FTC v. Microsoft: all the news from the big Xbox courtroom battle
FTC v. Microsoft: all the news from the big Xbox courtroom battle
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TODAY, 23 minutes ago
Break time.We’re taking a 30-minute break for lunch. It has been an intense hour and a half listening to Dr. Lee’s deposition with clear frustrations from both sides. Judge Corley is also trying to understand the modelling here and joked part of the way through as she stepped in to solve a basic math question.
We’ll be back soon with more models. I can’t. Wait. Honestly.
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TODAY, 26 minutes ago
The CMA’s survey gets a mention.Microsoft’s lawyer has now introduced the UK’s Competition and Markets Authority (CMA) analysis of Call of Duty being Xbox exclusive and whether it would financially benefit Microsoft.
The CMA had originally provisionally concluded that a Microsoft strategy to withhold Call of Duty from PlayStation would be profitable, but Microsoft wasn’t happy with that and publicly criticized the regulator’s math. The CMA then adjusted its financial model and sided with Microsoft, leaving just cloud concerns for it to decide to block the merger.
Microsoft’s own survey used a wider number of users than the CMA’s own survey which includes a number of people who do not play Call of Duty. Microsoft’s questioning to Dr. Lee here is around whether he saw this survey and considered it in his own analysis. He confirms he didn’t look at the survey and things are getting a little more fraught around the questioning here. Microsoft’s lawyer sternly asks: “Professor Lee, can you answer my question?”
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TODAY, 37 minutes ago
To exclusive or not to exclusive, that is the question.Microsoft has its own models for Activision games and analysis about keeping games exclusive. “Nobody at Microsoft recommended withholding Activision games,” says Microsoft’s lawyer. Dr. Lee responds:
“My understanding is that for consoles [Microsoft] recommended not exclusive, but for subscription services they recommended exclusivity.”
Microsoft’s lawyer is quick to point out Dr. 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.
Earlier, PlayStation chief Jim Ryan said he was concerned about Microsoft using Call of Duty to damage PlayStation, and Sony would obviously be concerned with Call of Duty being bundled into Game Pass to tempt PlayStation players to switch to Xbox and not have to pay $70 for CoD.
Photo by Leonardo Munoz/VIEWpress -
TODAY, An hour ago
Breaking down Dr. Lee’s models.OK we’re really getting into the weeds of the deal models here from Dr. Lee. This is key, because it’s quantitative analysis of the impact of Microsoft’s deal on competition.
Dr. Lee has two models: share and foreclosure. Both have separate inputs and different data sets and are designed to predict the impact of withholding Call of Duty from PlayStation.
Share model
The share model measures overall North American gen 8 console sales (Xbox One / PS4) and then applies a likely outcome if Call of Duty was removed from PlayStation.
It predicts that in the console market there would be a share shift of 8.9 percentage points, based on past sales data of Xbox One and PS4 consoles.
This share model uses only North American market data and no assumed conversion rate. The share model doesn’t predict content library share shift, nor cloud gaming.
Foreclosure model
The foreclosure model measures global console sales that includes gen 9 (Xbox Series S / X and PS5) to predict the future. Inputs in the foreclosure model aren’t the same as share model, as it has a conversion rate that assumes 20 percent of Call of Duty players would convert to Xbox.
In this foreclosure model it predicts a share shift of 5.5 percentage points. The model is designed to work out at what point the benefits would exceed the cost if Microsoft were to withhold Call of Duty from PlayStation. The foreclosure model doesn’t predict content library share shift, nor cloud gaming.
What does it all mean?!
This is all a little hard to follow precisely as some numbers are being redacted in this deposition as they’re sensitive and Microsoft’s lawyer is drawing diagrams I can’t see. But Microsoft’s lawyer argues that if Dr. Lee is wrong about the 20 percent conversion rate in the foreclosure model, if it was 15 percent then “it doesn’t give Xbox a net positive for an incentive or reason” to withhold Call of Duty.
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TODAY, Two hours ago
Questions over Dr. Lee’s report.Microsoft’s lawyer, Beth Wilkinson, is asking Dr. Robin Lee about the quantitative models he has used to create his report. Dr. Lee predicts how many PlayStation players would switch to Xbox if Call of Duty was exclusive to Xbox:
“On average during Call of Duty titles during generation 8, Xbox share would increase by 8.9 percentage points.”
Such a loss would come from PlayStation losing players, as Call of Duty isn’t available on Nintendo Switch. Wilkinson argues that Dr. Lee’s model takes the data from older consoles and then applies it to new consoles.
Wilkinson also points out that Dr. Lee doesn’t have models for share shift in multi-game subscriptions or cloud gaming where titles like Call of Duty are taken away fully.
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TODAY, Two hours ago
They’re arguing about the Nintendo Switch again.Microsoft’s lawyer is questioning the FTC’s economic expert, Dr. Robin Lee. He has defined the PlayStation and Xbox as a “high performance” console market that’s separate to the Nintendo Switch.
This has been an argument between Microsoft and the FTC for all three days of this hearing. Microsoft’s lawyer is bringing up documents from Sony where it describes the Nintendo Switch as a competitor for contracts with Activision.
Lee is rather evasive in his answers about how he has defined the console market, which you can tell is frustrating Microsoft’s lawyer Beth Wilkinson.
I find this whole argument tedious. Of course PlayStation and Xbox compete with Nintendo Switch, but not in the same way as they compete with each other.
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TODAY, Two hours ago
FTC’s economic expert testimony.We’re now hearing a deposition from the FTC’s economic expert, Dr. Robin Lee.
Lee agrees with the FTC’s market definition of Xbox Series S / X and PS5 consoles as “high performance” instead of the broader market including consoles like the Nintendo Switch. Lee ran models on competitive analysis between Xbox Series S / X and PS5.
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TODAY, Two hours ago
5-minute break, recap time.We have a short 5-minute break until the FTC calls its next witness. Here’s the recap of PlayStation chief Jim Ryan’s deposition:
• Sony is wary of sharing PS6 info with Microsoft
• Sony’s Activision alarm bells began ringing in August 2022• What does Sony think about Starfield exclusivity?
• Jim Ryan confirms he told Activision Bobby Kotick he wanted Microsoft’s deal blocked
• The Sony bombshell email returns
• Sony is hedging against Xbox Game Pass
• Publishers don’t like Game Pass, Ryan says
• Xbox beat PS5 sales for three months in 2021
• Jim Ryan says cloud gaming won’t be a thing until at least 2025
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TODAY, Two hours ago
PlayStation chief on cloud gaming.PlayStation Now had a subscriber base of 3 million users, Ryan says. He predicts that cloud gaming won’t be a meaningful thing until at least 2025:
“Cloud technology will become a meaningful component of how gamers access games between 2025 and 2035. We’re making significant investments in cloud in anticipation of it becoming a very meaningful way of how gamers access games.”
Sony recently started testing cloud streaming for PS5 games, with plans to add this as a feature to its PlayStation Plus Premium subscription.
Image: Sony -
TODAY, Two hours ago
Xbox beat PS5 sales for three months in 2021.Jim Ryan confirms that Sony had some shipping constraints in 2021 that means Xbox Series S / X sales beat PS5 for around three months. He says there’s no other time during this latest generation where Xbox sales have materially exceeded PS5.
Illustration by Alex Castro / The Verge -
TODAY, Two hours ago
Ryan says publishers don’t like Game Pass.Jim Ryan speaking to those Fidelity investors said publishers don’t like Xbox Game Pass:
“I talked to all publishers they unanimously do not like Game Pass, because its value destructive.”
He defends the comments saying it’s a “very commonly held view by publishers.”
Microsoft lawyer: So you had no reason to think Mr. Kotick would put Call of Duty on Game Pass.. if this transaction was not completed?
Ryan: Correct.
Ryan also said to investors he was expecting more than 25 million Xbox Game Pass subscribers and that Sony’s 50 million PlayStation Plus subscribers during the investor meeting.
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TODAY, Two hours ago
Sony’s hedge against Game Pass.We’re now looking at notes from a meeting with Fidelity investors in February 2022. Jim Ryan discussed the importance of first-party content to fend off competition from Game Pass:
“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 a business model where you own elements from top to the bottom increases your ability to be self-determinant.”
Microsoft lawyer: Do you think it would be better if Microsoft kept Activision games on PlayStation?
Ryan: Yes, I do
Microsoft lawyer: So you do believe it’s in Microsoft’s best interests to make Activision games available on multiple platforms?
Ryan: No, I don’t agree with that
Microsoft lawyer: So if you were running Xbox, would you would recommend making Call of Duty and other Activision games exclusive to Xbox and PC?
Ryan: That’s a hypothetical question that I don’t wish to answer
Microsoft lawyer: So you don’t get to answer?
Ryan: I don’t have enough knowledge to answer that question
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TODAY, Two hours ago
The Sony bombshell email is back.Microsoft’s lawyers bring up the email between Jim Ryan and Chris Deering, former CEO of Sony Computer Entertainment, discussing the announcement of Microsoft’s Activision Blizzard deal last year.
“It is not an Xbox exclusivity play at all. They’re thinking bigger than that and they have the cash to make moves like this. I’ve spent a fair amount of time with both Phil [Spencer] Bobby [Kotick] over the past day and I’m pretty sure we will continue to see Call of Duty on PlayStation for many years to come.”
Deering replied.
“This deal would cement Microsoft as a player in mobile games. It strikes me as more of a king play than Call of Duty.” Ryan didn’t disagree.
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TODAY, Two hours ago
Jim Ryan confirms he told Activision he wanted the deal blocked.Microsoft’s lawyers bring up Jim Ryan meeting with Activision CEO Bobby Kotick on the same day as the European Commission on February 21st. We’d previously heard Ryan had said to Kotick “I don’t want a new Call of Duty deal. I just want to block your merger.”
Jim Ryan confirms the meeting and what he said:
“I told him [Bobby Kotick] that I thought the transaction was anti-competitive, I hoped that the regulators would do their job and block it”
Ryan says Kotick wanted to “cover himself” with an extended Call of Duty deal with Sony:
“What Bobby wanted to do was cover himself by extending the marketing collaboration between Sony and Activision, in the event of the transaction not proceeding.”
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TODAY, Two hours ago
What does Sony think about Starfield?Jim Ryan is asked if there’s anything wrong in Microsoft doing exclusives like Redfall. He says “I don’t like it but I fundamentally but have no quarrel with it.”
What about Starfield?
“I don’t like it, but I don’t view it as anti-competitive.”
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TODAY, Two hours ago
Sony’s alarm bells started ringing in August, apparently.Jim Ryan says an August August 26th, 2022 from Phil Spencer “really set alarm bells ringing” inside Sony. Up until that point Sony hadn’t negotiated an access agreement. Microsoft argues Sony didn’t have any initial concerns after a January 31st proposal email and calls to the Sony CEO and Jim Ryan.
“I wasn’t particularly happy with the January 31st proposal, but hoped that it was an opening salvo,” said Ryan. “I believe this transaction is bad for competition.”
Asked about whether Sony’s meeting with UK regulators in the summer of 2022 was before or after Spencer’s email, Jim Ryan can’t recall. “We certainly had one meeting with the CMA over the summer,” says Ryan.
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TODAY, 4:17 PM UTC
Jim Ryan and Phil Spencer emails.Xbox chief Phil Spencer send Jim Ryan a commitment list of games last year that would remain on PlayStation after the proposed Activision Blizzard deal closes.
The list included Overwatch but not Overwatch 2. “Other Activision games on PlayStation must be sufficiently broad, to fully align with gamers expectations,” said Ryan in the email. He calls it “not a meaningful list” in his deposition.
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TODAY, 4:13 PM UTC
Sony is wary of sharing PS6 info with Microsoft.Sony’s PlayStation chief Jim Ryan says the company is wary of sharing dev kits and next-gen console information with Microsoft for their games:
“We simply could not run the risk of a company that was owned by a direct competitor having access to that information.”
Sony made the decision to delay supplying PS5 devkits to Microsoft for Minecraft:
“The development kits allow developers to have visibility and to work on the feature set that our new console will deploy. It would 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.”
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TODAY, 4:07 PM UTC
Why is it beneficial to have third-party exclusives on PlayStation?Sony’s PlayStation chief Jim Ryan says it’s beneficial for third-party developers to sign an exclusivity deal for PlayStation because “development efforts required to make that game reduces.”
The FTC has been arguing that exclusives are bad for competition and that Microsoft purchased Bethesda and kept games like Redfall, Starfield, and the upcoming Indiana Jones off PS5. Ryan expected these games to remain on PlayStation:
“I think that pretty much every Bethesda game was multi-platform prior to the acquisition.”
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TODAY, 4:02 PM UTC
Jim Ryan believes Nintendo is in a different market.The FTC and Microsoft have been battling over whether the Nintendo Switch is a game console and whether it competes with the PlayStation and Xbox. Sony’s PlayStation chief Jim Ryan says “we consider Nintendo to participate in a different market segment to Xbox and PlayStation.” When asked to expand on that, he says:
Nintendo’s hardware technology is of a much less sophisticated nature to PlayStation or Xbox. Its hardware typically retails for a cheaper price and its audience is aimed rather younger.
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TODAY, 3:59 PM UTC
Xbox games involve shooting things.PlayStation chief Jim Ryan is asked why Xbox games resonate better with customers in the US than outside the country:
“Many of their games involve an element of shooting and online multiplayer. Both of which typically are more popular in the US than they are outside of the US.”
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TODAY, 3:56 PM UTC
Jim Ryan’s video is 70 minutes long.We’re going to get a lot of testimony from PlayStation chief Jim Ryan. The video will run for 1 hour and 10 minutes in total. Ryan confirms Sony tracks Microsoft’s console sales.
FTC: How have Xbox gen 9 consoles performed in terms of sales?
Ryan: Like us they have been troubled by supply shortages we understand, but demand for their products is robust.
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TODAY, 3:52 PM UTC
PlayStation chief Jim Ryan is taking the stand, kind of.Sony’s PlayStation chief isn’t in the courtroom or live via a video link, but we’re about to hear from him thanks to a pre-recorded deposition video.
Sony has emerged as one of the main opponents to Microsoft’s Activision deal. Microsoft dropped a bombshell Sony email last week showing that Ryan knew Microsoft’s proposed acquisition wasn’t about exclusives and that PlayStation would be fine.
The surprise revelation runs counter to Sony’s arguments against Microsoft’s Activision Blizzard deal and its filings with regulators. Sony has maintained it fears Microsoft could make Call of Duty exclusive to Xbox or even sabotage the PlayStation versions of the game.
Sony’s PlayStation chief Jim Ryan. Photo by Alex Wong/Getty Images -
TODAY, 3:51 PM UTC
A warning from Judge Corley.“It has been brought to our attention, at least one person was live streaming the audio last week. When you do that what you are doing is jeopardizing the ability of us to even offer live streams,” says Judge Corley. “So those of you who have recorded or live streamed, you are jeopardizing that and probably not just for this proceeding but for all proceedings across the United States, if you continue to do that.”
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TODAY, 3:43 PM UTC
Tick tock.We’re still waiting for things to start here. The courtroom is still sealed, with reporters and members of the public still waiting to get in. The doors have just been unlocked for people to enter into the courtroom, so we should get going shortly.
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