The Gamer Connection Between the Switch, PlayStation, Xbox and Other Consoles: Commentary on a Deposition by J. J. Bailey
This time of the year, the court typically hits capacity because of their only Zoom license which has 1,000 people listen in. It is likely that the main reason why people are streaming the hearing is to give people better access to listen in. The courts are not prepared for the thousands of people who want to listen to this hearing.
We moved straight into a deposition of Jim Ryan after an administrative warning. It ran for around 70 minutes and, at times, jumped around due to parts being edited out for confidentiality reasons.
Many of the games on the Microsoft platform include an element of shooting and online multi-player. Both of which typically are more popular in the US than they are outside of the US.”
The FTC and Microsoft argue about the Switch every day because the FTC doesn’t want to count the Switch as a competitor to Xbox, but Microsoft argues it is. Bailey’s analysis shows that the Switch has impacted gamer attention and where they spend their hours.
Nintendo might participate in a different market segment to the other consoles. Nintendo’s hardware technology is of a much less sophisticated nature than PlayStation or Xbox. Its hardware typically retails for a cheaper price, and its audience is aimed rather younger.”
An email was sent by Phil Spencer on August 26th, which contained a list of games that would remain on PS2, causing Jim Ryan to be angry.
Phil Spencer testified that Sony was hesitant to ship the PlayStation kits. It put us behind on our development forMinecraft on PS5. Ryan says that Sony was wary of sharing information with Microsoft for their games.
The development kits allow the developers to look at the features that the new console will deploy. [Delaying dev kits] would typically mean a developer may bring its content to the new platform later than would otherwise be the case. The commercial risks associated with leaking feature sets to our competitor is not something that we would rely on any contract to enforce.
In filings to regulators, Sony has maintained that it fears Microsoft could make Call of Duty exclusive to Xbox or even sabotage the PlayStation versions of the game. But Ryan does admit it’s in the interest of a publisher to provide an equal version of the game across platforms:
It wasn’t a meaningful list. This list represented a particular selection of older titles that would remain on PlayStation, for example Overwatch is on there but Overwatch 2 is not on there, the current version of the game.
Ryan called the offer “inadequate on many levels and failed to take account of the impact on our gamers.” He also said he “hadn’t intended to comment on what I understood to be a private business discussion, but I feel the need to set the record straight because Phil Spencer brought this into the public forum.”
Ryan: I wouldn’t say I wasn’t concerned at all, but it was really his [Phil Spencer’s] response a few months after my email on May 26th which sent alarm bells ringing
“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.”
“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. You can be self-determinant with a business model that has elements from top to bottom.
Microsoft was quick to point out that Lee doesn’t have a model for subscription services, but he does have a model for console sales, which is important to Microsoft.
Ryan also said he was surprised at the 25 million Xbox Game Pass subscriber numbers Microsoft disclosed in January 2022, as he was “expecting a larger number given all the money they have spent.” He compared it to Sony’s 55 million PlayStation Plus subscribers at the time, and Sony went on to claim in an October filing with the Competition and Markets Authority in the UK that Microsoft has 29 million subscribers. There were 25 million announced by microsoft from January to February.
According to the testimony of Ryan, PS5 sales were beaten by Xbox for three months in 2021. The PS5 temporarily overtook the Xbox Series S / X sales when Sony had some shipping constraints. Ryan says there’s no other time during this latest generation of consoles where Xbox sales have materially exceeded the PS5.
I would say that cloud technology will become a meaningful component of how gamers access games between 2025 and 2035. We are making investments in the cloud to ensure that it will be a meaningful way of accessing game content.
The Case of Robin Lee, Microsoft, and the Effects of Call of Duty on Xbox One, PS4 and XBOX: An Economic Perspective
The FTC called Robin Lee, PhD, a professor of economics at Harvard University. He has been a speaker for the FTC many times, discussing competition and consumer protection. Microsoft wanted to rip his models apart because he is very experienced in the competition field.
It looked like Lee was interviewing to become a politician. Lee wasn’t helpful in explaining how he had defined the console market early on, which you can tell frustrated Microsoft’s lawyer Beth Wilkinson. This led to a tense exchange early on:
The rest of the exchanges didn’t get much better, and Wilkinson turned to a whiteboard in an attempt to make sense of Lee’s models. Judge Corley was involved in the research, intervening multiple times.
At this point, Wilkinson was mapping out Lee’s models on a whiteboard in the courtroom to show how they had different inputs and data sets to predict the impact of withholding Call of Duty from PlayStation. It was a little difficult to follow by just listening into the audio, but one of Lee’s models predicted 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. If it were assumed that 20% of Call of Duty players would convert to Xbox if it were taken away, the share shift would be 5.5 percentage points.
The questions continued and Judge Corley wanted to understand why most of the case had been focused on Call of Duty, if Lee’s warnings of possible harm were anything to go by. He was referring to the need to have a content library for subscriptions and cloud, and whether Microsoft holding the keys would make it harder for competitors in emerging markets. Microsoft argues that cloud is just an option and not a market and that subscriptions are also an option.
My economic opinion is that the merged entity is a likely economic incentive to foreclose Call of Duty as well as other activities entitled, and I note that economists think firms tend to act in their economic interest, but there is some uncertainty in the future.
The FTC moved onto Call of Duty on XBOX and PC, however Judge Corley asked why people wouldn’t switch to a PC to play the game and get more value for their money.
Source: https://www.theverge.com/2023/6/28/23776652/ftc-microsoft-day-three-hearing-summary-sony-playstation-jim-ryan-xbox-game-pass
GeForce Now and the Competition Between PC and Console Game Streaming Services: Comment on Lee’s Testimony at the FTC
The Series X and PS5 are still in that market. So if you’re thinking about a price increase on the Series X, the customers who buy the X console, they are more likely to switch to the PlayStation 5 or to a Switch? The market definition involves evaluating a price increase on any of the products in the market.
He was questioned about cloud competition at the end of his testimony. It is hard to assess harm in a market like cloud as it still has new competition, according to the FTC. Smaller entrants are more likely to have a role larger than others in mature markets due to the fact that they don’t have access to content.
The European Commission managed to secure a remedy from Microsoft to enable a free license to consumers in EU countries that would allow them to stream via “any cloud game streaming services of their choice” all current and future Activision Blizzard PC and console games that they have a license for. Cloud providers will also be offered a free license to stream these games in EU markets. Microsoft has already claimed it will apply this automatic offer globally, but the FTC has largely dismissed Microsoft’s potential cloud agreements.
After a grueling back and forth during Lee’s testimony, it was time for something lighter. Nvidia’s Phil Eisler, who leads the GeForce Now team, appeared in a prerecorded deposition video. The FTC had called Nvidia as a witness in a nine-minute video that felt like it went by as quickly as the 240fps that GeForce Now supports.
“We have pulled all Xbox Game Studios titles from GeForce Now so as to not compete with xCloud,” said Booty. “I would recommend that in the absence of any other plans that we do the same for Bethesda titles.” Microsoft signed a deal with Nvidia recently to bring its Xbox PC games to GeForce Now and try and appease regulators like the FTC. Nvidia was originally opposed to the deal otherwise.
Over time, we’ve found that we’re closer to the quality of playing locally. Our cloud gaming server is more powerful than consoles, so we can add more visual effects and run higher frame rates. Nvidia has upped its frame rates from 30fps all the way up to 240fps, which dramatically reduces latency.
The FTC wants to know if the publisher agreed to make the games available. Call of Duty was a popular game when it was on the service, and we worked with a contact at Blizzak who was supportive of that.
“The agreement entitles us to the content provided the transaction completes on the Activision side,” said Eisler. “We have already begun working with Microsoft to onboard their first-party titles, so we’re confident that will solve our concerns there.”
What is the value of Xbox One? An Economic Expert’s Report on Microsoft and the Case for Call of Duty on the Xbox One
For the final part of day three, Microsoft called on its own economic expert: Elizabeth Bailey, PhD. Bailey is an expert on antitrust, competition policy, and intellectual property issues.
Microsoft does not agree with the idea that the deal is about console. Bailey said thatXbox mobile revenue is less than half a percent of overall mobile gaming revenue. “Activision Blizzard is also very small in mobile gaming. They will have 3.8 percent of mobile gaming.
Microsoft wants to paint Call of Duty as not all that important because gamers play plenty of other games. There are people who play more than 10 franchises on the PSone. She has also looked at comparisons between Call of Duty and God of War Ragnarök, games that were bundled with consoles, and argues that how often a game is played on a first day is a proxy for how important the game is.
Bailey was able to analyze game time to determine if the same games are popular in the US and other parts of the world. One of the most highly played games in the United States is a set of games that are very similar to other highly played games in other countries.
Source: https://www.theverge.com/2023/6/28/23776652/ftc-microsoft-day-three-hearing-summary-sony-playstation-jim-ryan-xbox-game-pass
Comments on Call of Duty: An Economics Expert Revealed by Bailey, Microsoft, and YouTubers in a Brief History of US Court Proceedings
Bailey confirmed that Lee had access to the same telemetry data, but the pair have obviously come to different conclusions. It’s worth noting that telemetry data isn’t always conclusive. Microsoft used data to justify removingStart in Windows 8.
There was a question from Judge Corley regarding whether people could choose what game they received or if the bundle was different depending on where they lived. Bailey didn’t have an answer to that other than an anecdote about buying a console herself and deciding between bundles. That could be a big problem in the analysis.
Bailey concluded her initial testimony by arguing that “Call of Duty is an important game, and it’s a popular game, but there’s nothing to suggest it’s… uniquely important.” She was interested in the success of the Nintendo Switch without Call of Duty. Bailey claims that switch share has grown 35 percent without Call of Duty. Bailey will testify on the fourth day.
Day four looks to be a big one. We’ll hear more from Bailey, but the day will kick off with Activision CEO Bobby Kotick. Microsoft CEO Satya Nadella will also appear at the same time, and Jeff Fisher will also be present via video. Dennis Carlton, another economics expert, is being called by Microsoft to analyze Lee’s report.
The hearing will begin again at 11:30AM on Wednesday. There is a long break until Nadella appears because Judge Corley has a prior midday commitment.
On the third day, we were warned by Judge Scott Corley about people livestreaming witness testimony to other sites. It’s strictly prohibited, and Judge Corley warned YouTubers are jeopardizing the ability for potentially all US court proceedings to be officially streamed to the public via Zoom. “You are welcome to live blog; that is fine, but no recording or streaming.”
Oh, and if you’re really into math and quantitative analysis, then maybe you can help decipher some of the testimony from Robin Lee, PhD, the FTC’s economic advisor. It was a very large part of the third day that I believe left everyone confused and a little confused.
Sony’s Xbox Acquisition Angels: Why Call of Duty is Worthing $13.9 billion a Year, and How Much Does It Cost?
Sony’s fears about Microsoft’s Activision Blizzard deal kicked into gear in August 2022 after Xbox chief Phil Spencer sent PlayStation chief Jim Ryan a list of Activision games Microsoft would be willing to keep on PlayStation. There was a list of things that weren’t on it. According to Ryan, this “sent alarm bells ringing.”
Document redaction issues affects a lot of other people, too. A confidential Microsoft document revealed all of the company’s Xbox acquisition targets earlier this week, and now that document has disappeared and has been replaced with a heavily redacted version.
The document has been removed by the court, but the damage has been done and the people who have downloaded it have already done so. The document shows how much the Last of Us Part II cost, as well as how much Horizon Forbidden West cost over five years with 300 employees.
In 2021, over [14?] million users (by device) spent 30 percent or more of their time playing Call of Duty, over 6 million users spent more than 70% of their time on Call of Duty, and about 1 million users spent 100% of their gaming time on Call of Duty. Call of Duty players played an average of more than 100 hours per year. Call of Duty players spending more than 70 percent of their time on Call of Duty spent an average of 296 hours on the franchise.
Sony accidentally revealed how much Call of Duty is worth to the Playstation, and we might know about that revenue impact. According to the document, CoD will be worth over a billion dollars, but we think it’s worth only $800 million for Sony’s US revenue. And that’s just the game alone, but when you count accessories, subscriptions, and everything else, then that jumps to (what appears to our eyes) to be $15.9 billion a year — or perhaps $13.9 billion. Either way, it’s a huge amount.
Almost half of the owners of the PS5 in the US own a Nintendo Switch, compared to 20% of the owners of the Xbox Series X or S, according to SIE internal surveys.
FTC Benchmark on the Microsoft vs. Apple Day Four Hearing: Dennis Carlton, MD, Judge Corley and the Defend
Carlton: I can’t remember. My recollection is that I was trying to characterize the agreement, and this article characterized the agreement, therefore I relied on this article rather than me reading the agreement and me characterizing it.
Dennis Carlton, PhD was the final witness of the day, and I don’t think that was a case of saving the best until last. The FTC immediately began to attack Carlton after he challenged the FTCs claims about competition and the Microsoft acquisition.
Day five kicks off Thursday morning at 8:30AM PT / 11:30AM ET. Judge Corley says the plan is to finish evidence by midday and closing arguments at 2:30PM PT / 5:30PM ET.
When an article appeared in court, Judge Corley was not happy with some of the questions and answers he was being asked. Carlton is citing an article about a cloud gaming deal between Microsoft andNVIDIA instead of the terms of the deal. It wasn’t because the author deserved to be paid $2,000 an hour to listen to Nintendo Switch debates but because he didn’t.
The FTC immediately revealed that Carlton is getting paid $2,000 an hour by Microsoft and that there are five federal cases where his testimony as an expert witness has been excluded. We’ve seen a similar line of questioning against expert witnesses in the Epic v. Apple trial, but the FTC was particularly relentless here and prodded at his claims that Sony is more motivated by blocking the merger than actually getting a good deal for Call of Duty.
Jeff Fisher, the vice president of Nvidias PC business, briefly made a statement that PC gaming will always be better than consoles, which may have upset the company since cloud gaming is not as popular as consoles.
Source: https://www.theverge.com/2023/6/29/23778046/ftc-microsoft-day-four-hearing-summary-satya-nadella-bobby-kotick
Microsoft is Bullish on the Growth in the Cloud Gaming, and a Wall Street Journal Observation of Gaming Employee Harassment and Discrimination
If it was up to me I would love to get rid of the entire exclusives on consoles, but that’s not for for me to define especially as a low share player in the console market. The dominant player there has defined market competition using exclusives, so that’s the world we live in. I am not a fan of that world.
Just to make sure that it’s clear. The cloud is in the context of the pillars of the console, and I think of Xbox Live in that way. The cloud is very important for the experience when you think about a console or PC. So it’s not just streaming alone when I think about the cloud.
I do not think it is a substitute for the console. I mean, at least the market feedback to date has been people love their consoles, people love their PCs, people love their phones and use cloud gaming as an adjunct.
I want to make it clear to the world that Microsoft is focused on cloud-first approaches. Teams, Windows365, xCloud are the future. I want to use every opportunity to make cloud streaming more mainstream.
It is clear that Microsoft is bullish on its growth in the cloud market and gaming in particular. The FTC read a document from Microsoft saying it “continues to lead in the fast growing gaming cloud gaming market” and an internal email where Nadella discusses a Meta event where Microsoft was part of the launch of a new VR headset. Microsoft promised to bring Teams and other software to Meta’s device in October 2022, and Nadella says he wants to chase more cloud opportunities like Meta:
The FTC was keen to hone in on Microsoft’s internal targets for gaming, including Nadella’s own self-assessment from August 2022 that includes performance metrics for top Microsoft leaders. The FTC pointed out that Microsoft exceeded its own metrics for the gaming business, but Nadella argued the company had set those targets low.
The Wall Street Journal accused Bobby Kotick of involvement in one case in which he left a voicemail for a former assistant threatening to kill him, and of knowing about other cases of harassment of his employees. The reporting on employee harassment and abuse was described as “mischaracterizations” by Kotick. Multiple executives have left the company since an $18 million settlement with a US employment watchdog in 2021. Activision has also updated parts of Overwatch and World of Warcraft to remove in-game references to employees accused of harassment or other offensive behavior.
The FTC also asked Kotick about the difference between Call of Duty: Modern Warfare II and Call of Duty: Warzone — Warzone obviously has a mobile version. Kotick thinks that it will be possible to play Modern Warfare II on a phone someday. The FTC then cited a previous statement where Kotick said playing it on a phone would be “like using a refrigerator for a safe.”
Source: https://www.theverge.com/2023/6/29/23778046/ftc-microsoft-day-four-hearing-summary-satya-nadella-bobby-kotick
Call of Duty on the Switch: Where Do I Go? Why Wrong? How Did Activision Choose to Put It on Switch, and When Will It Be Made?
Kotick said if there was something wrong with the specifications or the design, it was because they didn’t have the resources.
Judge Corley tried to stop it. If the merger does not go through, you say you made a mistake with regard to the switch, you won’t make that mistake again. What would be a reason not to do so?”
A Call of Duty game is probably going to be made for a new Nintendo console. I can tell you that there are specific plans, but it is probably something we would consider.
Kotick: We haven’t had the specs yet but we’ll consider it once we do. We missed out on the opportunity for this past generation of Switch, but we’d have to wait until the specifications. There are no plans to do that at the present time.
According to Kotick, the FTC painted a picture of him when he said he would put its games on subscription services if the price was right, if it could negotiate favorable commercial terms.
How did that work out for the company? “It’s probably the second most successful video game system of all time,” says Kotick. On my behalf, it was a bad decision.
I saw the prototypes for the Switch They were trying to accomplish many things with the console, but also the portable capability, and that worried me. I didn’t think it would be a big hit.
Activision also picks which platforms Call of Duty should be available on, and sometimes it picks badly. “I made a bad judgment,” says Kotick about not putting Call of Duty on Switch. Activision had put Call of Duty on the Nintendo Wii previously because Kotick thought it was “the most extraordinary video game system ever created,” but he was less impressed with the Switch initially:
You would have a revolt if you were to remove the game from one platform. You get invested in the experience when you play the game. it’s like a sport.
Activision manages to create a new Call of Duty game every year, something that Sony has argued makes it a particularly unique game. EA’s Medal of Honor inspired Call of Duty, admitted Kotick, after “people at Activision were playing it.” As Call of Duty is based on conflicts and war, there’s almost an endless supply of history to create yearly installments. Kotick said they had to put a compensation and reward system in place to keep people working on sequels.
Bobby Kotick gave a brief history lesson on how he bought the company more than 30 years ago when it was bankrupt and lost its way.
It also wouldn’t be a day in this hearing without a Nintendo Switch debate — this time, Microsoft tried to argue it’s how gamers spent their time during the Switch launch that matters. Nvidia also appeared again briefly before Microsoft called Dennis Carlton, PhD, an economics expert who sounds like he’s paid $2,000 an hour to read Verge articles.
While I expected more of a grilling of both CEOs from the FTC and even Judge Jacqueline Scott Corley, Bobby Kotick delivered some important testimony about Call of Duty on the Switch, and Satya Nadella tried to convince us that in his ideal world where everyone is happy, healthy, and wealthy, he’d love to end console exclusives if it wasn’t for pesky Sony.