Head of Xbox Delivers Explanation on Mergers to FTC: Highlights from Day 2 of Xbox FTC Trial

The FTC’s legal battle to halt Xbox’s merger with Activision had a packed agenda. It began with a closed session featuring Microsoft’s senior finance director, Jamie Lawver, followed by a brief questioning of Google Stadia’s product director, Dov Zimring. However, the highlight of the day was Phil Spencer’s testimony.

Throughout his lengthy questioning by the FTC, Phil Spencer, the head of Xbox, remained composed. He outlined Xbox’s mobile-focused strategy for acquiring Activision during cross-examination. This session ended with an awkward line of questioning where Spencer had to patiently explain to the FTC lawyer, James Weingarten, how acquisitions and money work.

A significant part of the discussion focused on defining the “relevant markets.” The FTC emphasized the need to prove that Microsoft acquiring Activision would harm competition in these relevant markets. One such market discussed was high-end consoles, excluding the Nintendo Switch. Xbox argued that it is in “third place” behind PlayStation and Switch. The FTC attempted to exclude the Switch as a competitor to strengthen their argument that Xbox would harm competition if the acquisition went through.

The topic of the Nintendo Switch came up repeatedly during Spencer’s testimony. The FTC presented internal Xbox documents regarding market share between PS5 and Xbox Series consoles. However, the Switch was excluded to prove that Microsoft does not view it as a serious competitor. Spencer countered this argument by stating that Microsoft uses various internal metrics to gauge success, some of which include the Switch and others that don’t. Microsoft presented a chart with all three platform holders to support this argument.

Another “relevant market” discussed was Xbox’s market share in the United States compared to other regions. Spencer argued that no one operates in a regional vacuum and all designs are geared towards a global market. This line of questioning received less attention.

During the cross-examination by Weingarten, Spencer was asked if Xbox had “lost the console wars.” Spencer responded by stating that the console wars are a social construct and that he would never count out Xbox’s community of fans. He acknowledged that Xbox is currently in third place in terms of market share.

Microsoft’s cross-examination was more cohesive, with Spencer providing extensive answers under the guidance of Microsoft counsel Beth Wilkinson. They discussed Xbox’s strategy in acquiring Activision Blizzard, including financial incentives for developers to degrade games on other platforms and the potential harm to the Call of Duty brand if it were pulled from PlayStation.

An interesting aspect of Spencer’s testimony was Xbox’s mobile strategy. He apologized for xCloud’s shortcomings and explained that Activision’s mobile subsidiary, King, could help Xbox penetrate the mobile gaming market. Xbox aimed to create its mobile storefront for Apple and Google phones, offering Xbox and third-party games. Spencer acknowledged that Google and Apple would resist this, as they don’t allow other storefronts on their platforms.

Throughout the day, the FTC raised questions that revealed a lack of understanding of the gaming industry. They focused on Minecraft’s absence from PS Now or PS+, even though Sony had not made an offer for the game to be on those services. The FTC also questioned a conversation between Spencer and Zenimax’s James Leder about game exclusivity, which Spencer clarified he was unable to recall.

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