Microsoft CEO Satya Nadella arrives at the U.S. District Court for the Northern District of California in San Francisco on June 28, 2023.

Philip Pacheco | Bloomberg | Getty Images

Microsoft and its current main acquisition target: a video game publisher Activision Blizzardconcluded a five-day trial in a San Francisco courtroom as the FTC tried to stop the deal from closing, but some fascinating facts came to light.

And not just games. Information about Microsoft’s business ambitions, its process for approving acquisitions and its most important competitor in cybersecurity emerged during the hearing, based on documents and testimony from executives. A big launch like this doesn’t happen every day, and over the past few years, Microsoft has avoided major experiments that could lead to multiple big reveals at the same time.

The FTC had planned to file a lawsuit against the deal with an administrative law judge in August, but then opted to seek a preliminary injunction in federal court because the agency feared Microsoft would try to shut it down, even though some jurisdictions have yet to approve the deal. Buy.

In addition to U.S. and U.K. regulators, sony also opposed the deal. Its PlayStation 5 gaming console competes with the Xbox Series S and X gaming consoles, and the company said there would be an anticompetitive effect if Microsoft took control of Activision Blizzard.

Here are some notable facts that have come to light in recent days and that still linger after both sides filed their closing arguments on Thursday.

  • Move, move, move. The Activision Blizzard acquisition was at least partly motivated by Microsoft’s urge to expand its gaming business on mobile devices. “If we’re going to maintain (relevance) and become more relevant in the market, then we have to find mobile customers for the Xbox, which is important to us,” Phil Spencer, chief executive of Microsoft’s gaming business, said on Friday. It’s important to say that.” Mobile gaming revenue is growing faster than PC or console gaming revenue, and Microsoft executives have repeatedly said in hearings that the company has made little progress in creating key mobile gaming content.
  • Several early moving targets. According to testimony and documents released in the case, Microsoft also considered several other companies before choosing to acquire Activision Blizzard, including FarmVille publisher Zynga, Pokemon Go developer Niantic and Japanese digital entertainment giants Sega Sammy and Square Enix.
  • Interest in Asia. While the Xbox game console has a sizable market share in the United States, it is less popular in Japan, where Nintendo and Sony rule. Microsoft’s 2019 analysis of a possible Square Enix bid stated, “Acquiring Square Enix will provide gaming market relevance in regions that currently lack meaningful Xbox, allowing us to reach more gamers in more regions.”
  • Valuable incentives. Microsoft executives say Sony has paid game developers to prevent them from releasing titles such as “Ghostwire: Tokyo” and “Deathloop” on the Xbox. Microsoft pays for itself, and Spencer said buying Activision Blizzard would mean Microsoft wouldn’t have to spend as much on incentives.
  • Many games are under consideration. One of the most dramatic moments during the five days of hearings came when the FTC’s top counsel, James Weingarten, tried to press Spencer to make certain promises from Microsoft. Weingarten asked Spencer to say that he would not be pulling any Call of Duty games from the PlayStation console in the future, a statement that was in line with what Microsoft has been saying for months. Then Weingarten went a step further, asking Spencer to do the same with all of Activision’s content. Spencer didn’t immediately agree. Activision Blizzard has released many other games besides Call of Duty, such as games in the Diablo and Overwatch franchises, but most of the attention has been on Call of Duty. Sony Interactive Entertainment CEO Jim Ryan isn’t happy with the list of Activision Blizzard games Microsoft has generated that will remain accessible on PlayStation after the acquisition closes. “Overwatch exists, but Overwatch 2 doesn’t exist, which is the current version of the game,” he said.
  • Microsoft’s long-term ambitions. The FTC managed to obtain documents that Microsoft CEO Satya Nadella sent to executives and other members of the board, outlining Microsoft’s financial goals for the current decade. Nadella’s goal is for Microsoft to achieve $500 billion in revenue by fiscal year 2030, with revenue growing by at least 10% year-on-year, the document shows. Microsoft’s security, compliance, identity and management business could reach $100 billion in revenue by fiscal 2030, while the company hopes its Teams communications app will have 1 billion monthly active users by then, a document said.
  • Hardware access is weak. Spencer said in his testimony that Sony’s reluctance to send Microsoft a PlayStation 5 development kit ahead of the PlayStation 5’s 2020 release prevented Microsoft from optimizing its Minecraft game for Sony’s current console. That puts the game at a disadvantage compared to other developers, Spencer said. Ryan from Sony explained why his company was later than other studios in delivering development kits to Microsoft. “We would not choose to rely on any contract to enforce the commercial risks associated with knowledge of these feature sets being leaked to our main competitors,” Ryan said. Players can find older versions of Minecraft on PlayStation 5.
  • transaction threshold. Microsoft treasurer Amy Hood said in written testimony at the hearing that she provides final approval for proposed deals up to a certain amount, but that Microsoft’s board must approve deals worth more than $500 million. As of the end of March, Microsoft had $104 billion in cash and equivalents and 2022 revenue of more than $204 billion.
  • bargaining chips. Microsoft is determined to make sure Activision Blizzard’s Call of Duty game, which debuted in 2020, stays on the Xbox. Activision Blizzard CEO Bobby Kotick said that if Microsoft refuses to offer a better revenue split than the usual 70-30 will no longer be available. An FTC attorney casually mentioned that Microsoft agreed to accept 20 percent instead of the usual 30 percent.
  • Sony changed expectations. In early 2022, two days after Microsoft announced plans to acquire Activision Blizzard, Ryan wrote in an email to another person sony group The executive said he was “pretty sure” Call of Duty would be running on PlayStation consoles for years. But he seems to have lost faith in that belief. Ryan said in video testimony that he has “serious concerns” about whether Call of Duty and other Activision Blizzard titles will continue to run on PlayStation after the deal.
  • Kotick’s console error. Kotick has been playing video games for decades, and when he first saw the Nintendo Switch console, he fumbled around and didn’t think it would work. He was even more impressed by Nintendo’s early Wii game console. Switch becomes The third best-selling console of all time. When an FTC attorney asked Kotick if Activision would make a Call of Duty game for a future Nintendo console, he said, “We missed the opportunity with the last generation of Switch, so I think we could, but we’ll have to see.” .”
  • Game Pass against. Kotick made it clear that while Activision Blizzard has tried to get games into the subscription library, he doesn’t think that will lead to “sustainable long-term business.” He said that while negotiating Activision Blizzard’s recent licensing agreement with Microsoft, he considered putting the game on Game Pass in 2020, but ultimately the company decided not to proceed. He said he couldn’t imagine anyone offering favorable commercial terms.
  • Where has Amazon gone? Weingarten noted that while Microsoft agreed to offer Call of Duty to smaller cloud gamers like Boosteroid and Ubitus, it didn’t offer the same to Amazon, which owns the Luna cloud gaming service. amazon It is one of Microsoft’s most prominent competitors in the cloud computing business.
  • Cloud fails. Microsoft is trying to complement PC and console gaming with a cloud-based streaming option included in its Game Pass Ultimate service, along with a library of games available to download and play for a monthly fee. Microsoft began testing cloud gaming with consumers in 2019. Bond testified that gamers primarily use cloud options not from their phones but their consoles while waiting for their downloads to complete. At that point, she said, they’ll switch to playing the game locally. Tim Stuart, the treasurer of Microsoft’s Xbox division, testified that cloud gaming options are not growing or profitable. “The feedback so far is that it’s not good enough — you know, definitely not as a replacement for any of the current platforms,” ​​Nadella said. , but neither economically nor content-wise, that hasn’t happened yet.”
  • Assess the size of your cloud infrastructure. Nadella’s macro memo included figures for the size of Microsoft’s businesses, one of which was more important to investors in the company than the others. Perhaps the most-watched number after Microsoft’s earnings release, after revenue and earnings, was the growth of its Azure public cloud, since the software maker doesn’t disclose Azure revenue in dollar terms. A Nadella memo said Microsoft’s fiscal 2022 “infrastructure” revenue would be $34 billion. The figure was “very close to our expectations,” equating to a buy rating on Microsoft stock, analysts at Bernstein Research led by Mark Moerdler said in a note Thursday.
  • Key Security Competitors. A document released as part of the hearing identified four security firms that Microsoft uses to track its sprawling cybersecurity operations. The results help create a scorecard for evaluating the performance of Microsoft’s top executives.Scorecard indicators include “having at least one Octa Detected”, percentage of “Commercial Windows 10/11 MAD (Monthly Active Devices)” mass strike Components Detected”, % of “Proofpoint Protected Mail Recipients”, and “Proofpoint Protected Commercial Windows 10/11 MAD” Symantec DLP component detected. “
  • Exclusive exploration. Microsoft said it would keep Call of Duty on the PlayStation and make the series available through multiple cloud streaming services for a decade. “Both the strategic rationale and the financial valuation for this acquisition are aimed at making Activision games more widely available, not less,” Hood said in written testimony. But on the fifth and final day of the hearing, the federal The trade commission successfully got witnesses to testify that Microsoft did evaluate ways to try to reduce the availability of Activision Blizzard content on Sony’s PlayStation. Stewart confirmed that in preparation for the Microsoft board meeting, executives looked at the decline in PlayStation sales of Activision Blizzard games and ways to make up for the shortfall by selling more Xbox consoles and Game Pass subscriptions.

Activision Blizzard and Microsoft have agreed to terminate the deal if it fails to close by July 18. District Judge Jacqueline Scott Corley said Thursday she was unsure when a decision on the preliminary injunction would be made. “But obviously, I’m paying attention,” she said.

watch: Activision Blizzard CEO Bobby Kotick and Microsoft CEO Satya Nadella to testify today

Activision Blizzard CEO Bobby Kotick and Microsoft CEO Satya Nadella to testify today

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