The Federal Trade Commission (FTC) has released a trove of internal emails from Microsoft executives that reveal the company's aggressive strategy to compete with Sony's PlayStation in the gaming market. The emails, which date back to 2021, show that Microsoft was willing to spend billions of dollars to acquire game studios, secure exclusive deals, and subsidize the cost of its Xbox consoles in order to gain market share and eventually drive Sony out of the business, or at least out of the videogame industry.
According to a report by The Verge, Microsoft considered acquiring Sega and Bungie in 2020 and 2021, respectively. Microsoft's Xbox Game Studios chief, Matt Booty, was encouraging Xbox CFO Tim Stuart to use Microsoft's financial clout to essentially buy Sony out of the market:
“We (Microsoft) are in a very unique position to be able to go spend Sony out of business,” said Booty in a December 2019 email, regarding Microsoft's plans to spend $2 billion or $3 billion in 2020 to positions itself as a leader in game streaming. “It is practically impossible for anyone to start a new video streaming service at scale at this point.”
Game Pass is Microsoft's cloud gaming streaming service, which is available for Xbox and PC. Booty also pointed to fact that Sony was/is Microsoft's only real competitior in gaming because other Big Tech rivals are lagging behind:
“In games, Google is 3 to 4 years away from being able to have a studio up and running. Amazon has shown no ability to execute on game content. Content is the one moat that we have, in terms of a catalog that runs on current devices and capability to create new. Sony is really the only other player who could compete with Game Pass and we have a 2 year and 10 million subs lead.”
Microsoft Targeting Other Studios to Build its Content
In the email about Sega, Phil Spencer, the head of Xbox, wrote that he believes Sega has a “global appeal with valuable IP” that would help to accelerate the Xbox Game Pass subscription service. The email also said that Microsoft had been in touch with Sega about a possible acquisition.
In the email about Bungie, Spencer wrote that he was “intrigued” by the possibility of acquiring the developer of the Destiny franchise. He said that Bungie would be a “good fit” for Xbox because of its “strong track record of creating high-quality games.”
Microsoft did not acquire neither studio. Sega has appeared on watchlists for the company as a potential acquisition target. As for Budgie, the developer is now ironically owned by Sony. However, Microsoft has expanded its content portfolio with the $7 billion of Bethesda Studios, and is now attempting to clear its $69bn merger with Activision Blizzard.
Microsoft vs FTC Lega Battler Gathers Pace
The emails were released as part of the FTC's ongoing mission to block Microsoft from acquiring Activision Blizzard. The FTC filed a lawsuit against the deal in its in-house court in December 2022, alleging that it would substantially lessen competition in the video game industry and harm millions of consumers.
Microsoft has won over many regulators around the world who have given the green light to the deal. Even the tough European Commission has said yes, despite its reputation for cracking down on Big Tech. Japan has also given its blessing, despite the potential threat to its own gaming legends Sony and Nintendo.
But not everyone is happy with the deal. The UK's CMA has slammed the brakes on the deal, saying it would hurt competition and innovation in cloud gaming. Microsoft is fighting back, appealing the decision and threatening to pull Activision games from the UK market if the CMA doesn't budge.
The Federal Trade Commission (FTC) on Wednesday asked a federal court to pause Microsoft from completing its acquisition of Activision Blizzard, arguing that the deal would harm competition in the video game market. With this move, the regulator is making formal a request that was first reported earlier this month.