Microsoft CEO Satya Nadella arrives to court in San Francisco on June 28, 2023. Microsoft and Activision Blizzard CEOs are expected to testify to persuade a federal judge in California to reject the Federal Trade Commission’s effort to block their $69 billion deal.
Shelby Knowles | Bloomberg | Getty Images
Larger gaming rivals Nintendo and Sony often release exclusive titles on their devices as a way to lure customers in a competitive market. Microsoft employs the strategy as well for its Xbox, though Nadella said his company is a “low share player in the console market.”
Regarding exclusive deals, Nadella said “I have no love for that world.”
Nadella spoke at a hearing in federal court in San Francisco, as the Federal Trade Commission seeks judicial support to prevent Microsoft from closing its $68.7 billion acquisition of video game publisher Activision Blizzard. The FTC is worried that the tie-up could allow Microsoft to withhold popular games in Activision’s library from other consoles or degrade service for those games elsewhere.
Microsoft has said it wants to add Activision games to its Game Pass subscription service. To quell regulator concerns, Microsoft has offered 10-year agreements to make Activision’s popular Call of Duty titles available for Sony and Nintendo consoles.
Sony hasn’t accepted Microsoft’s offer and is opposed to its acquisition of Activision.
“I believe that this transaction is bad for competition,” Jim Ryan, head of Sony Interactive Entertainment, said in a video deposition that was played in court on Tuesday.
Nadella’s view on consoles reflects his broader approach to technology platforms. Since becoming CEO in 2014, he’s changed the culture at a company long known for proprietary closed systems, attempting to ensure that its software can work well on multiple devices, not just its own hardware.
Microsoft has brought its Office productivity applications to Apple’s iPad and its SQL Server database software to Linux. In earlier years, Microsoft prioritized Windows, but today the operating system is no longer the crucial source of revenue that it was. In the fiscal third quarter, Microsoft said Windows represented just over 10% of revenue, down from about 25% in 2011.
A Microsoft spokesperson said Nadella’s comments on Wednesday “made it abundantly clear that Microsoft will honor its commitments to its partners and the gaming community to bring more games to more players.”
Nadella also acknowledges that, when it comes to gaming, Microsoft has challenges. Microsoft’s cloud service, which is available in Game Pass Ultimate subscriptions, is “just not good enough” as a substitute for current platforms, he said.
Activision CEO Bobby Kotick is skeptical of multi-game subscription services in general. He said in court on Wednesday that his company has experimented with them, including working with Nvidia’s GeForce Now while it was in a testing phase.
Kotick, whose company is based in Santa Monica, California, said he still wants to get the deal done with Microsoft even if he holds a differing opinion on subscriptions and whether they present a big opportunity.
“Maybe part of it is being in Los Angeles and having watched the big media companies move their content to these subscription streaming services, and the business results have suffered,” Kotick said.
Judge Jacqueline Scott Corley will decide if the FTC will receive a preliminary injunction that would stop Microsoft from closing the deal. Meanwhile, in the U.K., the Competition and Markets Authority moved to block the transaction in April.
“My board’s view is if the preliminary injunction is granted, they don’t see how the deal can continue,” Kotick said.