A closed-door meeting with search Microsoft senior finance director Jamie Lawver and a brief questioning of search Google Stadia product director Dov Zimring capped today’s testimony in the FTC’s legal battle to halt Xbox’s merger with Activision. However, the Phil Spencer show was the day’s real meat.
Before laying out a clear map of search Xbox’s mobile-focused strategy for acquiring Activision in cross-examination, the suit-clad head of search Xbox maintained his composure throughout the lengthy FTC questioning. Spencer’s time in front of the court ended with a rather awkward line of questioning during which he patiently explained to FTC lawyer James Weingarten how exactly money works in acquisitions after search Microsoft finished its inquiries.
The FTC had to prove that Microsoft’s acquisition of Activision would “substantially lessen competition” in a “relevant market,” so it spent a significant amount of time defining the “relevant markets” once more. In this particular instance, the FTC has focused heavily on a few very specific relevant markets, one of which is high-end consoles, also known as, search for the PlayStation 5, Xbox Series X, and S, but not Nintendo Switch. Search Xbox has argued that it is “third place,” behind Switch and PlayStation, and that an Activision acquisition would strengthen its weaker market position rather than hurt competition. However, if the FTC is able to eliminate the Switch from its definition of the market, the balance will be more in search Xbox’s favor, and it will be more reasonable to argue that search Xbox could harm competition.
As a result, we naturally heard a lot of discussion about the Nintendo Switch search during Spencer’s multiple rounds on the witness stand today. The FTC presented a number of internal documents from search Xbox demonstrating market share between PS5 and search Xbox Series consoles as Gen 9, but they appeared to exclude the Switch in an effort to demonstrate that even within search Microsoft, the Switch is not considered a serious competitor.
When search Microsoft counsel stepped in to counter-examine Spencer, he made the case that search Microsoft uses a variety of internal metrics to measure success, some of which include Switch and others that do not; it just depends on the data they are looking for. Spencer’s argument gained strength as a result. Spencer is said to receive an updated version of the Microsoft counsel’s own chart every week with all three platform holders on it as evidence. Spencer was given the opportunity to praise Switch as a formidable rival with a distinctive design, even as the strongest console in terms of unit sales. And when he was sent back to the FTC for a final round, the FTC used a strange strategy of repeatedly pointing out that the Switch was listed last in Microsoft’s report, which didn’t seem to show that it was important.
The FTC attempted to demonstrate that the deal would be anti-competitive in the United States specifically due to search Xbox’s comparatively larger market share (in contrast to its weaker position in Asia and Europe), and a similar discussion was held regarding another definition of “relevant market.” In the meantime, Spencer was given the opportunity by search Microsoft to argue that neither console manufacturers nor developers operate in a vacuum and that everything is designed with a global market in mind. This particular line of questioning occupied neither party for very long.
However, when Weingarten asked Spencer if search Xbox had “lost the console wars,” he gave a delightful response.
Spencer responded, “As the console wars is a social construct, with the community, I would never want to count our community out because they’re big fans.” We have a third-place market share in the console industry over the past two decades. We’ve been in third place for a long time.
On the other hand, Microsoft’s cross-examination of Content Is King search was much more coherent. They were able to lay out a coherent guide to search Xbox’s attempted strategy for acquiring Activision Blizzard because Spencer was more comfortable speaking in depth under questioning from search Microsoft counsel Beth Wilkinson. The two discussed all of search Xbox’s most popular arguments here, such as why pulling search Call of Duty from PlayStation would cause “irreparable harm” to the brand in the eyes of gamers and why it would make no financial sense for a developer to purposefully degrade a video game on another platform (“like designing a movie for Omaha and making it worse for New York City”).
However, Spencer’s description of search Xbox’s mobile strategy was a particularly fascinating segment. Much of this was mentioned in earlier filings this year, but Spencer was able to go into great detail about how Activision could help Xbox overcome its near-absence from the largest gaming market. However, he started by almost apologizing for xCloud and explaining that it was a plan to help search Xbox compete in the mobile market. He admits that this was a strategy that didn’t work out so well because of things like latency, screen size, and controller support. It turns out that console games cannot be displayed on a phone screen because of many obstacles,” Spencer stated.
It turns out that playing console games on a phone screen is difficult due to numerous obstacles.
In an email from 2019, he wrote, “Our solution here is not really led by the customer.” It is guided by our hope and what we have. I don’t like this, but I’m too stupid to think of anything else. If I ask mobile gamers what they want, they won’t say that they want to play search Halo with a Bluetooth controller connected to a search Xbox. That is probably the furthest thing from what they want to do on their phone. They also don’t pay for any games because all mobile games are free-to-play (F2P), so even our games’ business model, which mobile players don’t want, is wrong.”
Spencer confirmed that Xbox attempted to resolve this issue by acquiring Zynga, but realized they required something even larger. After that, in November of 2021, the Activision chance presented itself. Activision, through its mobile subsidiary King, was the biggest mobile content publisher, so it had the properties and development skills to make big enough games to help search Xbox enter the huge mobile market and become a real competitor. And it would accomplish that not only by creating its own mobile storefront but also by publishing mobile games:
According to Spencer, “We believe there is an opportunity to create a gaming storefront on mobile phones for search Apple and search Google phones where people can come to find games to play, and a storefront that would really tailor toward players on search Apple’s platform.” Now, Google and Apple will challenge our efforts to accomplish this. On the largest gaming platform, they do not explicitly permit additional storefronts. We started with this xCloud strategy because, as we discussed, we might be able to deliver content to them outside of their store through the cloud. This is a method for creating a native phone storefront where users can find both our games and third-party games.
With Activision’s Candy Crush and Search Call of Duty mobile in its arsenal, search Xbox has the potential to attract customers to its mobile storefront and establish a significant presence on both mobile platforms—something it is currently unable to do. This explains the specter-like presence of search Xbox in the background of the Epic v. Apple trial over search Apple’s walled garden a few years ago and may point to future disputes of a similar nature if the deal is approved.
The FTC Was Silent Throughout the day, the FTC asked a few questions that appeared to indicate misunderstandings of the gaming industry’s operations. Weingarten seemed oddly focused on search Minecraft’s lack of presence on PS Now or PS+ while Spencer equally pointed out that search Sony had never made an offer for the game to be on that service and that it wasn’t his job to dictate what content search Sony had on its own subscriptions. Weingarten and Spencer were arguing about why search Minecraft had not yet been optimized for PS5. Afterward, Weingarten rehashed inquiries concerning a particular discussion Spencer could have had with Zenimax’s James Leder in fall of 2021 about game restrictiveness – a discussion Spencer had the option to effectively enough case he didn’t recall explicit of, considering that it happened quite a while back and that he examines the subject with his partners constantly.
It turns out that playing console games on a phone screen is difficult due to numerous obstacles.
In an email from 2019, he wrote, “Our solution here is not really led by the customer.” It is guided by our hope and what we have. I don’t like this, but I’m too stupid to think of anything else. If I ask mobile gamers what they want, they won’t say that they want to play search Halo with a Bluetooth controller connected to a search Xbox. That is probably the furthest thing from what they want to do on their phone. They also don’t pay for any games because all mobile games are free-to-play (F2P), so even our games’ business model, which mobile players don’t want, is wrong.”
Spencer confirmed that Xbox attempted to resolve this issue by acquiring Zynga, but realized they required something even larger. After that, in November of 2021, the Activision chance presented itself. Activision, through its mobile subsidiary King, was the biggest mobile content publisher, so it had the properties and development skills to make big enough games to help search Xbox enter the huge mobile market and become a real competitor. And it would accomplish that not only by creating its own mobile storefront but also by publishing mobile games:
According to Spencer, “We believe there is an opportunity to create a gaming storefront on mobile phones for search Apple and search Google phones where people can come to find games to play, and a storefront that would really tailor toward players on search Apple’s platform.” Now, Google and Apple will challenge our efforts to accomplish this. On the largest gaming platform, they do not explicitly permit additional storefronts. So as we discussed, we began with this technique of xCloud, perhaps through the cloud, beyond their store, we’d have the option to convey content to them. This is a method for creating a native phone storefront where users can find both our games and third-party games.
With Activision’s Candy Crush and Search Call of Duty mobile in its arsenal, search Xbox has the potential to attract customers to its mobile storefront and establish a significant presence on both mobile platforms—something it is currently unable to do. This explains the specter-like presence of search Xbox in the background of the Epic v. Apple trial over search Apple’s walled garden a few years ago and may point to future disputes of a similar nature if the deal is approved.
The FTC Was Silent Throughout the day, the FTC asked a few questions that appeared to indicate misunderstandings of the gaming industry’s operations. Weingarten seemed oddly focused on search Minecraft’s lack of presence on PS Now or PS+ while Spencer equally pointed out that search Sony had never made an offer for the game to be on that service and that it wasn’t his job to dictate what content search Sony had on its own subscriptions. Weingarten and Spencer were arguing about why search Minecraft had not yet been optimized for PS5. Later, Weingarten asked again about a specific conversation Spencer might have had about game exclusivity with Zenimax’s James Leder in the fall of 2021. Spencer was able to easily say that he didn’t remember specific details of the conversation because it happened two years ago and he talks about it all the time with his colleagues.
In addition, Weingarten inquired as to why search Microsoft could afford a $70 billion acquisition but could not afford to pay developers like search Square Enix to make games like search Final Fantasy exclusive to search Xbox. This led to a truly fascinating conversation in which the head of search Xbox explained to an FTC lawyer how the financials of the acquisition work.
However, during the cross-examination, Microsoft’s lawyers made a powerful move by giving Spencer the opportunity to swear to keep Call of Duty on PlayStation. This caused things to get really silly.
“I’d put out my hand. He stated, “I will do whatever it takes.” We lack a strategy. It is my testimony that we will not remove Search Call of Duty from PlayStation. I am pledging this right now.”
Even after Spencer’s other repeated public pledges to do just that, the striking moment that followed when Weingarten returned to question Spencer further was particularly curious. Spencer was asked by Weingarten if he could still fulfill that promise without considering the “terms” involved. Spencer answered that this was excessive – search Xbox has sent many games on PlayStation, he’s sure they can make it happen. Weingarten squeezed more earnestly.
“Can you swear under oath that you can guarantee that, for ten years, you will ship COD on all future PlayStation versions without knowing the terms?”
“Standing here, I’m committing that we will not remove Call of Duty… from PlayStation.”
Spencer mentioned that it’s possible that search Sony changes the terms on search Xbox in such a way that it is impossible to ship a game. Spencer came to the unspoken conclusion that this would be the fault of search Sony rather than search Xbox. Weingarten retorted by pointing out that Sony had requested “significant commitments beyond the standard shipping of the game” in the ten-year agreement that Xbox had sent to Sony, which had left the promise unsigned and in limbo. Spencer said that the deal was amazing, but he was still committed to bringing Search Call of Duty to PlayStation even if no contract was signed.
Weingarten proceeded. Would Spencer be willing to make the same assurance regarding all Activision content?
Spencer responded, “No, that would not make sense.” Activison currently offers games like “Search World of Warcraft” that can only be played on a PC or mobile device.
What about Diablo search? Weingarten proceeded. Can he guarantee that?
Search Microsoft raised an objection at this point, and the judge ordered the proceeding to continue. However, Weingarten returned to the same argument later and asked Spencer if he would make the same commitment to search Sony’s cloud gaming service. The judge then actively cut him off, indicating that he was finished with the discussion.
What Happened It is admittedly difficult to imagine how Judge Jacqueline Scott Corley, who is not familiar with the gaming industry, might have felt about today. However, the FTC emerged looking a little bit ridiculous from within. Spencer was able to hold up well under lengthy questioning, and its lawyers repeatedly appeared to be unaware of basic business principles involved in bringing games to different platforms. search Microsoft, on the other hand, finally had ample opportunity to explain the real reasons it wants Activision in front of a US judge and respond to a number of what it claims are non-reasons, such as making search Call of Duty exclusive. Search Microsoft actually has numerous observers on the way one week from now when the preliminary resumes Tuesday.
It is still essential to keep in mind that the FTC is not tasked with proving that the agreement is anti-competitive. Certainly not at this time. Instead of letting the deal go through in July and having to fight to undo it later, it is just trying to put the deal on hold long enough to take things to court as planned in August. It is still unclear which way the cards will fall in light of Judge Corley’s outside perspective on the industry, recent US antitrust crackdowns, and the fact that both parties have the weekend to regroup. Even analysts aren’t completely sure what will happen, and it looks like the answer won’t come until after the July 4th holiday weekend.
In the meantime, our daily roundups on IGN will keep you up to date on everything that’s going on as it happens.