The FTC has decided not to question Amy Hood, Microsoft’s CFO.
Microsoft has already submitted a written declaration for Hood where she says Microsoft wants to increase Xbox operating margins to match other Microsoft businesses. She also says Microsoft never assessed removing Call of Duty from PlayStation and that the Activision deal has to immediately make money.
Welcome to the fifth and final day of FTC v. Microsoft. While we wait to see if there’s going to be a season two of this epic series, the hearing concludes with a final day of witness testimony and closing arguments. Today we’ll hear from:
• Xbox CFO Tim Stuart
• Microsoft CFO Amy Hood
• Nintendo’s Steve Singer (video deposition)
Witness testimony starts at 8:30AM PT / 11:30AM ET. The plan is to finish evidence by noon and closing arguments at 2:30PM PT / 5:30PM ET.
If you’ve missed this five-part series so far, here’s where to catch up:
And remember:
🎶 We’re leaving together, but still, it’s farewell
And maybe, we’ll come back to Earth, who can tell?
I guess there is no one to blame
We’re leaving ground
Will things ever be the same again?
It’s the final countdown 🎶
FTC v. Microsoft day four was all about Satya Nadella and Bobby Kotick.
We heard earlier this week that Microsoft was seriously looking at acquiring Sega to bolster Xbox Game Pass. Now Sega co-chief operating officer Shuji Utsumi has responded “no, not now” when questioned by Bloomberg about whether the company is open to acquisition talks. “We are very close with Microsoft and have a great relationship with its management team,” Utsumi said. “Microsoft particularly has a high regard for us.”
Microsoft has filed its written declaration from CFO Amy Hood in lieu of her appearing at the witness stand for Microsoft’s lawyers. The FTC will still cross-examine Hood, though.
In the declaration Hood says Call of Duty exclusivity wasn’t part of Microsoft’s rationale behind the proposed Activision Blizzard acquisition:
The possibility of making Call of Duty exclusive to Xbox was never assessed or discussed with me, nor was it even mentioned in any of the presentations to or discussions with the Board of Directors. I understood the necessity of keeping Call of Duty on other platforms. The Acquisition’s strategic rationale and financial valuation are both aligned toward making Activision games more widely available, not less.
Hood also says Xbox has historically had a lower operating margin (profits) than Microsoft’s other lines of business. “Over time, we are striving to increase Xbox’s operating margin to bring it closer to those of Microsoft’s other lines of business.”
The Activision Blizzard deal must also immediately make money for Microsoft:
Another important component of the financial analysis was that the purchase had to be financially accretive to Microsoft’s shareholders in year one, meaning that the acquisition must immediately contribute to an increase in earnings per share.
We’ve heard from multiple witnesses today, including Activision CEO Bobby Kotick and Microsoft CEO Satya Nadella. If you want a recap of Bobby Kotick’s testimony it’s right here and here’s a recap of Dr. Elizabeth Bailey and Nvidia’s Jeff Fisher. Let’s recap Nadella first:
• The FTC started out by quizzing Nadella on Xbox market share
• Nadella also got asked about Microsoft’s gaming targets
• Cloud gaming includes Xbox Live, argues Nadella
• Nadella wants to take cloud mainstream
• Nadella commits to shipping Call of Duty on PlayStation
• Nadella says he wants to end Xbox exclusives but blames Sony
Let’s recap Dr. Dennis Carlton, an economics expert that Microsoft is relying on:
• The FTC pokes holes in Dr. Carlton’s report and reveals he’s getting paid $2,000 an hour (I’m clearly in the wrong job here)
• We’re back on the Call of Duty argument
• Some tense exchanges as Dr. Carlton struggles
• Dr. Carlton is forced to admit he hasn’t read many of Microsoft’s cloud agreements
See you tomorrow at 8:30AM PT / 11:30AM ET for the final day of testimony and closing arguments.
Microsoft had some brief questions for Dr. Carlton, but the day is done and dusted. Judge Corley is now trying to figure out the final day of this hearing tomorrow. It looks like we’re going to hear from Xbox CFO Tim Stuart, Microsoft CFO Amy Hood by written declaration, and Steve Singer, SVP of developer relations at Nintendo, by video deposition.
The plan is to finish evidence by noon and closing arguments at 2:30PM PT / 5:30PM ET.
Dr. Carlton admits he didn’t base his assessment or analysis based on Eisler’s comments on the Nvidia agreement.
Judge Corley: were you aware of them? [the comments]
Dr. Carlton: I don’t recall seeing this
Judge Corley: I understand
It’s getting towards the end of the day and the FTC is questioning why Dr. Carlton didn’t include the countries where Microsoft’s cloud gaming agreements have been signed. This is important because this is a US case and the FTC wants to exclude global cloud gaming agreements that were signed with companies outside the US.
Dr. Carlton also didn’t take into account Google’s testimony about cloud gaming latency the further away gamers are to servers.
Dr. Carlton cites a Verge article in his report and the FTC wants to know why (why not I say!).
FTC: The Verge article is a public article, correct? It does not include all of the terms of the Nvidia agreement, correct?
Dr. Carlton: I would assume so, yes
FTC: Especially since the terms of that agreement is confidential
Judge Corley: Did you read the Nvidia agreement?
Dr. Carlton: I can’t remember. My recollection is that I was trying to characterize the agreement, and this article characterized the agreement, therefore I relied on this article rather than me reading the agreement and me characterizing it.
Microsoft’s expert, Dr. Carlton, is struggling here after the FTC’s lawyer questioned his expertise and how much he’s being paid. I sense that Judge Corley is frustrated at some of his answers and at some of the FTC’s questioning.
FTC: You are not an expert in the technology of video games?
Dr. Carlton: Correct.
FTC: You’re not an expert on the quality of a COD game on Nintendo Switch?
Dr. Carlton: I’m not offering an opinion on that.