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SAN FRANCISCO (CN) — Microsoft spent much of Friday under intense questioning from Federal Trade Commission lawyers in federal court, describing a tight arms race with competitor Sony on the eve of a historic merger with Activision Blizzard.
The tech giant’s gaming studio CEO Phil Spencer, who’s one rung below the company head Satya Nadella, described a uniquely “cordial” relationship with Sony as the two gaming platforms battle for second place in the market.
Spencer admitted that so far, Sony is winning — but purchasing Activision Blizzard for $69 billion could change all that.
U.S. District Judge Jacqueline Scott Corley is considering the FTC’s request to block the Activision purchase until a Washington D.C. antitrust trial can delve into the deal. The feds sued to halt the agreement in December 2022, saying a merger would give Microsoft control of some of the most iconic video game titles on the market — with the power to manipulate Activision’s pricing and game quality on rival consoles, or withhold content from competitors.
Experts and top executives, including CEO Nadella and Activision Blizzard CEO Bobby Kotick, are expected to testify during the next week in San Francisco. FTC deputy chief trial counsel James Weingarten has said evidence will show that Microsoft leadership seeks to own content that would exclude other gaming consoles, and may not follow contracts to allow game access on cloud streaming services.
Microsoft officials testified Thursday that they signed contracts with cloud services to show willingness to keep games like “Call of Duty” available. Spencer, CEO of Xbox Game Studios, said Friday that he will be the final word on whether Activision products go “exclusive” and leave Playstation if the deal closes.
Spencer conceded that Xbox ranks third behind Nintendo and Sony, in that order, by current revenue. Xbox has watched Sony keep games exclusive from their platform, while console sales dwindle.
That leaves the competitors looking for ways to edge each other out in the mobile gaming market.
“We can’t be in a position as a third place console where we fall further behind on our content ownership,” Spencer said.
He admitted that Microsoft discussed skipping Playstation with future Activision games, having held back the optimized version of “Minecraft.”
In 2022 at a Bethesda roundtable, Spencer claimed the $7.5 billion purchase of Bethesda’s owner, ZeniMax Media, meant Microsoft can deliver games that are exclusive to Xbox cloud gaming subscribers. Reminded about this by Weingarten, Spencer admitted that many Bethesda titles are either not on Playstation, or up in the air, like the anticipated “The Elder Scrolls 6.” Microsoft also paid Disney to make an upcoming Indiana Jones game under ZeniMax “skip” Playstation.
It’s common for gaming companies to keep some games exclusive, and Sony and Nintendo have many more games exclusive to their platforms than Microsoft, Spencer said.
He went so far as to swear on oath that if Microsoft closes acquiring Activision, “We will keep ‘Call of Duty’ on Playstation, if Sony will allow us to do that.” He claimed that there would be no feasible reason to remove it from Playstations, with many more players on that console compared to Xbox.
However, Spencer would not swear that all versions of the popular game would stay on the competitor’s console, although Nintendo has agreed to a 10-year term to put it on the Switch.
To get a leg up in the mobile gaming sector, Microsoft considered buying San Francisco-based mobile game company Zynga, now owned by Take-Two Interactive Software, Inc., Spencer said. They then began speaking to Activision Blizzard in November 2021.
“We thought we needed something that was even bigger than what Zynga was,” he said.
Spencer said that despite outside speculation that pulling “Call of Duty” from Playstation could cause a 5% share shift in the market, nobody inside Microsoft has presented that model. He said he personally assured Sony that would not happen.
“We do not model our success at the sole expense of other platforms that are there,” Spencer claimed.
In a tense line of questioning, Weingarten forced Spencer to admit that despite commitments to keep certain games on competitors’ platforms, Microsoft reneged during the ZeniMax acquisition and kept “Redfall” and “Starfield” exclusive.
The cloud gaming world is difficult to succeed in, according to the following witness, Google product manager Dov Zimring, who worked on Google Stadia.
Zimring said the company’s 2019-2023 cloud gaming service, despite having high-end technology, failed because Google needed more long-term interest from players and more big-ticket games. He added that the company found it very expensive to build a service independent of Microsoft’s more limited ecosystem.
The hearing continues through June 29. Corley will decide whether to order a hold on the deal while an administrative trial begins Aug. 2 in Washington, D.C.
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