Microsoft Admits Losing Console Wars, Defends $69 Billion Activision Acquisition Amid FTC Scrutiny

In a court document viewed by Kotaku and submitted during its legal battle with the Federal Trade Commission (FTC) over the $69 billion acquisition of Activision Blizzard, Microsoft has openly admitted its defeat in the perennial “console wars.” The term refers to the ongoing competition among hardware manufacturers like Microsoft, Sony, and Nintendo to gain supremacy in the gaming console market. The company confesses it has lagged behind its competitors ever since the launch of its first gaming console, the Xbox, back in 2001. Interestingly, Microsoft’s current gaming consoles, the Xbox Series X and Xbox Series S, have managed to sell only 21 million units as of April 2023, according to VGChartz, a hardware and software sales tracker. In stark contrast, Sony’s PlayStation 5 and Nintendo’s Switch console have each sold approximately 36 million units, with Nintendo’s hybrid handheld console slightly outpacing its Sony counterpart.

Microsoft’s Market Performance

  • In 2021, Microsoft’s market share was at 16% compared to undisclosed shares by Nintendo and PlayStation.
  • Microsoft ranks third behind PlayStation and Nintendo in terms of both console sales and console revenues.
  • The share of consoles currently in use by gamers, often referred to as the ‘installed base,’ reveals Xbox trailing with a mere 21% while PlayStation and Nintendo have undisclosed shares.

Microsoft’s New Strategy

Microsoft has acknowledged that it’s opted to abandon its bid to compete in the current console wars. Instead, the company is concentrating on delivering software to its users, the majority of which is yet to be released or has failed to make the intended impact. Notably, Xbox’s strategic pivot can be witnessed in its substantial investment in its Game Pass subscription service. It seems Microsoft is shifting its focus from competing for market dominance to becoming the gaming industry’s answer to Netflix.

Shifting Profits

Unlike its competitors, Microsoft is adopting a unique strategy. Xbox generates profits not from the sale of gaming consoles but from game sales. In fact, Microsoft has been selling its Xbox consoles at a loss, effectively subsidizing gamers’ hardware purchases in hopes of making up the lost revenue through sales of games and accessories. This new approach underscores Microsoft’s shift from hardware to software as the core of its gaming business strategy.

The FTC Legal Battle over Activision Acquisition

This self-admission by Microsoft coincides with its ongoing battle against the FTC’s proposed preliminary injunction, which seeks to halt the Activision Blizzard deal until an evidentiary hearing set for August 2, 2023. The hearing would occur after the currently scheduled date for the deal to close on July 18, 2023, and could potentially allow renegotiation of the merger. The FTC’s concern is that the merger could allow Xbox to dominate the games market, particularly by making popular titles like Call of Duty exclusive to Xbox, an accusation Microsoft firmly denies.

The Future Console Generation

Meanwhile, Microsoft expects the next console generation to kick off in 2028. Despite the fierce competition and its diminishing market share, Microsoft’s prospective acquisition of Activision Blizzard could still mean future Call of Duty releases landing on rival platforms. However, it’s worth noting that Sony’s PlayStation chief, Jim Ryan, stated in the same hearing that they wouldn’t share info on a hypothetical PlayStation 6 with Call of Duty’s developers should the acquisition be approved, a move that could have potential repercussions for Call of Duty fans on PlayStation.

Implications for PlayStation’s Call of Duty Fans

Sony’s reluctance to share information on a prospective PlayStation 6 could significantly impact Call of Duty fans on PlayStation. Assuming the merger does proceed, this withholding of information could affect the development and optimization of future Call of Duty games for the PlayStation platform. This could lead to subpar gaming experiences for PlayStation users and potentially drive Call of Duty enthusiasts to switch to other platforms that offer better-supported versions of the game.

Microsoft’s Standpoint

In its defense against the FTC’s concerns, Microsoft argues that its position as the third-place gaming console necessitates the merger to establish itself as a viable competitor against industry giants like Sony and Nintendo. The tech titan has ardently refuted claims that it would make games like Call of Duty exclusive to Xbox, which stands as a central concern for the FTC.

Looking Ahead

As Microsoft gears up for its legal battle with the FTC, the outcome of this merger could have a significant impact on the gaming industry. Microsoft’s pivot towards a software-focused business model, if successful, could potentially shake up the industry dynamics and influence the strategies of other major players. For further information on the console wars and their market dynamics, visit VGChartz, a reliable hardware and software sales tracker.

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