Tom Warren

“I don’t remember a specific conversation, but it would seem like a normal conversation for us to have,” admits Spencer.

These conversations were part of an evaluation of Activision Blizzard ahead of the proposed acquisition announcement. Microsoft measures the economic and strategic value of an acquisition.

The FTC wants to know whether an asset could have a strategic value that outweighs the economics. So would Microsoft do something like make Activision games exclusive to Xbox as a strategic play, even if the economics might not make sense.

“There isn’t a value on the strategic, its a strategic analysis, it’s more of a commentary on how this asset fits into the strategy that we have, there is no numeric value assigned,” says Spencer.

A document mentions the revenue split offered, and we heard yesterday that Activision wanted a better split to work on an Xbox Series S / X optimized version.

The FTC is trying to establish the idea of Microsoft acquiring content so it doesn’t have to pay these fees and can have exclusive content. “If you own content you don’t have to pay for exclusive content?” asks the FTC.

“We don’t pay for exclusivity on our own platform,” says Spencer. He does note that Sony apparently signs deals to keep third-party games off Xbox.

“When a competitor is actively signing third-party games to skip our platform, it became more important to us to secure third-party games on our platform, inclusive of Call of Duty.”

“It is your view that Microsoft needs a predictable cadence of triple-A content for services,” asks the FTC.

“I think our customers need content that they know ship dates for to invest in our platform, yes,” says Spencer. He also agrees that Microsoft needs this type of content to drive acquisition of users for Xbox.

The FTC is also pushing Spencer on how many triple-A games come out each year. Obviously those are a small portion in the overall market, as there are a lot more indie games.

“Every time we ship a game on PlayStation... Sony captures 30 percent of the revenue that we do on their platform and then they use that money among other revenue that they have to do things to try to reduce Xbox’s survival on the market,” says Spencer. “We try to compete, but as I said, over the last 20 years we’ve failed to do that effectively.”

“As the console wars is a social construct with the community, I would never want to count our community out, they’re big fans,” Spencer answered carefully. “If you look at our market share in the console space over the last 20 plus years, we’re in third place. We are behind Sony and Nintendo in console share globally.”

We can’t see any of the documents being referenced in this questioning, but it’s all about Microsoft’s internal competition analysis and performance metrics.

The FTC wants to prove that its “high performance” definition of the console market, just Xbox and PlayStation, is correct. Microsoft wants to include the Nintendo Switch, but the FTC argues its internal analysis doesn’t always compare against the Switch.

We’ll be back soon to hear more about this as Microsoft and the FTC continue to disagree over the basics.

The argument here is that Microsoft only compares Xbox against PlayStation internally, but that it’s trying to compare to Nintendo Switch with regulators to put itself in third place in the market. The FTC wants to prove that its “high performance” console market of the PS5 and Xbox Series S / X is the relevant market, not one that includes the Switch.

Interestingly, one of the documents includes Microsoft’s Xbox Series S / X market share. That will almost certainly be redacted for public view, though.

“The Switch was designed for people to take on the go,” says Spencer. “It has a battery, it’s a mobile platform people can take it with them. Whereas the Gen 8 [Xbox One] consoles require that they’re plugged into the wall and don’t have a screen. Nintendo built a different platform.”

But the FTC reads Spencer’s previous testimony back to him. “In terms of CPU and GPU it would be more akin to a Gen 8 device,” said Spencer previously.

The questioning then moves on to how many fps the Xbox Series X / S consoles can support. Spencer says he doesn’t know the fps that Nintendo Switch support. Finally, he’s asked about GPU teraflops, as the FTC is once again trying to demonstrate the Nintendo Switch is different to the PS5 and Xbox Series S / X consoles.

“Xbox X metric operates higher FLOPs than Switch?” asks the FTC lawyer. “That’s fair to say,” says Spencer.

“We talk about Xbox ecosystem as the platform where creators build games for players to play,” says Spencer.

He’s come well prepared in a suit and tie, which is unusual attire for a gamer.

We might be about to hear more around Microsoft’s xCloud strategy, how the company’s Activision Blizzard deal came to be, and some details around PlayStation publishing agreements.