FTC Xbox Activision trial delivers the juice

Colin Campbell, Saturday, June 24th, 2023 12:35 pm

In the public sphere of new product presentations, media interviews and financial statements, game console executives are normally found reciting blandishments, massaging facts to their own ends, and dodging anything that might reflect poorly on their ambitions.

Occasionally – and almost always in court cases – we’re treated to a more clarifying perspective on the red-toothed backroom shenanigans that drive the so-called “console wars”. Such is the case with the ongoing courtroom drama between the Federal Trade Commission and Microsoft, over the latter’s proposed acquisition of Activision Blizzard.

It makes for a compelling series of revelations that remind us how much these companies loath one another, and the high stakes game of controlling the vast console games sector.

Remember the 2018 Game Awards when presenter Geoff Keighley introduced the three U.S. bosses of Xbox, PlayStation and Nintendo? Keighley said he’d spent five years trying to persuade these corporate warriors to “put competition aside” and share a stage together, a notable achievement for sure.

But anyone hoping for keen insights into their mutual relationship was in for a disappointment. Reggie Fils-Aimé, Phil Spencer, and Shawn Layden didn’t have much to say – not even a knowing joke or subtle dig. They stood together for less than two minutes, spouting bromides about togetherness, the universal appeal of video games, creativity and diversity.

Spencer – the only one of those execs still running a console division – claimed that “as an industry we are most powerful when we come together.” But Microsoft’s aggressive attempt to carve out a greater market share for its third-placed Xbox platform gives the lie to such nonsense. As Spencer surely knows, power must be taken. It cannot be shared.

In a courtroom, witnesses are obliged to be more than usually forthright. Wily lawyers uncover embarrassing internal communications that fly in the face of cynical corporate tactics. Judges are apt to be snappy when their credulity and patience are tested by bullshit. It’s great entertainment.

Quick primer

Before we get to some of the juicier revelations, let’s take a quick primer on the conflict, and the major players.

In early 2022, Microsoft announced a bold plan to buy Activision Blizzard, for a proposed $68.7 billion in cash. This would give Microsoft key gaming brands including Call of Duty, Warcraft, Diablo, Overwatch and Candy Crush, among others.

In the console market, the main competitive advantages for any company are exclusive games that cannot be played on rival consoles. Nintendo has always been supreme in this regard, cannily using brands like Mario and Zelda over a period of decades. Sony is also accomplished, with blockbuster adventures like The Last of Us, and God of War.

Despite notable brands such as Halo, Microsoft has traditionally struggled, which is why the company embarked on an aggressive acquisition strategy that brought in the likes of Bethesda, Double Fine, Obsidian, and Arkane. The Activision deal dwarfs everything that went before. Not surprisingly, it raised objections from competitors, and from regulators.

In late 2022, the FTC announced its desire to block the deal, saying that it “would enable Microsoft to suppress competitors to its Xbox gaming consoles and its rapidly growing subscription content and cloud-gaming business”.

Although Microsoft does publish certain games across console platforms – most notably, Minecraft – the FTC noted the company’s history of making games not already available on competitive devices into exclusives. The FTC complaint read: “Microsoft decided to make several of Bethesda’s titles including Starfield and Redfall Microsoft exclusives despite assurances it had given to European antitrust authorities that it had no incentive to withhold games from rival consoles.”

With a closure deadline of July 18, Microsoft is highly motivated to clear this hurdle, as well as other challenges, such as one from Britain’s Competition and Markets Authority. If the deadline slips, the company faces expensive fees, the prospect of renegotiating with ruthless deal-tiger Activision boss Bobby Kotick, and perhaps the collapse of the entire scheme.

Revelations and drama

And so, in the first two days of the San Francisco trial, revelations and drama came thick and fast. Here are a few of my favorite highlights.

IGN – which has done a great job covering the event – reported on an internal Slack message sent by Activision Blizzard communications officer Lulu Meservey, in which she stated that “like we’ve always said, the facts are on our side, and the FTC’s claims are factually weak and legally a stretch.” Merservey’s message is a clear indicator of Microsoft’s view of the proceedings. Noting the many countries that have approved the Activision deal, she added: “We’re glad these regulators have put aside political/ideological agendas and focused solely on the facts and the law.”

When pressed on Xbox’s acquisition strategy, Spencer claimed that his team’s aggression is merely a response to the aggressive tactics of its chief rival, Sony. The Verge reported him saying: “When we acquired ZeniMax one of the impetus for that is that Sony had done a deal for Deathloop and Ghostwire… to pay Bethesda to not ship those games on Xbox. So the discussion about Starfield when we heard that Starfield was potentially also going to end up skipping Xbox, we can’t be in a position as a third-place console where we fall further behind on our content ownership so we’ve had to secure content to remain viable in the business.”

A Microsoft lawyer dropped a bombshell by revealing an email exchange between senior PlayStation mandarins that makes a mockery of the company’s outraged public stance on the acquisition. PlayStation boss Jim Ryan wrote to former Sony Computer Entertainment Europe president Chris Deering: “It is not an exclusivity play at all. They’re thinking bigger than that.” He added: “I’m pretty sure we will continue to see CoD on PlayStation for many years to come. We’ll be okay. We’ll be more than okay.”

In a deposition to the court, Ryan said that it would not share PlayStation 6 information with any future Xbox-owned Activision. “We simply could not run the risk of a company that was owned by a direct competitor having access to that information.”

In a delicious insight into corporate malice, Xbox vice president Sarah Bond claimed that Kotick demanded more money to put Call of Duty games on Xbox consoles. Bond reported that Kotick was willing to play hardball “if we did not move beyond standard revenue share that he intended to not place Call of Duty on Xbox”.

MachineGames was working on a multi-platform strategy for its Disney-licensed Indiana Jones game. But Microsoft changed the license and publishing plan after it acquired the company, into an Xbox console exclusive plus PC release.

If you want more detail, I recommend IGN’s coverage, and The Verge’s. Axios’s Stephen Totilo is also worth following on Twitter.

Colin Campbell

Colin Campbell has been reporting on the gaming industry for more than three decades, including for Polygon, IGN, The Guardian, Next Generation, and The Economist.

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