Microsoft and ATV are fighting to keep a big deal alive

Activision: The Switch for the U.S. Courts: A First Look at the Video Deposition After Sony’s Nintendo Switch Dispute

The court only has a Zoom license for 1,000 people to listen in, which, in this case, regularly hits capacity. That is the main reason why people are streaming the hearing, to give people a better way to listen in. The courts aren’t prepared for thousands of people who want to listen to the hearing.

We moved into the video deposition immediately after we got the administrative warning out of the way. It ran for about 70 minutes and at times jumped around because of parts being edited out.

“Many of their [Xbox] games involve an element of shooting, and many of their games involve moments of online multiplayer. They are more popular in the US than outside of it.

It is important that the Nintendo switch be defined as a high performance console market that is separate from the PS and XBOX, because it is the key to how Lee has modeled the market. The whole Switch argument is very tiring for me. However, in the same way as Nintendo Switch competes with each other, the PlayStation and Xbox also compete with each other.

“We consider Nintendo to participate in a different market segment to Xbox and PlayStation. Nintendo has less sophisticated hardware technology than XBOX or PS4. Its hardware typically retails for a cheaper price, and its audience is aimed rather younger.”

After months of discussions and counter offers around Activision content in April and May, an August 26th email from Phil Spencer included a list of Activision games that would remain on PlayStation, and Jim Ryan wasn’t happy:

Xbox chief Phil Spencer testified last week that “Sony was reluctant to ship us PlayStation dev kits… It left us behind in the game development for PS5. Ryan says that Sony was wary of sharing dev kits and next-generation console information with Microsoft for their games.

“The development kits allow developers to have visibility and to work on the feature set that our new console will deploy. [Delaying dev kits] would typically mean a developer may bring its content to the new platform later than would otherwise be the case. The commercial risks associated with the knowledge of these feature sets leaking to our principle competitor is not something we’d rely on any contract to enforce.”

It does not need to make Call of Duty exclusive because of its publishing power. Sarah Bond, head of Xbox creator experience, testified last week that Microsoft was forced to agree to a new revenue sharing deal with Activision to get a version of Call of Duty for the launch of the Xbox Series S / X consoles. Kotick wanted Microsoft to sign a new revenue share deal in order for Xbox to get a Call of Duty version. “It was clear that Call of Duty would be on PS5, and that would not have been good if it was not also on Xbox,” said Bond last week.

“It was not a meaningful list. One example of this list was that there was a particular selection of games that wouldn’t be on the current version of the console.

Ryan called the offer “inadequate on many levels and failed to take account of the impact on our gamers.” He stated that he didn’t want to comment on the private business discussion, but he did have to set the record straight because Phil Spencer brought this into the public forum.

Ryan: I wouldn’t say I wasn’t concerned at all, but it was really his [Phil Spencer’s] response a few months after my email on May 26th which sent alarm bells ringing

Bobby wanted to cover himself by extending the marketing collaboration between Sony andActivites if the transaction was not to go ahead.

“One of the reasons why we are investing massively in first-party development and publishing is to provide us with an edge against pressure on a historic business model. Having elements from the top to the bottom in your business model can make you able to be self-determinant.

Microsoft’s lawyer was quick to point out 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.

Ryan also said he was surprised at the 25 million Xbox Game Pass subscriber numbers Microsoft disclosed in January 2022, as he was “expecting a larger number given all the money they have spent.” He compared it to Sony’s 55 million PlayStation Plus subscribers at the time, and then Sony made a filing with the Competition and Markets Authority in the UK that claimed Microsoft had 29 million subscribers. The 25 million figure isn’t officially announced by Microsoft.

Ryan’s testimony also revealed that Xbox beat PS5 sales for three months in 2021. The PS5 overtook the XBOX Series S / X in that period because of Sony’s shipping constraints. Ryan says there’s no other time during this latest generation of consoles where Xbox sales have materially exceeded the PS5.

The final portion of Ryan’s deposition was focused on the cloud. PlayStation Ryan says that the previous cloud gaming service by Sony had a subscriber base of 3 million. He now predicts that cloud gaming won’t be a meaningful thing until at least 2025:

Microsoft, Consumer Protection, and the Call of Duty: Its Implications on Competition and Consumer Protection in the X-Box Game Pass Era

The FTC contacted Robin Lee, PhD, a professor of economics at Harvard University. He has worked with the FTC in the past as a speaker and panelist to discuss competition and consumer protection. He is very much an expert in the competition field, so Microsoft, naturally, wanted to try and tear his quantitative models apart.

It was like Lee was trying to become a politician. Lee wasn’t helpful in explaining how he had defined the console market early on, which you can tell frustrated Microsoft’s lawyer Beth Wilkinson. This led to a tense exchange early on:

After the rest of the exchanges didn’t get much better, Wilkinson turned to a whiteboard and tried to make sense of Lee’s models. It turned into a showdown into his research, with Judge Corley intervening multiple times.

Lee argued that he models and provides evidence that around 10–15 percent of people who leave an Xbox would to go PlayStation or vice versa and that a “hypothetical monopolist… would find a 5 percent price increase, likely profitable.”

Judge Corley was confused and had to intervene. It’s fair to say she was skeptical of the analysis around why Lee hadn’t separated out Call of Duty on its own since it’s so key to this hearing:

I believe that the merged entity is likely an economic incentive to foreclose on the Call of Duty as well as any other activities that are entitled to, but I also think that there is some uncertainty in the future.

Judge Corley wanted to know why people couldn’t switch to a PC in order to get more value out of a PC, since they were able to play Call of Duty on a PC.

Source: https://www.theverge.com/2023/6/28/23776652/ftc-microsoft-day-three-hearing-summary-sony-playstation-jim-ryan-xbox-game-pass

Game Streaming through the Xbox Cloud Service: Response to a Microsoft Disciplinary Email Essence of a Game Player Agreement”

There are still some games available in that market, such as the Series S and Series X. If you are thinking about a Series X price increase, the customers who buy the X console may be more likely to switch to a PS or a Switch. So this decides the market definition, evaluate a price increase on any of the products in the market.

At the end of Lee’s testimony, he was questioned around cloud competition. It is difficult to judge harm in a new market like cloud as it is still young and still seeing new competitors. “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,” said Lee.

Consumers in EU countries will be able to stream current and future games of their choice through any cloud game streaming services of their choice if Microsoft succeeds in getting a remedy from the European Commission. Cloud providers will be given a license to stream 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.

After a grueling back and forth during Lee’s testimony, it was time for something lighter. Phil Eisler, leader of the GeForce Now team, was recorded in a deposition. In a nine-minute video that the FTC put together, they felt like it went by so fast that it felt like it had already happened.

Microsoft’s lawyer took over questioning to ask about the company’s agreement earlier this year for Xbox PC games on its streaming service. Shortly after the acquisition of Bethesda, Matt Booty, head of the Xbox Game Studios, wrote an email to Phil Spencer that recommended that their games be removed from the GeForce Now service.

Over time, we have found out that we are close to the quality of playing locally. It is possible to run higher frame rates and add more visual effects with our cloud gaming server. The company has raised its frame rates from 30 frames per second to up to 200 frames per second, which reduces the amount of time it takes to execute a task.

During the initial phase of the service’s testing, there were games available to play on GeForce Now. “We had a number of those [Activision] games on the service at beta,” says Eisler.

If the transaction completes on the Activision side, we are entitled to the content. We started working with Microsoft to help with our concerns regarding their first-party titles.

What is the biggest trend in mobile gaming? Elizabeth Bailey, MS., an expert on multiplatform gaming: The case of Xbox, Xbox, Play and God

Microsoft called on its own expert, Elizabeth Bailey, PhD., for the final part of the day.

Microsoft has argued that the deal isn’t about consoles. Bailey said thatXbox mobile revenue is less than half a percent of overall mobile gaming revenue. It’s not a big thing in mobile gaming. So combined, they’ll have 3.8 percent of mobile gaming.”

Microsoft wants to portray Call of Duty as inconsequential due to the fact that many people play other games. Bailey claims that there is a good amount of people who play more than 10 games on the platform. She thought that the difference between Call of Duty and God of War was related to how often a game was played on a first day.

Bailey was able to calculate if the games in the US and other parts of the world are the same games that are popular in other countries. “If you look at the most highly played games, that set of games that are most highly played in the US is a very similar set of the most highly played games in other countries around the world,” says Bailey.

Source: https://www.theverge.com/2023/6/28/23776652/ftc-microsoft-day-three-hearing-summary-sony-playstation-jim-ryan-xbox-game-pass

How do US Courts Obtain Game-Theoretical Implications? A Preliminary Anecdote from Microsoft’s Call of Duty on Switch

Bailey confirmed that Lee had access to the same data, but he came to different conclusions. Telemetry data can be unreliable, and not always conclusive. Microsoft used telemetry data to justify removing the Start button in Windows 8, and look what happened there.

Judge Corley intervened here, asking whether people had a choice of what game was bundled and whether these bundles varied in different states across the US. Bailey had only an anecdote about buying a console herself and deciding between bundles. It could be a big hole in the analysis.

The final part of Kotick’s testimony involved Call of Duty on Switch again. The FTC revealed that Kotick only found out about Microsoft’s plans for a Nintendo Switch version of Call of Duty from news reports and that the agreement Microsoft signed with Nintendo also purports to bring a future Call of Duty game to a future Nintendo console.

Day four looks to be a big one. We will get more from Bailey, but the day will start with Bobby Kotick. Microsoft CEO Satya Nadella will also appear at around 1:30PM PT, and Nvidia’s Jeff Fisher will also appear via a video briefly. Microsoft is also calling Dennis Carlton, PhD, another economics expert, to pick holes in Lee’s report.

The hearing will not be finished on Tuesday and will not be finished on Wednesday. Judge Corley has a noon commitment so there will be a long lunch break.

We started off day three with a warning from Judge Jacqueline Scott Corley about people livestreaming witness testimony to YouTube and other sites. It is forbidden by the court, and Judge Corley warned that they are endangering the ability for US court proceedings to be officially streamed to the public. You’re welcome to live BLOG, that is fine, but no recording or streaming.

If you are interested in math and quantitative analysis, you might be able to decipher some of the testimony from Robin Lee, PhD, the FTC’s economic advisor. I think the part of day three that everyone felt overwhelmed was the big part.

The Sony v Microsoft Gameplay: An Analysis of the 2021 PlayStation Game and Its Implications for PlayStation Revenues and Activision Blizzard Gameplay

Sony’s fears about Microsoft’s Activision Blizzard deal kicked into gear in August 2022 after Xbox chief Phil Spencer sent PlayStation chief Jim Ryan a list of Activision games Microsoft would be willing to keep on PlayStation. That list only included one thing, and that was Overwatch 2 not included. Ryan said that the alarm bells would ring.

Sony has just revealed lots of highly confidential information about its PlayStation business by mistake. As a part of the FTC v Microsoft hearing, Sony provided a document from their chief Jim Ryan that was redacted and contained information on margins they have with publishers and Call of Duty revenues.

The court has scrambled to remove the document, but the damage is done; reporters and Sony’s competition have already downloaded all the documents while they were in the public domain. Among other things, the document shows that Horizon Forbidden West apparently cost $212 million over five years with 300 employees, and The Last of Us Part II cost $220 million with around 200 employees:

In 2021, over [14?] million users (by device) spent 30 percent or more of their time playing Call of Duty, over 6 million users spent more than 70% of their time on Call of Duty, and about 1 million users spent 100% of their gaming time on Call of Duty. The average number of hours per year that players spent playing Call of Duty was 116 in the year 2021, according to the data. The average hours spent on the franchise by Call of Duty players was . Strikingly, those who spend more than 70% of their time on the game spend an average of over 300 hours on it.

The revenue impact may have been realized due to Sony accidentally revealing how much Call of Duty is worth to the PS. We already knew the figure was over a billion dollars, but the document suggests CoD was worth $800 million for PlayStation revenue in just the US during 2021 — and we think the document says $1.5 billion globally. And that’s just the game alone, but when you count accessories, subscriptions, and everything else, then that jumps to (what appears to our eyes) to be $15.9 billion a year — or perhaps $13.9 billion. Either way, it’s a huge amount.

Sony also says around half of PS5 owners also have a Nintendo Switch. While the FTC and Microsoft have argued about the merits of the Switch,Sony data shows that the majority of consoles in the US are owned by Americans.

The First Day of FTC v. Microsoft: Where is the Game? What is the Problem? What did I learn from Verge? When Nintendo Switch went Live?

Carlton: I can’t remember. I relied on the article to describe the agreement because I was trying to understand it better and I didn’t want to read the agreement.

Day four of FTC v. Microsoft was always going to be a big one. Most of the drama happened outside of the courtroom and the two CEOs appeared on the witness stand in an attempt to save the mega deal.

Day five kicks off Thursday morning at 8:30AM PT / 11:30AM ET. Judge Corley says the plan is to finish evidence by midday and closing arguments at 2:30PM PT / 5:30PM ET.

There was a clear frustration at times from Judge Corley at some of the questioning and answers, with plenty of tense exchanges when suddenly a Verge article appeared in court! Carlton is using an article from vee about microsofts deal with nr for cloud gaming rather than the terms. I’d like to think it was because the author deserves to be paid $2,000 an hour to listen to Nintendo Switch debates for five days, but alas, it wasn’t:

Carlton is getting paid two hundred dollars an hour by Microsoft, and there are five cases in which his testimony will not be used as an expert witness. There is a line of questioning against expert witnesses in the Apple trial, but the FTC was particularly badgering him because of his claims that Sony is more interested in blocking the merger than getting a good deal for Call of Duty.

Jeff Fisher, vice President of PC business for chipmaker Nvidia, said that PC gaming will always be better than consoles in order to show how upset he is with Microsoft over its stance on cloud gaming.

For decades, exclusives have been a major factor in persuading people to adopt consoles, and they will be the main factor in the battle for subscription and cloud gaming. Would Microsoft give up exclusives in an ideal world? Would the game be launched on the PS? I think we all know the answers to those questions.

Just to make sure that it’s clear. Whenever I think about the cloud in the context of the Xbox pillars of content, cloud, and community, Xbox Live is part of the cloud. When you think of a console or a PC, the cloud is what you’re thinking about. When I think about the cloud, it’s not just streaming alone.

I don’t think of it as strictly substitute for the console. I mean, at least the market feedback to date has been people love their consoles, people love their PCs, people love their phones and use cloud gaming as an adjunct.

I want to make it clear to the world that Microsoft is focused on cloud-first approaches. Teams, Windows 365, xCloud as the future… I want to basically use every opportunity to make cloud streaming more mainstream.

Microsoft is very bullish on its cloud ambitions and growth, so it is clear that also applies to gaming. A document written by Microsoft stated that it continues to lead in gaming cloud gaming, and an internal email from Nadella talked about Microsoft’s involvement in the launch of a new virtual reality headset. Microsoft will bring Teams and other software to Meta in October of 2022, according to the company, and Microsoft president and chief executive officer, Satya Nadella.

The FTC was keen to hone in on Microsoft’s internal targets for gaming, including Nadella’s own self-assessment from August 2022 that includes performance metrics for top Microsoft leaders. The FTC pointed out that Microsoft exceeded its own metrics for the gaming business, but Nadella argued the company had set those targets low.

The FTC ended its questioning by pointing out how much Bobby Kotick stands to pocket if the Activision Blizzard deal goes ahead. Microsoft agreed to buy the gaming company at a large premium for $95 a share, an announcement made at the time of the deal. Kotick’s stock would be worth over 400 million dollars if the deal closes, according to the FTC, which is huge considering that the state of California sued the video game publisher in 2021, accusing them of fostering unfair competition.

Source: https://www.theverge.com/2023/6/29/23778046/ftc-microsoft-day-four-hearing-summary-satya-nadella-bobby-kotick

Call of Duty: Warzone and Modern Warfare II: A no-go theorem for a Nintendo Switch or a console?

Kotick was asked about the differences between Call of Duty: Modern Warfare II and Call of Duty: Warzone, which has a mobile version. Kotick argues that games like Modern Warfare II will eventually be playable on a phone, but not right now. The FTC cited Kotick’s previous statement that it would be like using a refrigerator for a safe to play it on a phone.

Kotick: If we didn’t have the resources and there was something wrong with the specifications… or the design of the device if we didn’t think it was appropriate.

Judge Corley did something about it. “If the merger doesn’t go through, you said you made a mistake with respect to the Switch, you’re not going to make that mistake again. There would be a reason not to do it.

I actually think we will likely make a Call of Duty game for a new Nintendo console. I can only tell you that it is probably something we would consider.

Kotick: We would consider it once we had the specs, but we don’t have them at present. We missed out on the opportunity for this past generation of Switch, but we’d have to wait until the specifications. There are no plans to do it at the moment.

Source: https://www.theverge.com/2023/6/29/23778046/ftc-microsoft-day-four-hearing-summary-satya-nadella-bobby-kotick

Playing Call of Duty with Xbox One and the Switch: Bobby Kotick and the Commission on Multi-Geometry Subscriptions

The FTC was quick to push Kotick on multi-game subscriptions, pointing out that Activision is in the business of making games and has an incentive to be everywhere. Kotick admitted that there was a need to offer content on game subscriptions for a short time but still not something that was sustainable.

How did it work out for the company? It is the second most popular video game system of all time. It was a terrible decision on my part.

I saw some of the prototypes for the switch. I was concerned that they were trying to accomplish a lot with the console but not the portable capability. I did not think it would be very successful.

Sometimes Call of Duty picks wrong and sometimes it picks right. “I made a bad judgment,” says Kotick about not putting Call of Duty on Switch. Activision had put Call of Duty on the Nintendo Wii previously because Kotick thought it was “the most extraordinary video game system ever created,” but he was less impressed with the Switch initially:

You would have a revolt if you were to remove the game from one platform. You get invested in the game when you play it. It is like a sport.

Activision manages to create a new Call of Duty game every year, something that Sony has argued makes it a particularly unique game. Kotick admitted that people atActivist were playing Call of Duty because of the Medal of Honor. Call of Duty is based on conflicts and war so there is an endless supply of history to create yearly installments. “We had to instill a compensation and reward system to keep people motivated to work on sequels,” says Kotick.

Activision CEO Bobby Kotick was first to the stand in the morning, giving us a brief history lesson of how he bought Activision more than 30 years ago when it was insolvent and “lost its way.”

It also wouldn’t be a day in this hearing without a Nintendo Switch debate — this time, Microsoft tried to argue it’s how gamers spent their time during the Switch launch that matters. Nvidia also appeared again briefly before Microsoft called Dennis Carlton, PhD, an economics expert who sounds like he’s paid $2,000 an hour to read Verge articles.

While I expected more of a grilling of both CEOs from the FTC and even Judge Jacqueline Scott Corley, Bobby Kotick delivered some important testimony about Call of Duty on the Switch, and Satya Nadella tried to convince us that in his ideal world where everyone is happy, healthy, and wealthy, he’d love to end console exclusives if it wasn’t for pesky Sony.