Why the FTC and Sony Don’t Buy Microsoft’s Modesty

Microsoft Xbox controller
Illustration: Cheyne Gateley/VIP+

Last week, Microsoft announced it had entered into an agreement with Nintendo to bring the “Call of Duty” franchise to the Nintendo Switch console for at least 10 years.

This is provided Microsoft’s much bigger agreement to acquire the franchise’s publisher, Activision Blizzard, goes through in 2023.

Shortly after the Nintendo announcement, Microsoft reportedly met with FTC chair Lina Khan to discuss the Activision Blizzard deal, but on Thursday the FTC moved to sue Microsoft and block the deal.

This is a new bump in the road for the tech giant after several months of correspondence with foreign regulatory bodies examining the deal, which has led to repeated objections from Sony in the interest of its PlayStation business.

Despite their competing businesses, it’s important to remember Microsoft and Sony are fundamentally different companies.

As one of the big three leaders of cloud computing, Microsoft’s size is incomparable to Sony’s and grants it far more leverage in its dealings and the money it can burn to strengthen its Xbox business, with the additional advantage of not having to pay a cloud provider like Sony has to for online gaming and streaming of games.

Still, Sony is the objective leader in console gaming, pulling in more revenue than Xbox as well as Nintendo. Nintendo does sell more consoles but does so at far cheaper prices, making Microsoft and Sony more direct competitors in that space.

Much like last-gen systems PlayStation 4 and Xbox One, PlayStation 5 is still massively outselling the dual Xbox Series consoles, a fact that Microsoft made sure was front-of-mind with global regulators as they began to look at the deal.

Given Microsoft’s repeated assurances to regulators and an offer to Sony to keep a similar deal with PlayStation in place regarding “Call of Duty,” the Nintendo announcement appears to be a proof-of-concept measure to ensure Microsoft is not seen as a serious competitor of Sony and can commit to keeping “Call of Duty” a multiplatform title.

It isn’t difficult to take Microsoft’s word at face value. “Call of Duty: Vanguard” was the bestselling title on PlayStation 5 in 2021 despite lower-than-usual sales and reception for “Vanguard” that has since been corrected by “Modern Warfare II” in the last quarter of 2022, which has set records for the brand.

When twice as many gamers play “Call of Duty” on PlayStation rather than Xbox, erasing that revenue stream seems ill-advised at the very least.

Still, the FTC has countered this line of reasoning. When it announced its lawsuit, it pointed out how Microsoft initially did not say it had immediate plans to make games from publisher Bethesda, which it gained control of via its $7.5 billion acquisition of ZeniMax in 2021, exclusive to Xbox. Since then, high-profile upcoming titles such as “Starfield” and “Redfall” were confirmed to only be on Xbox and PC upon expected 2023 releases. Likewise, Bethesda’s biggest franchise, “The Elder Scrolls,” will also see its next title skip a PlayStation release.

Bringing Bethesda into the Xbox fold also added a host of popular games to Xbox Game Pass, Microsoft’s highly popular subscription service that offers cloud gaming at its highest tier.

Game Pass is where any “Xbox can’t compete with PlayStation” sentiment gets murky. Sony in 2022 overhauled its preexisting PlayStation Now and PlayStation Plus subscriptions, folding the former into a new three-tiered structure for PlayStation Plus that more closely resembles Xbox Game Pass.

Unfortunately for Sony, this strategy has seen little success in the way of subscribers.

New PS Plus subscriptions plateaued throughout the pandemic and have begun to taper off after the refurbished subscription offer launched in June. PS Plus still has about 20 million more subscribers than it did five years ago, but the failure to add new ones offering bigger libraries of downloadable and streaming games for those willing to pay higher subscription fees is a troubling sign.

Unlike Game Pass, PS Plus doesn’t offer day-one access to new PlayStation exclusives. That shows Sony understands that having a stronger subscription offering is a net negative to digital sales of third-party games, especially since even getting those games on PS Plus also requires paying the publishers. With Microsoft’s backing, Xbox can seemingly eat these costs even at the expense of its first-party gaming efforts, but Sony isn’t willing to do that.

Instead, Sony is diversifying its platform approach through expanded reach towards the PC and mobile markets. Sony has already seen good returns for older PlayStation exclusives on PC, so much so that newer first-party titles like “The Last of Us Part I” and “Returnal” will be on PC as early as 2023.

As for mobile, Sony acquired Savage Game Studios for an undisclosed sum in 2022 and folded it into a newly created mobile division, though the live-service action game it is working on hasn’t been announced yet. This is a step in the right direction for striving to increase revenue from in-game spending, but pales in comparison to what Microsoft will be making from “Candy Crush” publisher and Activision Blizzard subsidiary King should that deal close, highlighting at least one key market advantage the company would immediately gain against Sony.

Sony itself elected to keep “Destiny 2” on its existing platforms as part of its deal to acquire Bungie for $3.7 billion in 2022. With the matter of exclusivity being the FTC’s principal concern alongside Microsoft’s prior assurances “Call of Duty” won’t leave PlayStation, it’s tough to imagine the Activision Blizzard deal will close without a written agreement to keep “Call of Duty” a multiplatform title.

The big question then is if similar concessions will have to be made for “Call of Duty” when it comes to Game Pass. Sony has already accepted the reality of offering first-party titles to PC players and foregoing those potential hardware sales as a result. But if Xbox can provide a cheaper way for gamers to access “Call of Duty” content, be it on Xbox or through Game Pass on PC and the many other markets the service has penetrated, Sony can conceivably see its own revenue from the franchise decline, especially since “Call of Duty” is also a major live-service player through its “Warzone” mode.

Keep in mind that many of the studios Microsoft acquired or launched prior to the Bethesda buy have yet to release their big new games, as is the case with “Starfield” and “Redfall.” If these games are well received and do lead to greater sales of Xbox systems, even Sony’s biggest advantage in the gaming market could encounter strain.

Microsoft wants its Nintendo announcement to instill relief over its dealings, but the business of gaming just isn’t about consoles anymore — as much as the sector’s leaders still wish it was.