The first day of the FTC v. Microsoft hearing began with a heated exchange between Microsoft and Sony. Microsoft’s lawyer, Beth Wilkinson, presented an email from Sony’s PlayStation chief, Jim Ryan, during her opening statement. The email revealed that Ryan didn’t believe Call of Duty would go exclusive to Xbox and that PlayStation would be fine. Ryan had spoken to Activision CEO Bobby Kotick, Xbox chief Phil Spencer, and Microsoft CEO Satya Nadella, who had reassured him.
In a surprising move, Sony announced its plan to acquire Bungie just days after Ryan’s email exchange. Ryan mentioned that they had some exciting projects in the works and that they would be more than okay.
This email exchange set the tone for the day, with Microsoft accusing Sony of lobbying against the deal to protect its dominant position in the market. The FTC also outlined its opposition to Microsoft’s proposed Activision Blizzard acquisition. The FTC expressed concerns about Microsoft making Activision games, such as Call of Duty, exclusive to Xbox in the future. The FTC’s lawyer, James Weingarten, stated that the evidence they would present over the coming days is just a fraction of what could raise anti-competitive concerns. The FTC is especially concerned about the impact on cloud gaming and planned to call two Nvidia executives to testify about how the company has overcome technical limitations and latency for cloud gaming.
The FTC called Matt Booty, head of Xbox Game Studios, to testify next. The FTC and Microsoft have been debating whether the Nintendo Switch should be considered part of the console market and a true competitor to Xbox. The FTC questioned Booty about how Call of Duty would run on the Switch, as Microsoft had promised to do as part of a 10-year deal with Nintendo. Booty explained that they would have to adjust graphics and assets to run on Nintendo platforms, which the FTC argued would make it a separate game and dissimilar to the Xbox and PlayStation console versions.
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The FTC also presented evidence that Microsoft had previously blocked its first-party games from rival cloud streaming services. Booty described this strategy as creating “a moat that nobody else can attack.” In a 2019 email, Booty expressed frustration over Nvidia putting Xbox PC games on its GeForce Now streaming service without Microsoft’s permission. In a March 2021 email exchange with Xbox chief Phil Spencer, Booty recommended pulling Bethesda’s games from Nvidia’s GeForce Now service. Booty stated that while content is important to their strategy, it isn’t a durable advantage that others can quickly replicate.
The FTC called Pete Hines, Bethesda’s head of global publishing, to the stand to question him about Xbox exclusives. The FTC argued that Microsoft’s acquisition of Bethesda led to games being locked to Xbox, and they fear the same could happen with Activision Blizzard. Hines was questioned about his apology to Bethesda fans who wouldn’t be able to play Starfield on their PS5. Hines expressed his concern and stated that he didn’t like it when players were upset over something they did. The FTC argued that game exclusivity is anti-competitive and highlighted how Microsoft amended the deal for Bethesda’s upcoming Indiana Jones game to be exclusive to Xbox consoles.
Sarah Bond, head of Xbox creator experience, provided testimony and explained various aspects of Microsoft’s business to Judge Jacqueline Scott Corley. Bond presented license agreements for Xbox Game Pass and cloud gaming and discussed how Microsoft’s subscriptions can generate interest in players trying new game genres. She also described Call of Duty as “a game about being a savior in a war scenario,” which raised some interesting discussions about the nature of the game.
Bond also revealed details about revenue deals and Call of Duty. She explained how Microsoft agreed to a new revenue sharing deal with Activision to secure an optimized version of Call of Duty for the launch of the Xbox Series S / X consoles. The FTC accidentally mentioned an 80/20 revenue split, which was supposed to be confidential. Microsoft has agreed to lower revenue splits than the typical 70/30 percent split for Xbox games when they believed it was critical to secure the content.
The day ended with further discussions about cloud gaming and the potential costs associated with it. The hearing will continue over the next few days, with more evidence and testimonies from industry executives.
