Tom Warren

The CMA had originally provisionally concluded that a Microsoft strategy to withhold Call of Duty from PlayStation would be profitable, but Microsoft wasn’t happy with that and publicly criticized the regulator’s math. The CMA then adjusted its financial model and sided with Microsoft, leaving just cloud concerns for it to decide to block the merger.

Microsoft’s own survey used a wider number of users than the CMA’s own survey which includes a number of people who do not play Call of Duty. Microsoft’s questioning to Dr. Lee here is around whether he saw this survey and considered it in his own analysis. He confirms he didn’t look at the survey and things are getting a little more fraught around the questioning here. Microsoft’s lawyer sternly asks: “Professor Lee, can you answer my question?”

Microsoft’s lawyer is quick to point out Dr. Lee doesn’t have a model for subscription services, but it’s revealing that Activision games are important for Microsoft’s Xbox Game Pass subscription but not for pure console sales.

Earlier, PlayStation chief Jim Ryan said he was concerned about Microsoft using Call of Duty to damage PlayStation, and Sony would obviously be concerned with Call of Duty being bundled into Game Pass to tempt PlayStation players to switch to Xbox and not have to pay $70 for CoD.

Dr. Lee has two models: share and foreclosure. Both have separate inputs and different data sets and are designed to predict the impact of withholding Call of Duty from PlayStation.

Share model

The share model measures overall North American gen 8 console sales (Xbox One / PS4) and then applies a likely outcome if Call of Duty was removed from PlayStation.

It predicts that in the console market there would be a share shift of 8.9 percentage points, based on past sales data of Xbox One and PS4 consoles.

This share model uses only North American market data and no assumed conversion rate. The share model doesn’t predict content library share shift, nor cloud gaming.

Foreclosure model

The foreclosure model measures global console sales that includes gen 9 (Xbox Series S / X and PS5) to predict the future. Inputs in the foreclosure model aren’t the same as share model, as it has a conversion rate that assumes 20 percent of Call of Duty players would convert to Xbox.

In this foreclosure model it predicts a share shift of 5.5 percentage points. The model is designed to work out at what point the benefits would exceed the cost if Microsoft were to withhold Call of Duty from PlayStation. The foreclosure model doesn’t predict content library share shift, nor cloud gaming.

What does it all mean?!

This is all a little hard to follow precisely as some numbers are being redacted in this deposition as they’re sensitive and Microsoft’s lawyer is drawing diagrams I can’t see. But Microsoft’s lawyer argues that if Dr. Lee is wrong about the 20 percent conversion rate in the foreclosure model, if it was 15 percent then “it doesn’t give Xbox a net positive for an incentive or reason” to withhold Call of Duty.

Such a loss would come from PlayStation losing players, as Call of Duty isn’t available on Nintendo Switch. Wilkinson argues that Dr. Lee’s model takes the data from older consoles and then applies it to new consoles.

Wilkinson also points out that Dr. Lee doesn’t have models for share shift in multi-game subscriptions or cloud gaming where titles like Call of Duty are taken away fully.

This has been an argument between Microsoft and the FTC for all three days of this hearing. Microsoft’s lawyer is bringing up documents from Sony where it describes the Nintendo Switch as a competitor for contracts with Activision.

Lee is rather evasive in his answers about how he has defined the console market, which you can tell is frustrating Microsoft’s lawyer Beth Wilkinson.

I find this whole argument tedious. Of course PlayStation and Xbox compete with Nintendo Switch, but not in the same way as they compete with each other.

Lee agrees with the FTC’s market definition of Xbox Series S / X and PS5 consoles as “high performance” instead of the broader market including consoles like the Nintendo Switch. Lee ran models on competitive analysis between Xbox Series S / X and PS5.

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He defends the comments saying it’s a “very commonly held view by publishers.”

Microsoft lawyer: So you had no reason to think Mr. Kotick would put Call of Duty on Game Pass.. if this transaction was not completed?

Ryan: Correct.

Ryan also said to investors he was expecting more than 25 million Xbox Game Pass subscribers and that Sony’s 50 million PlayStation Plus subscribers during the investor meeting.