Here are the most explosive revelations from the legal battle between Microsoft and the FTC

Like any other industry wishing to keep its secrets of success or failure under wraps, the game industry is intensely private. In the legal battle between Microsoft and the US Federal Trade Commission (FTC), we’ve been given some rare insights into the game industry’s biggest players.

In January 2022, Microsoft announced, it would buy Activision Blizzard for around 69 billion US dollars. The move was set to become the biggest takeover in game history. Subsequently, competition authorities in the various countries where Microsoft does business are scrutinising the deal closely.

The UK was the first major nation to block the deal, with regulators fearing Microsoft would become overly dominant in the cloud gaming industry. The EU, on the other hand, has taken a more relaxed view, giving the takeover the green light in May. That makes the FTC the last major hurdle in the saga. Back in December, the Commission issued a complaint against the Activision Blizzard King acquisition. Fearing Microsoft will close the deal before the case can go to court, the FTC has requested an extension of the deadline by way of a temporary restraining order. A trial before the trial, if you will.

The consequence of this? Anything and everything worth mentioning has had to come out in court over the last two weeks. This has involved appearances not only from Xbox boss Phil Spencer and Microsoft CEO Satya Nadella, but also Jim Ryan. The PlayStation boss has vehemently opposed the deal in recent months, using Call of Duty as his primary argument. If the game were in Microsoft’s hands, Ryan said, it could be used against PlayStation and give Microsoft an unfair advantage. Court proceedings have shown why Ryan could be right, but they also show he’s been telling tall tales. And it’s by no means the only explosive detail to come to light in recent weeks.

Starfield very nearly became a PlayStation exclusive

Phil Spencer testified that upcoming sci-fi epic Starfield almost skipped Xbox. Sony had been in negotiations with Bethesda to secure the game as a PlayStation exclusive. If the deal had gone ahead, the game would’ve followed in the footsteps of Ghostwire: Tokyo and Deathloop – two Bethesda titles originally only released for PlayStation and PC. Spencer went on to suggest that this was why Microsoft, in a bid to remain competitive, decided to acquire Zenimax, Bethesda’s parent company.

Contrary to his own statements, Spencer toyed with the idea of making all current and future Zenimax games, Xbox- and PC-exclusive in 2021. This was revealed by a chat conversation between Xbox CFO Tim Stuart and Matt Booty, Head of Xbox Studio. Protection from exclusivity through exclusivity, basically. It also emerged that the upcoming Indiana Jones game will no longer be a multiplatform title. Instead, PlayStation is to be excluded.

Sony unconcerned about PlayStation’s future

While PlayStation boss Jim Ryan vigorously opposed Microsoft’s takeover plans before the hearing, things took on a different tone internally. In an e-mail, he wrote: «It’s not an Xbox exclusivity play at all, they’re thinking bigger than that. I’m pretty sure we will continue to see Call of Duty on PlayStation for many years to come.» Stating that he wasn’t worried about PlayStation’s future, he wrote: «I’d rather it (editor’s note: the Activision acquisition) hadn’t happened, but we’ll be OK, more than OK.»

No one likes exclusive games

Microsoft CEO Satya Nadella stated in court that he was against console-exclusive games, explaining that Microsoft only makes them because Sony does. Meanwhile, Activision CEO Bobby Kotick was singing from the same hymn sheet. Making Call of Duty exclusive, he said, wouldn’t be in Activision’s best interests. «We would alienate over 100 million monthly active players.»

Call of Duty makes 16 billion US dollars per year

The reason much of the discussion is revolving around Call of Duty becomes clear as soon as you look at the numbers. Poorly redacted Sony documents laid bare controversial details about the multiplayer shooter. In 2021, one million PlayStation users played only Call of Duty, with six million users still spending 70 per cent of their gaming time playing COD. Meanwhile, 14 million gamers dedicated 30 per cent of their PlayStation time to the game.

In the US alone, Call of Duty grossed 800 million dollars in 2021. Worldwide sales of the game generated 1.5 billion US dollars. The figure rises to an exorbitant 13.9 billion USD, or 15.9 billion USD if subscription costs, accessories and other additional purchases are included. The exact figure isn’t legible in the document. And these are just the numbers for PlayStation.

Microsoft wanted Bungie, Sega, Square Enix and more

Internal documents show that Microsoft has considered buying more studios. They reveal concrete plans to acquire Sega, Square Enix, Zynga, Bungie, Supergiant Games (Hades), Niantic (Pokemon GO), IO Interactive (Hitman) and many more. Microsoft came particularly close to taking over Sega in 2020. The goal? To strengthen its influence in Japan.

Cloud gaming flop

Microsoft’s cloud gaming ambitions don’t seem to be bearing fruit. Xbox VP Sarah Bond admitted that the service is primarily used on the console to play games before they’re finished installing. The real goal, however, is the gigantic mobile market. Tim Stuart, CFO at Xbox added, «The feedback is that it’s just not good enough as a replacement for any current platform.» In an e-mail, Spencer also seemed to be at a loss: «Our solution here is not customer led really, it’s led by what we have and a hope. I don’t like this but I’m not smart enough to come up with anything else.» It was hoped that young people in, say, Mumbai, would use the service to play Halo on their phones. Instead, they play mobile games – something Microsoft doesn’t offer.

Publishers dislike Xbox Game Pass

Game Pass is unpopular, at least according to Ryan: «I talked to all the publishers and they unanimously do not like Game Pass because it is value destructive.» Opposing views, such as those of Football Manager boss Miles Jacobson, show that at least a little doubt can be cast on Ryan’s statement: «For us, it’s nothing but positive on all three platforms.»
Activision CEO Kotick, on the other hand, shares Ryan’s opinion. He said he would never put Call of Duty on a subscription service at launch, believing such models to have a negative financial impact.

Microsoft able to «spend Sony out of business»

Microsoft likes to present itself in court as a weak third-place player behind Sony and Nintendo. E-mail correspondence between Xbox studio chief Matt Booty and Xbox CFO Tim Stuart, however, paints a different picture. «We (Microsoft) are in a very unique position to be able to go spend Sony out of business,» he wrote in a 2009 e-mail. He was referring to spending two or three billion US dollars to prevent competitors from pulling ahead in content at a later date. Google, still involved with its streaming service Stadia at the time, apparently wasn’t seen as a threat. «In games, Google is 3 to 4 years away from being able to have a studio up and running. Amazon has shown no ability to execute on game content. Sony is really the only other player who could compete with Game Pass,» Booty continued.
In the witness stand, Microsoft downplayed the e-mail statement, arguing that the correspondence was old and the strategy had never been pursued.

The Last of Us: Part 2 cost over 220 million US dollars

It’s obvious that Sony’s first-party games are expensive to develop. But now, we know just how costly the process is. Examining further insufficiently redacted documents, resourceful journalists deciphered the figures, revealing that The Last of Us: Part 2 cost over 220 million US dollars In the case of Horizon Forbidden West, the total amounts to 212 million US dollars. Industry insiders even think that these sums are conservative calculations. Including advertising expenditure, the cost is likely to be closer to 300–400 million US dollars.

Activision misjudged the Switch

When asked if Call of Duty would be on future Nintendo consoles, Bobby Kotick said the company had missed an opportunity in the last generation Switch. That’s something he’d like to change. However, he mentioned that when he first saw the Switch prototype, he was unimpressed. Kotick said he’d assumed that the device wouldn’t be popular, something he admits was a mistake.

PS5 Slim at the end of the year, handheld under 300 US dollars

In order to argue that the Switch is playing in the same league as the Xbox and PlayStation, Microsoft revealed that Sony was planning to release a cheaper PS5 Slim. Due to be released in late 2023, the console won’t have a Blu-ray drive, and will cost 399.99 US dollars. Microsoft stuck the knife in further by revealing the potential price for the planned PlayStation handheld. Project Q, which can stream games from the PS5, would supposedly cost less than 300 US dollars.

Next console generation will launch in 2028

In discussion of Microsoft’s promise to launch Call of Duty for PlayStation in the next ten years, it was also revealed when the next generation of consoles would be launched. «This term (the 10-year deal) would in any case go beyond the expected starting period of the next generation of consoles (in 2028).» In other words, eight years after the launch of the PS5/Xbox Series. This would make the PS5/Xbox era a year longer than that of the PS4/Xbox One generation, but the same length as the PS3/Xbox360 era.
Sources: IGN, The Verge, Stephen Totilo