We’re finishing up here and talking about public and redacted documents. Judge Corley jokes “and no Sharpies!” referencing the incident where a Sony document was supposed to be redacted and yet you could see plenty of the confidential data.
We’re still arguing about Call of Duty here as it’s so central the case and clear that Judge Corley will rule based around Call of Duty.
Judge Corley: We wouldn’t be here if Microsoft made Call of Duty. It’s the purchasing right. We don’t benefit from just buying up each other. We benefit from keeping things separate and therefore incentivizing people to create themselves
Microsoft: That’s not true. We want smaller groups to create content, right? And the fact that someone purchased — and they’re not small anymore — Activision... they produce popular content and someone else wants to buy it to distribute it, and then someone else wants to make more content. And that’s the art that’s going on whether it’s movies, gaming, television, no one says if you don’t have this one game, or this one television program or movie, you can’t compete.
Judge Corley wants to know about the “Thor” game that gamers call God of War and wouldn’t Call of Duty on Game Pass pressure Sony to put God of War Ragnarök on PlayStation Plus?
The FTC argues that without the merger Activision could do its own Call of Duty deal for PlayStation Plus, but this deal cuts off that option.
“I don’t understand why Sony won’t make its PlayStation Plus subscription better?” asks Judge Corley, she wants to figure out this market and once again says this “all comes down to Call of Duty.” The FTC says Call of Duty is critically important.
We’re still debating the cloud gaming contracts.
Judge Corley: how is Microsoft giving Nvidia content not a positive for consumers?
FTC: It could be but we don’t know, we have no evidence
Judge Corley: That’s why in many ways I say you won. Because you and the other regulators have forced them into deals
FTC: I don’t think we won because... we have no evidence of what these agreements will lead to
The FTC says it can’t “declare victory on behalf of consumers” based on what it believes are hastily put together agreements, with some being signed on the eve of regulatory decisions.
Microsoft has signed 10-year deals with Nvidia, Nintendo, and a bunch of other cloud gaming companies. The FTC is arguing that those agreements aren’t backed by financial analysis or numbers on theses “apparently amazing deals.” Microsoft says:
The question is, what is the output of those agreements? And there’s no dispute that Call of Duty is going to be in cloud services if the transaction goes through. So you asked and I asked every one of our executives whether they would honor these contracts, they said it in open court, they said it to you under oath, and they’ve said it for the last year to be honest. Are they really honestly suggesting that they weren’t credible? They’re going to get up in a public courtroom in front of you lie about whether they would honor these contracts. I mean, it’s absolutely absurd, really, it is to suggest that Satya Nadella got up in your courtroom and said he would honor it. In fact, he doesn’t even like exclusives. he would like his content to be everywhere.
FTC argues that Microsoft is “setting the terms of market competition on their own” and that Microsoft has no deals with Google or Amazon so they’re picking which company to deal with. Worth noting Microsoft isn’t going to sign a deal with Google when Stadia is dead, but it is interesting with Microsoft hasn’t signed a deal with Amazon for Luna.
Microsoft argues that “everyone said that cloud isn’t an economically viable model” during their witness testimony.
Judge Corley cuts in: “maybe not right now... but we don’t have DVDs anymore. The FTC’s concern is about the future.”
Microsoft’s lawyer argues we might have a future of mobile where you have to develop native mobile games because phones are “going to be so powerful.” What about the cloud agreements:
MS lawyer: With all of these other streaming services… they are all going to have the ability to stream the game which they don’t have today.
Judge Corley to FTC: In some sense you won and got what you wanted, forced them into enter these agreements
FTC: We have evidence there are agreements... we do not have evidence of anything beyond agreements
Judge Corley: Why would Nvidia do what they did, say what they said? They’re a competitor to Microsoft in cloud gaming so why did they do it then?
FTC: That doesn’t count under the law because it’s not merger specific. The deal could have been achieved whether we were here or not... it was a sweetener.
Judge Corley moves on to subscriptions and the cloud.
“The next big thing is multi-game subscriptions and then cloud,” says FTC’s lawyer, before acknowledging subscriptions are more developed at this point:
We’ve seen from Microsoft documents and their emphasis on cloud and subscriptions. Game Pass is a strategic driver for Microsoft’s gaming business. The effect of this transaction to turbo charge Game Pass... leave Google, Amazon ‘in the dust’ and build the content moat around Game Pass is in the record and compelling. There is a concern that you take this content and use it to advance your own platform and the consumer is harmed.
FTC argues the harm is “we end up in a world where instead of having content available, it’s all just Game Pass and maybe Sony has PlayStation Plus and those two suck up all the content and that’s it.”
This is a much stronger argument from the FTC than the console theory of harm and exclusivity. It’s clear Microsoft isn’t buying Activision Blizzard just for console, it’s about Xbox Game Pass and the future of that service in the cloud, mobile, and elsewhere.
We are back underway after a brief break there and we pick up on the protecting consumers point.
“We’re not here to protect Sony, we’re here to protect consumers,” argues the FTC, claiming it’s concerned if the deal goes ahead then Sony delays devkits (like it did with Minecraft) to Microsoft and that impacts consumers with delayed games.
The FTC claims this concern extends beyond Minecraft, but Microsoft’s lawyer argues that the testimony was related to only Minecraft. “This is their decision,” says Microsoft’s lawyer:
This is why we say they’re protecting Sony and not consumers. Sony is making that decision, and maybe that’s why they have twice as many players. I don’t know.
It’s up to the FTC to argue their case here and it’s mainly been a single Microsoft lawyer arguing against a number of FTC lawyers.
Both sides have now moved onto legal arguments and citing previous cases. Microsoft argues that it’s all about Call of Duty at the core and Microsoft’s deals completely address the concerns.
Microsoft’s lawyer points to Final Fantasy VI and how Microsoft “just lost part of that game,” or Minecraft where Sony held back devkits:
If they can’t figure out what the harm is, so they’re turning to you or us and saying you should figure it out because it’s ‘too hard for us’
Microsoft’s lawyer argues that game exclusives are happening all the time:
No witness said there was going to be partial foreclosure. No one said that no one had any examples of it. And if it’s the partial exclusivity, as you said, and as Mr. Nadella said I thought the best. That’s the world we live in because Sony’s the market leader, and that’s what they do. There are partial, if that’s what they want to call partial foreclosures, that’s happening all the time with these partial exclusivity timed exclusivity arrangements, and that is part of competition is not part of anti competitive behavior.
The FTC points to evidence from Jim Ryan’s testimony about partial foreclosure and “the harms, for example to Sony, in terms of optimization,” but Judge Corley wants to know where the harm is. “It’s not the harm to Sony, it’s the harm to consumers.”
Judge Corley is still focused on Call of Duty:
Judge Corley: All of this is for a shooter video game? For this one game?
FTC: I completely understand where you’re coming from. On the other hand, our responsibility over on this side of the room and the government is not to make a value judgment about the market is to protect competition in the market.
Judge Corley: It’s the game but of the people that care so much that they would actually switch to an Xbox that they wouldn’t otherwise?
FTC: It’s not about just switching... the harm to the PlayStation person who has Call of Duty is when they wake up after this deal closes and some new character is only on Xbox. It’s not that the person is going to switch, it’s that person’s experience as the value that they paid for, has been degraded in some way
Judge Corley then asks what the FTC says to PlayStation chief Jim Ryan saying “there’s nothing anti-competitive to making ‘Star-whatever’ [Starfield] exclusive?” The FTC doesn’t know the basis of why Ryan was upset. “Because he does the same thing,” says Judge Corley.