Dr. Bailey says “Call of Duty is not essential, critical, or must-have. It’s not a unicorn.”
That’s the opposite of what we heard from Dr. Lee earlier, and even Judge Corley described Call of Duty as a unicorn previously. Dr. Bailey says Dr. Lee’s markets are “too narrow” and that the merger will expand the reach of content.
Microsoft has now called Dr. Elizabeth Bailey as a witness, an economics expert at Charles River Associates. We’re going to get Dr. Bailey’s economic opinion of Microsoft’s Activision Blizzard acquisition.
Microsoft’s lawyer asks Phil Eisler, who leads the GeForce Now team at Nvidia, about its agreement earlier this year for Xbox PC games on its streaming service:
“The agreement entitles us to the content provided the transaction completes on the Activision side. We have already begun working with Microsoft to onboard their first-party titles, so we’re confident that will solve our concerns there.”
Activision games were available on GeForce Now during its initial beta period, before being pulled from the service. “We had a number of those [Activision] games on the service at beta,” says Phil Eisler, who leads the GeForce Now team at Nvidia.
“Did Activision agree to make these games available?” asks the FTC. “We worked with a contact at Blizzard, they were supportive of the games being available during beta.” Call of Duty games were also on GeForce Now during beta and were “one of the more popular games on the service.”
Phil Eisler, who leads the GeForce Now team at Nvidia, is discussing its cloud gaming platform:
“We’ve found over time that we get closer and closer to the quality of playing locally. Our cloud gaming servers are more powerful than consoles, so we’re able to run higher frame rates and add more visual effects.”
In terms of latency improvements, Eisler says:
“Well, one one way is that we’ve improved the frame rate, so originally it was 30 frames per second and then we increased it to 60 and then 120 and up to 240.”
I told you it was going to be a day full of video testimony. Next up we have Phil Eisler, who leads the GeForce Now team at Nvidia. It’s a nine-minute video.
Microsoft had previously kept its own games off GeForce Now to not compete with xCloud, but the Xbox maker signed an important deal with Nvidia earlier this year to bring its Xbox PC games to GeForce Now.
Dr. Lee is done with his testimony and we’re taking a 10-minute break until the next witness is called. It looks like the two Nvidia executives are coming up after the break. Let’s recap Dr. Lee’s testimony:
• Oh god they’re arguing about the Nintendo Switch again, please make it stop
• Breaking down Dr. Lee’s models
• Will Microsoft make Activision games exclusive?
• Will Call of Duty be removed from PlayStation?
• Will Microsoft block Activision content on rival cloud and subscription services?
• Cloud with a chance of competition
The FTC says it’s difficult to judge harm in a nascent market like cloud as it’s a market that’s still seeing new competition. It also argues that cloud gaming is a separate market, whereas Microsoft says it’s simply a feature.
Microsoft acquiring Activision content could have an impact on smaller cloud gaming services and emerging ones.
“The role that smaller entrants have can be greater than in other mature markets because if they can’t get access to content then harm from foreclosure could be magnified in the future,” says Dr. Lee.
The European Commission agreed a free license to consumers in EU countries that would allow them to stream via “any cloud game streaming services of their choice” all current and future Activision Blizzard PC and console games that they have a license for. Cloud providers will also be offered a free license to stream these games in EU markets. Microsoft has already claimed it will apply this automatic offer globally, but the FTC has largely dismissed Microsoft’s potential cloud agreements.
The FTC questions Dr. Lee around the likeliness of Microsoft keeping Activision content off rival subscriptions and cloud gaming services.
“It’s more likely because of the merger than absent the merger to engage in foreclosure of Activision content for library services and cloud streaming services,” says Dr. Lee.
So why didn’t Dr. Lee include cloud and subscriptions in his modeling? “Both are relatively nascent and new compared to console, and the lack of really good data for these services made it very difficult to perform something that I would review as reliable.”
Judge Corley wants to know about subscriptions being a separate market, as the FTC argues, because “aren’t they just a different way to pay for the same games?” Dr. Lee compares Xbox Game Pass to something like Netflix and whether Microsoft might be incentivized to raise prices if it has key content like Activision’s games and whether consumers would switch to another subscription or buy games individually.
The FTC’s lawyer wants to know more about partial foreclosure affecting competition.
FTC: Can partial foreclosure harm consumers?
Dr. Lee: Like exclusivity, it can be both pro and anti-competitive effects
FTC: Do you think that partial foreclosure can affect competition?
Dr. Lee: Yes
The FTC moves on to Call of Duty on Xbox and PC, and Judge Corley intervenes again and wants to know why wouldn’t people simply switch to a PC where they could play their games and get more value out of a PC to do productivity work and more.
Judge Corley: The Xbox Series S pricing is closer to the Switch, does it compete with the Switch?
Dr. Lee: There’s the Series X and PS5 and the Series S is still in that market. So if you’re thinking about a price increase on the Series X, the customers who buy the X console, they are more likely to switch to the PlayStation 5 or to a Switch? So this decides the market definition, evaluate a price increase on any of the products in the market.
Dr. Lee argues that he models and provides evidence that around 10-15 percent of folk who leave an Xbox would to go PlayStation or vice versa and that a “hypothetical monopolist... would find a five percent price increase, likely profitable.”