Microsoft's Activision Fight With FTC Turned Up A Blizzard Of Docs: Here's Your Summary

Microsoft's US legal battle to acquire gaming giant Activision Blizzard continued on Tuesday with courtroom testimony from Jim Ryan, CEO of Sony Interactive Entertainment, a company likely to be seriously affected if the deal goes through.

The US Federal Trade Commission last December challenged the takeover, arguing that the proposed $69 billion tie-up would harm competition in the online gaming market. So too did the UK Competition and Markets Authority (CMA) in April.

The big issue being that Microsoft has its Xbox gaming console brand and owns a ton of games studios – such as Rare and Bethesda – and now wants to absorb Activision Blizzard. That's not good news for rivals, such as Sony.

We (Microsoft) are in a very unique position to be able to go spend Sony out of business

Microsoft had indicated to the FTC that it would not attempt to complete the deal until European regulators weighed in, which happened in May. The EU competition authorities said they would allow the deal, subject to certain guarantees.

Concerned that Microsoft intended to try to complete the acquisition despite the FTC's pending administrative review and Britain's CMA order, the FTC on June 12 filed a complaint [PDF] in a San Francisco, California, federal court to obtain a preliminary injunction against the mega-takeover.

A court hearing to decide the matter began last week and has led to some surprising revelations, via documents introduced as evidence.

In a June 22, 2022 internal business update [PDF] on page 38, Microsoft says one of its goals is to "build on Windows 365 to enable a full Windows operating system streamed from the cloud to any device," something the IT giant teased in May of this year. Redmond also talks about developing custom silicon to ensure that Windows and Surface remain competitive.

Microsoft's attempt to convince the court that the Activision deal isn't a competition killer won't be helped by an email message [PDF] from Matt Booty, head of Xbox Game Studios, to Microsoft Gaming CFO Tim Stuart, suggesting that "we (Microsoft) are in a very unique position to be able to go spend Sony out of business."

• FTC pulls emergency brake on Microsoft's marriage to Activision Blizzard
• Microsoft appeals UK's block on Activision deal
• Microsoft cops $20M slap on the wrist for mishandling kids' Xbox data
• Boss fight cleared: Europe approves Microsoft's Activision takeover

A Microsoft Gaming CSA's [Consumer Solutions Area] April 2020 Strategy Review [PDF], while somewhat dated now, reveals Microsoft's expectation that it will be unable to make inroads in the Google Play and Apple App Store ecosystems and suggests more resources should go toward supporting a browser-based gaming experience – something of a contrarian view given past repudiations of webs apps by the likes of Facebook.

It says, "Our initial approach for iOS and Android centered on a native application distributed through each platform's mobile store, as is typical. However, Apple and Google clearly recognize the financial and ecosystem importance of gaming and have put policies in place that impair our ability to distribute and operate xCloud via a native application in their mobile stores. Despite continued dialog, a resolution through commercial negotiations, or otherwise, does not appear imminent."

With regard to its iOS and Android Plan for Xbox Game Pass – a cloud gaming subscription service that in 2020 could not be distributed through Google Play or Apple's iOS App Store – Microsoft said, "we are focused on accelerating our browser-based efforts across multiple fronts."

But a year later, Xbox Game Pass was available on Android and there's hope the European Digital Markets Act will force Apple to be more accommodating to cloud gaming services as well.

'We have no strategy to win organically in mobile gaming'

A February 15, 2019 memo [PDF] from Microsoft Gaming CEO Phil Spencer, paints a dire picture of Microsoft's mobile gaming prospects.

He wrote, "First, we are exactly like Polaroid. We are core gaming which isn't growing its TAM [total addressable market] (analogous to film photographers) while mobile gaming MAU [monthly active users] is growing WW [worldwide] at a significant rate (like digital photography was growing.

"We have no strategy to win organically in mobile gaming. I can't come up with one."

Much of the internal communication in the competition lawsuit deals with the importance of popular game content and the market advantages conferred by platform exclusive titles – important context given Microsoft's attempt to buy one of the leading game makers. There is the fear that Microsoft will ensure future titles from Activision Blizzard will only appear on Xbox and not, say, Sony's PlayStation.

Microsoft earlier offered promises to Nvidia, Sony, and Nintendo that it would allow things like GeForce Now, PlayStation, and Switch to get those games for a certain number of years, and not be locked out, in part to appease monopoly watchdogs. Sony rejected that.

A note [PDF] from Pete Hines, SVP of global marketing and communications for game studio Bethesda Softworks (acquired by Microsoft in 2021), sheds light on the limits of Microsoft's commitment to "continue to make Call of Duty and other popular Activision Blizzard titles available on PlayStation."

Hines asks, "Is [Microsoft's statement] not the opposite of what we were just asked (told) to do with our own titles?" His concern was that game director Todd Howard was going to the gaming-focused DICE Summit and that a journalist might ask why multi-platform availability is an option for existing titles like Call of Duty and other Activision Blizzard titles but not for upcoming ones like The Elder Scrolls 6 or Starfield from Bethesda.

This came up during court testimony on Tuesday when PlayStation boss Ryan said he didn't view the exclusive Xbox availability of Bethesda's Starfield – a highly anticipated game – as anticompetitive.

That makes sense given that Sony PlayStation also has exclusive titles. And the FTC's competition expert Robin Lee, a Harvard economics professor, hedged, saying exclusive deals can have both pro- and anti-competitive effects.

The court hearing is expected to continue at least through Thursday. ®