Microsoft CFO Amy Hood has added her testimony to the FTC federal case vs the Activision deal, and she has revealed the company’s high expectations for Team Xbox and this deal.
Amy Hood will appear in court earlier today. Yesterday, she filed her written testimony, which prepares us for what she will be talking about today.
As shared by The Verge editor Tom Warren, these are the pertinent points in Amy’s written testimony:
“Xbox has historically had a lower operating margin than Microsoft’s other lines of business. That is still true today. Microsoft’s operating margin is approximately 40 %, [REDACTED]. Over time, we are striving to increase Xbox’s operating marging to bring it closer to those of Microsoft’s other lines of business.
With approximately $ 16.23 billion in revenue in fiscal year 2022, Xbox is also a relatively small line of business within Microsoft, whose annual revenue for fiscal year 2022 was approximately $ 198.27 billion.
An essential component of that valuation was the [REDACTED] in forecasted total future sales of Activision’s content on all platforms, including continued sales of Call of Duty on Sony’s PlayStation.
The possibility of making Call of Duty exclusive to Xbox was never assessed or discussed with me, nor was it even mentioned in any of the presentations to or discussions with the Board of Directors. I understood the necessity of keeping Call of Duty on other platforms. The Acquisition’s strategic rationale and financial valuation are both aligned toward making Activision games more widely available, not less.
Another important component of the financial analysis was that the purchase had to be financially accretive to Microsoft’s shareholders in year one, meaning that the acquisition must immediately contribute to an increase in earnings per share.”
The first surprising revelation, and one that is perhaps humbling for the game industry, is Amy revealing that Xbox’s 40 % is a lower operating margin than Microsoft’s other business segments. That means their cloud services, Windows, and even the Windows Surface line, all probably make more money than Xbox. After all, these other products and services do meet bigger markets than gamers.
Amy also swears to the court that the company never talked about making Call of Duty exclusive to Xbox. Presumably, Judge Corley’s San Francisco, California based court has read their documents and confirmed this. We know the CMA did not make such findings either, so Amy is probably telling the truth here.
Finally, Amy has shared Microsoft’s immediate expectations for this deal. They expect it to immediately make money for them, based on the strength of Activision Blizzard King’s library of properties.
It’s easy to point to King here, whose games have to make money on a monthly basis. However, the recent releases of Call of Duty Warzone 2.0 and Diablo 4 serve to make Activision profitable on the console side as well now and in the immediate future.
With that in mind, it’s no wonder Microsoft’s higher-ups have been appearing and working to get this deal done. Even their CEO and President have lobbied and schmoozed for this deal. Microsoft has only fallen short of pulling Bill Gates out of retirement to help (to be clear, this definitely will not happen.)
It’s amazing that this is all out in public too, but Microsoft isn’t embarrassed to talk up that this would immediately be profitable for them, even before their plans for third party mobile app markets come to fruition.
