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FTC v. Microsoft: 5 surprising revelations from the court hearing that you need to know

We have reached an inflection point in Microsoft’s efforts to acquire Call of Duty and World of Warcraft publisher Activision Blizzard as the FTC’s lawsuit to stop it went before a judge. Representatives from Microsoft, Sony, Nintendo, Google, and Nvidia chimed in during the hearing, as did a variety of analysts presenting data to help determine whether or not this acquisition will hurt competition in the console and cloud gaming markets.

As the video game industry is quite buttoned-up and secretive, this trial has given us an unprecedented look behind the curtain at Xbox, PlayStation, and Activision’s motivations, past claims and mistakes they made, and more. In a case filled with revelations, these five details were a particularly illuminating look into the video game industry’s inner workings.

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Microsoft revealed its real cloud gaming motivation

Xcloud on a mobile device.
Microsoft / Microsoft

Since 2019, Microsoft has been one of the video game industry’s biggest purveyors of cloud gaming alongside the likes of Nvidia, Amazon, and Google. It previously claimed that its primary goal with this was to get its hardcore games like Halo in front of as many people as possible, but this trial has revealed a secondary motivation. Microsoft hoped cloud gaming would give them an edge in the mobile gaming market, where Xbox has struggled to establish itself.

“We built xCloud knowing that on Xbox we have many games that run on our console,” Head of Xbox Phil Spencer explained. “There are many users around the world that have phones that aren’t able to play those games, nor will they be. Our strategy was to put consoles in our data centers to stream those consoles to a mobile phone, so if someone wanted to play Halo on a mobile phone, they would have access to those games through streaming.

It didn’t work out that way, though. Xbox’s VP of Game Creator Experience, Sarah Bond, testified that the most common use for cloud gaming is not mobile play but console players trying out a game before or during a download. Because cloud gaming is a sticking point for the CMA, Microsoft wants to downplay its relevancy to Xbox’s business, but, as I wrote in April, it might be too late for them to do that. Even if cloud gaming’s future is as a supplementary service on consoles, it’s sticking around as one of the central aspects of dissent against the acquisition. The future of cloud gaming is just playing out in a way no one predicted when it re-rose to prominence four years ago.

Activision regrets not putting Call of Duty on Nintendo Switch

Characters shooting in Call of Duty: Modern Warfare 2.
Activision

The Nintendo Switch has proven to be one of Nintendo’s most successful consoles ever, but Call of Duty games have been suspiciously absent from the platform since its release in 2017. Microsoft plans to bring Call of Duty to Nintendo systems if the acquisition goes through, so Activision Blizzard CEO Bobby Kotick was asked why the series wasn’t already on there. He admits that it was “bad judgment” on his part, likely coming off the underwhelming performance of Wii U.

“I made a bad judgment,” Kotick explained. “When I had seen the prototype of the Switch, it was different than when I saw the prototype of the Wii. I thought [the Wii] was the most extraordinary video game system ever created. When I saw the prototypes for Switch, I was concerned because they were trying to accomplish a lot with a console that also had a portable capability. I didn’t think it was going to be wildly successful. It’s probably the second most successful video game system of all time, so it was a bad decision on my part.”

This is a rare look at a game publisher’s decision-making behind bringing a game or series to a new platform and explains why Call of Duty: Ghosts was the last game in the series to release for a Nintendo console. It doesn’t explain why Activision hasn’t tried to bring the series over since the Switch has been a proven success, though. Regardless, it will eventually come if Microsoft can acquire Activision Blizzard.

Xbox considered acquiring a lot of studios

A Sega Genesis Mini controller held up in front of a TV.
Image used with permission by copyright holder

Xbox acquired or founded over 15 studios between 2018 and 2021, but this trial has revealed that those are far from the only studios Microsoft considered acquiring. Court documents revealed potential companies Microsoft was interested in acquiring around 2020. The most notable are Japanese publishers Sega and Square Enix, who Microsoft was actively trying to court around that time despite publicly claiming otherwise.

Those were far from the only studios it tried to acquire, though. Court documents revealed the full “consideration set” of studios that Microsoft was potentially interested in, based on previous development relationships and Xbox Game Pass and Steam data. Studio names on that list include Frostpunk’s 11 bit Studios, Silent Hill 2’s Bloober Team, Cyberpunk 2077’s CD Projekt Red, Warframe’s Digital Extremes, Elden Ring’s FromSoftware, Hitman’s IO Interactive, Yooka-Laylee’s Playtonic Games, Hades’ Supergiant Games, Dying Light’s Techland, Blade Runner 2033: Labyrinth’s Annapurna Interactive, and more.

It’s a dense list filled with some of the game industry’s best talent and shows just how aggressive Microsoft wanted to be during the peak of its acquisition spree. Ultimately, the company settled on ZeniMax Media (Bethesda) and intends to add Activision Blizzard to its studio lineup. Basically, it looks like most rumors about who Microsoft was considering acquiring over the past several years were true in some way.

The cost of PlayStatation’s single-player AAA games revealed

Abby screaming in The Last of Us Part II
Sony Interactive Entertainment

PlayStation has a reputation for making high-fidelity single-player action games that push the bounds of AAA gaming forward. That said, some court documents reveal that this wasn’t cheap. In one of the funnier moments surrounding the hearing, Sony had tried to redact a document with a Sharpie, but doing that made it possible for people to see through the redactions. Because of that, we learned the budgets of The Last of Us Part II and Horizon Forbidden West.

Naughty Dog’s critically acclaimed sequel cost $220 million to develop, according to Axios, while Horizon Forbidden West’s development cost $212 million. Those numbers don’t even seem to include marketing-related expenses, which would likely increase them further. It proves that modern AAA games aren’t cheap to make, with budgets on par with, and sometimes exceeding, that of blockbuster movies.

To those unfamiliar with the business side of the industry, it’s enlightening in making us understand why companies are trying to embrace microtransactions and multiplayer experiences. You’re much more likely to make a development budget like that back when your game encourages recurrent spending. Still, it also proves that if a talented team has enough resources and budget, they can craft a truly outstanding single-player experience.

The Elder Scrolls VI is probably not releasing for another five years

The Elder Scrolls VI
Image used with permission by copyright holder

Because Starfield and The Elder Scrolls VI were announced at the same showcase in 2018, there’s been a misconception that they’ve been in full production alongside each other since then and will be coming out pretty close to each other. Todd Howard indicated this wasn’t the case in interviews surrounding June’s Starfield Direct, but comments from Microsoft during this trial confirm it. We’ve learned that it probably won’t even be out for another three to five years, the now somewhat standard ballpark to give for game development time.

“I think we’ve been a little unclear on what platforms it will launch on, given how far out the game is,” Phil Spencer explained. “It’s difficult for us right now to nail down exactly what platforms that game will launch on. As I said with Elder Scrolls VI, it’s so far out it’s hard to understand what the platforms will even be at this point. It’s the same team that’s finishing Starfield, which comes out this September. So we’re talking about it being likely five-plus years away.

Despite that statement, Microsoft’s lawyer later said an Elder Scrolls game will come out in 2026. It’s unknown who’s correct here, but either statement means that The Elder Scrolls VI likely won’t be released until nearly a decade after its reveal. It’s certainly a disappointing revelation for Elder Scrolls fans, who expected the game to be further along in development by now. Hopefully, the fact that Creation Engine 2 is now up and running with Starfield makes creating The Elder Scrolls VI a more streamlined process.

Tomas Franzese
As a Gaming Staff Writer at Digital Trends, Tomas Franzese reports on and reviews the latest releases and exciting…
Why cloud gaming is the linchpin in Microsoft’s troubled Activision Blizzard acqusition
Key art showing multiple devices playing games via the cloud.

The United Kingdom’s Competition and Markets Authority (CMA) delivered a shocker this week when it blocked Microsoft’s acquisition of Activision Blizzard on Wednesday. While a lot of focus on Microsoft’s fight was centered around whether or not the acquisition would give Xbox consoles an unfair advantage over PlayStation consoles, what ultimately decided it was a much smaller market: cloud gaming.
The idea of being able to stream the game you’re playing from the cloud has existed for well over a decade. Cloud gaming’s relevance to the video game industry has only grown over the past several years thanks to both failed and successful efforts from big tech companies like Google, Amazon, and, most importantly, Microsoft. Still, cloud gaming is considered relatively niche, with Activision Blizzard Bobby Kotick calling it "inconsequential" in an interview with Bloomberg and UCL Associate Profession Joost Rietveld saying it’s not a distinct market in a submission to the CMA.
Despite those pleas, the CMA claims that cloud gaming is a “nascent market” and that “already strong incumbent in this market even stronger” in its 418-page report on the matter. Following the CMA’s decision on Wednesday, I spoke to several different analysts to find more clarity about how big Microsoft is in the cloud gaming space and why the CMA should feel compelled to intervene. While experts mostly side with Microsoft over the CMA on this decision, one greater truth emerged from these discussions. Whether one thinks cloud gaming is relevant to this acquisition or not, this emergent style of gaming has reached a point of no return where it'll be instrumental to the video game industry going forward. 
Microsoft, king of cloud gaming
Cloud gaming may sound like a niche within the industry, but that's not entirely accurate. BrandFinance Managing Director Laurence Newell tells Digital Trends that “cloud-based services account for over 70% of Microsoft’s brand value, amounting to a staggering $137.5 billion.” That’s quite an eye-catching number that understandably would raise a regulator's alarm bells. However, Newell admits that gaming only makes up 8.5% of Microsoft’s revenue, and cloud gaming is an even smaller amount of that slice.
Despite its relatively small impact on the wider company, most of the experts I spoke to agreed that Microsoft has emerged as a cloud gaming leader thanks to its compatibility with a large segment of the Xbox Game Pass Ultimate library. Conversely, Activision Blizzard has had almost no cloud gaming presence outside of one Sekiro: Shadows Die Twice port on Google Stadia before that service’s shutdown. If it were to be acquired, it is inevitable that more Activision Blizzard games would likely come to cloud-based gaming services.

Despite the shutdown of Google Stadia and the relatively small brand value received from cloud gaming compared to the rest of the company, the CMA still points out in the press release about its decision that “monthly active users in the U.K. more than tripled from the start of 2021 to the end of 2022. It is forecast to be worth up to 11 billion British pounds globally and 1 billion pounds in the U.K. by 2026.” Associate Professor of Strategy and Entrepreneurship at the UCL School of Management Joost Rietveld, who has also been a consultant for Microsoft during its acquisition process, challenges the notion that cloud gaming as a whole is a single market.
Instead, Rietveld splits it into four categories, placing Xbox Game Pass into a category called “cloud gaming as a feature,” which is when it’s “offered as part of a consumer-facing distribution platform” or “included within a bigger bundle of services provided by the platformer.” Under Rietveld’s view, services like Nvidia GeForce Now, Ubitius, and EE -- all of whom Microsoft has made individual deals to bring Activision Blizzard and Xbox Game Studios titles to -- fall into different categories and thus shouldn’t be considered or directly compared to Xbox Game Pass. No matter how they’re categorized now, the real question mark looming over the technology is its future growth, according to Omdia Senior Principal Games Analyst Steve Bailey.
“Will it remain a niche additional service or become the gaming platform of the future?” Bailey asks in his statement to Digital Trends. “Our projection is that cloud gaming is growing rapidly (revenue should more than double by 2026), but it’s still a long way from taking over the games market, so it remains arguable either way.”
“Arguable” stands out as the keyword to me here. Like any emergent technology, we’re heavily debating the positives and negatives of cloud gaming, specifically through the lens of this acquisition. But what exactly is it that the CMA sees in Microsoft that worries them?
The CMA’s problem with Microsoft
“The CMA’s argument is not that acquiring Activision Blizzard would allow Microsoft to dominate the console market as a whole, where Sony and Nintendo have strong positions relative to Xbox, but only that it would help it to achieve a dominant position in cloud gaming specifically,” Bailey tells Digital Trends. “Microsoft and Activision Blizzard will likely argue that this is disproportionate, given the relatively small scale of the cloud gaming market.”

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5 features Call of Duty: Warzone 2.0 Season 3 needs to implement
Enemy with sword in Warzone 2.0.

In many ways, Call of Duty: Warzone 2.0's recent Season 2 update steered the game back on course, adding meaningful quality-of-life improvements and new features across the board. Despite those positive changes, Warzone 2.0 is still plagued with issues, many of which have pushed veteran players away.

Given just how substantial the Season 2 update was, and what we know about Season 3, things are looking bright for Warzone 2.0. But which features need to be added alongside the upcoming season? The day Season 2 went live, Activision revealed that a few features will be added in Season 3 and beyond. These include a Gunfight mode in Modern Warfare 2, the introduction of Plunder in Warzone 2.0, and a ranked Warzone mode. It's unclear when exactly these features will come to the game, but they're in the works and will hopefully launch soon.

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U.K. wants Call of Duty removed from Microsoft’s Activision acquisition
Call of Duty Modern Warfare 2.

Microsoft has hit a major roadblock in its attempt to acquire Activision Blizzard, as the UK's Competition and Markets Authority (CMA) has determined that the deal "could harm U.K. gamers." For the deal to go through, the CWA is suggesting some major concessions, like Activision Blizzard divesting in the Call of Duty or Activision segments of its business ahead of the acquisition.
A notice of possible remedies document asks Activision Blizzard to do one of the following three things if it doesn't want the acquisition to be potentially prohibited. 

"Divestiture of the business associated with Call of Duty."
"Divestiture of the Activision segment of Activision Blizzard, Inc., which would include the business associated with Call of Duty."
"Divestiture of the Activision segment and the Blizzard segment of Activision Blizzard Inc., which would include the business associated with Call of Duty and World of Warcraft, among other titles."

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