cloud gaming as a category:
“I believe it is not speculative and I believe it will ultimately be successful.”
This depends on accessibility of content, he says, but it’s not the non-starter Microsoft is painting it as:
“It’s my strong belief that cloud gaming has a profitable future.”
As we’ve seen in earlier days of testimony, Microsoft didn’t want its first-party content on GeForce now — “no effing way,” Xbox Game Studios head Matt Booty said in 2021. (He says he feels differently now.)
That said, Fisher isn’t objecting to the proposed Activision Blizzard acquisition:
“I think it’s good for the industry.”
So says Nvidia’s Jeff Fisher, unsurprisingly! But enough of the PC vs. consoles wars. The FTC’s attorney is questioning Fisher about Nvidia’s previous discussions with the CMA, particularly the future of cloud gaming and its streaming service GeForce Now.
Fisher says GeForce Now doesn’t cannibalize the existing games market — users typically use “lower-end and incompatible systems,” says Fisher, to access games. “I do believe accessibility does bring in new gamers to high-end PC gaming,” and cloud gaming is part of that.
The FTC asks if Nvidia cloud gaming offers a “superior” experience to Xbox — Fisher says it’s “similar to or better than” the Xbox experience. “I believe that we have the capability of a tier of service that is better” than PlayStation’s service as well, he says.
Sony doesn’t see the Nintendo Switch as a competitor, and PlayStation boss Jim Ryan’s poorly redacted letter shows us another reason why:
According to SIE internal surveys, almost half of PlayStation 5 owners in the United States also own a Nintendo Switch, while less than 20% of PlayStation 5 owners in the United States also own an Xbox Series X or S.
The FTC and Microsoft have continually been arguing over whether the Switch is a competitor during the courtroom battle.
Tie or Ti in a GeForce 4080 Ti? Jeff Fisher at Nvidia has tried to answer that in the past, and the vice president of Nvidia’s PC business is now appearing via a prerecorded video deposition. Nvidia was against Microsoft’s Activision Blizzard acquisition until the Xbox maker struck a deal earlier this year to bring Xbox PC games to Nvidia’s GeForce Now service.
We knew it was over a billion dollars, but PlayStation boss Jim Ryan’s unredacted letter suggests CoD represented $800 million in PlayStation revenue in the United States alone, and — I think that says $1.5 billion, right? — worldwide. (That’s in 2021 specifically.)
Those players represent way more money to Sony than that, though: Ryan says CoD players spend (what looks to me like) $15.9 billion per year, on average, on everything else they buy.
Then again, some PlayStation gamers play nothing but CoD, we just learned.
While we listen to Dr. Bailey’s testimony, a storm is unfolding elsewhere in the FTC v. Microsoft case. The court uploaded a document earlier from Sony that included confidential financial information that wasn’t properly redacted. Now all the documents have suddenly disappeared.
It looks like some redacted the documents with a pen and when you scan them in it’s easy to see the redactions. Reporters and Sony’s competition will have downloaded all the documents as they were in the public domain, so the damage is done:
• Horizon Forbidden West apparently cost $212 million over five years with 300 employees
• 1 million gamers play nothing but Call of Duty
• Sony says only one more Call of Duty game was guaranteed to come to PlayStation
That’s according to Sony gaming boss Jim Ryan, whose redacted letter to the FTC wasn’t redacted all that well...
Here’s what my elf eyes see in the text:
In 2021, over [14?] million users (by device) spent 30 percent or more of their time playing Call of Duty, over 6 million users spent more than 70% of their time on Call of Duty, and about 1 million users spent 100% of their gaming time on Call of Duty. In 2021, Call of Duty players spent an average of [116?] hours per year playing Call of Duty. Call of Duty players spending more than 70 percent of their time on Call of Duty spent an average of 296 hours on the franchise.
So yeah, Sony certainly would miss out on some some console/subscription sales if CoD someday becomes Xbox exclusive.
The FTC wants to pick apart Dr. Bailey’s analysis here and confirm antitrust product markets and whether she made a hypothetical monopolist test:
FTC: You’re not offering an opinion on what the correct product market actually is in this case?
Bailey: I think that’s right. I think my opinions are around the data-driven evidence but also the documents and testimony that I’ve seen that speak to the relevant markets as Dr. Lee defined.
FTC: You never completed a hypothetical monopolist test, right?
Bailey: The hypothetical monopolist test is one way to think about identifying where that nexus of competition is. So all of the analysis that I’ve talked through yesterday, and the ones I talked to you now... they speak to substitution and gamer behavior, and that speaks to the nexus of competition.
FTC: You didn’t actually perform the test?
Bailey: I’m not sure what you mean by that. There’s many ways to perform that test, the work that I did speaks to that.
FTC: The term hypothetical monopolist test appears five times in your report. Each of those is in reference to the hypothetical monopolist test.
Bailey: I disagree that Dr. Lee did a hypothetical monopoly test. He says he did a critical loss test and he transforms that language into saying an aggregate diversion ratio and and I disagree that that’s what he did
We knew that Sony’s marketing deal with Activision expired in 2024, but that apparently doesn’t include a 2024 installment of CoD.
“[T]he last game covered by the contract is a Call of Duty title to be released in late 2023,” reads part of a letter from PlayStation boss Jim Ryan that someone didn’t properly redact.
Still, Activision reportedly planned to bring CoD games to PlayStation with or without the contract, and Microsoft has repeatedly promised the same.
This is a key point for Microsoft, especially given the Competition and Markets Authority (CMA) in the UK appears to have counted all Game Pass users as cloud users.
Xbox Game Pass Ultimate includes Xbox Cloud Gaming, but Dr. Bailey claims not many people used it:
What I found was that of those Game Pass ultimate gamers, a very small fraction of them access the cloud gaming feature. Their proportion of game time hours through cloud gaming are even smaller. When they access that cloud gaming feature, the overwhelming majority of them are accessing it at least once through a console
This aligns with what Xbox’s Sarah Bond testified that most Xbox Cloud Gaming users are using the service to try games before they download them. Judge Corley cuts in to ask if it aligns with Bond’s testimony and Dr. Bailey agrees.
Dr. Bailey points out that her data suggests it’s where gamers spend their time that matters, not the hardware. The FTC doesn’t count PCs into the console market, but Microsoft is trying to point out here that they still compete because they both largely play the same games, especially an Xbox.
“What I’m showing here in my report... these are the the top 15 games that are played on Xbox and on PlayStation. You can see all of those top 15 games are also available for play on PC,” says Bailey. “Many gamers multi-own, they already have a PC. It’s a large percentage.”
A big letter from Sony president Jim Ryan to the FTC wasn’t redacted properly, and we’ve been furiously hunting for secrets! First up: Horizon Forbidden West apparently cost $212 million over five years with 300 employees.
The Last of Us Part II: $220 million for some 200 employees, if we’re reading right. Development started in 2014 right after the original game was released, though that was already public info.
It’s day four and it only took a couple of hours and Microsoft is back on the Nintendo Switch beat.
Dr. Bailey says she has analyzed data of the 10-week period that the Switch launched. She found a decline in the number of gamers on Xbox and PlayStation console and game time hours.
The FTC and Microsoft argue about the Switch every day because the FTC doesn’t want to count the Switch as a competitor to Xbox, but Microsoft argues it is. Dr. Bailey’s analysis shows that the Switch has an affect on gamer attention and where they spend their hours.
If Switch is included in the global console market, Dr. Bailey says “no matter which metric we use, Xbox is the third place” and has been for the last five years.
Dr. Bailey’s testimony got cut short yesterday as we reached the end of day three, but she’s back for day four. We’re going to get to hear the FTC’s lawyer pick holes in her economic assessment of Microsoft’s Activision Blizzard deal and why she doesn’t think Call of Duty is an essential game.
The FTC’s attorney asks Kotick the difference between Call of Duty: Modern Warfare II and Call of Duty: Warzone — Warzone, of course, being the one with a mobile version. Regarding MWII, “it will get to the point where a lot of that content will be playable on the phone,” says Kotick, but not now — the FTC cites previous statements where Kotick says playing it on a phone would be “like using a refrigerator for a safe.”
We’re nearing the end of Activision CEO Bobby Kotick’s testimony, but we have a 15-minute break to let the court reporter relax for a moment (I feel your pain!). Let’s recap what we’ve heard from Kotick so far:
• How does Activision make a Call of Duty game every year?
• Kotick regrets not bringing Call of Duty to Switch
• Will Microsoft make Call of Duty suck on PlayStation?
• Activision isn’t currently interested in Xbox Game Pass
• But why isn’t Activision into subscription services?
• Why did Activision remove games from GeForce Now?
