Microsoft boss Nadella says he’d prefer to cease console-exclusive video games

Microsoft CEO Satya Nadella arrives in court in San Francisco on June 28, 2023. The CEOs of Microsoft and Activision Blizzard are expected to testify to convince a federal judge in California to dismiss the Federal Trade Commission’s efforts to block their $69 billion deal.

Shelby Knowles | Bloomberg | Getty Images

Microsoft CEO Satya Nadella said Wednesday that he wants to scrap exclusive deals between video games and popular game consoles.

Bigger gaming rivals Nintendo and Sony often release exclusive titles on their devices to attract customers in a crowded market. Microsoft is also using this strategy for its Xbox, although Nadella said his company is a “small player in the console market.”

Regarding exclusive deals, Nadella said, “I don’t love this world.”

Nadella was speaking at a hearing in federal court in San Francisco when the Federal Trade Commission sought court assistance to prevent Microsoft from completing its $68.7 billion acquisition of a video game publisher Activision Blizzard. The FTC is concerned that the merger could allow Microsoft to withhold popular games in the Activision library from other consoles or restrict service for those games elsewhere.

Microsoft has announced plans to add Activision games to its Game Pass subscription service. To allay regulators’ concerns, Microsoft has offered 10-year contracts to make Activision’s popular Call of Duty titles available for Sony and Nintendo consoles.

Sony has not accepted Microsoft’s offer and is rejecting the acquisition of Activision.

“I believe this transaction is bad for competition,” Sony Interactive Entertainment chief executive Jim Ryan said in a video allegation played in court on Tuesday.

Nadella’s view of consoles reflects his broader approach to technology platforms. Since becoming CEO in 2014, he has transformed the culture of a company long known for proprietary closed systems, trying to ensure its software works well on multiple devices, not just its own hardware.

Microsoft has launched its Office productivity applications apples iPad and its SQL Server database software on Linux. In years past, Microsoft prioritized Windows, but today the operating system isn’t the critical revenue stream it once was. In its fiscal third quarter, Microsoft said Windows accounted for just over 10% of its revenue, compared to about 25% in 2011.

A Microsoft spokesman said Nadella’s comments on Wednesday “made it abundantly clear that Microsoft will deliver on our commitments to our partners and the gaming community to bring more games to more players.”

Nadella also acknowledges that Microsoft faces challenges in the gaming space. Microsoft’s cloud service, available in Game Pass Ultimate subscriptions, “simply isn’t good enough” as a replacement for current platforms, he said.

Activision CEO Bobby Kotick is skeptical about multi-game subscription services in general. He said in court on Wednesday his company had experimented with it, also worked with them Nvidia’s GeForce Now while it was in a testing phase.

Kotick, whose company is based in Santa Monica, Calif., said he still wants to finalize the deal with Microsoft, although he has different views on subscriptions and whether they represent a major opportunity.

“Perhaps part of it is being in Los Angeles and watching the big media companies move their content to these subscription streaming services, and the bottom line has suffered,” Kotick said.

Judge Jacqueline Scott Corley will decide whether the FTC will get an injunction that would prevent Microsoft from completing the deal. Meanwhile, in April, the UK’s Competition and Markets Authority decided to block the deal.

“My board believes that if the injunction is granted, they don’t see how the deal can go ahead,” Kotick said.

REGARD: FTC injunction on Microsoft-Activision merger “a positive development,” says Aaron Glick of TD Cowen

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