Microsoft used FTC's anti-Nintendo market definition to make Sony seem bigger

Microsoft confirms it used the FTC's narrow market definition that removes Nintendo as a competitor, which makes PlayStation seem bigger than it is.

4 minutes & 38 seconds read time

Video footage of Microsoft's February press conference in Brussels has clarified one of most confusing data points presented in merger communications.

Microsoft used FTC's anti-Nintendo market definition to make Sony seem bigger 3

Back in February, Microsoft met with European regulators to present new developments in Activision merger proceedings. Microsoft announced that it had signed 10-year agreements with Nintendo and NVIDIA for Call of Duty. Shortly after its hearing with regulators, Microsoft then held a press conference that presented some interesting and somewhat confusing information.

Microsoft's Brad Smith claimed that Sony's PlayStation conquered its competitors with an 80% share of the European Economic Area (EEA) console market, which includes all European Union countries alongside Iceland, Liechtenstein, and Norway. Microsoft's Xbox, on the other hand, only commanded 20% of this market. There's just one big question: Where is Nintendo? After all, the Switch has sold millions more units than Xbox and the Switch platform has made nearly $67 billion from games, hardware, and services.

More context is surely needed. And now we have it. Video footage of the press conference was recently published. In the video, Smith confirms that Microsoft used the FTC's new High-Performance Console market classification to present the data.

"Think about the market that the Federal Trade Commission defined and what it would mean here in Europe. It is a market in which Sony has an 80% share. Xbox has a 20% share.

"Globally, the [share split] is about 70-30. In Japan, it's 96-4 [in Sony's favor].

"And, while there are some fluctuations over time, these numbers have been remarkably steady for two decades. Even last year, when Sony suffered constraints in its supply chain and it saw its numbers dip, they came back strong in the fourth quarter as their supply chain recovered.

"By our calculations, on a global basis, Sony outsold Microsoft in the fourth quarter by a margin of 69 to 31. This is pretty much consistent with the global market shares we've seen for 20 years.

"Sony, like regulators, has an alternative as well. It can either do a deal with Microsoft, or argue that the deal should be blocked. We understand in some ways it can be tempting when you have an 80% share to just hope the future never arrives, to hold on as long as possible to a current market share, to hope that the future that European game developers has said is cross-platform, doesn't come until a later date.

"Think about this market that exists today [Smith gestures to the 80-20 pie chart]. It has 120 million consoles, PlayStation and Xbox combined.

The Federal Trade Commission has segmented the console space with a new definition that does not include Nintendo. The FTC's principle complaints recognize what's called a High-Performance Console Market, which only includes Microsoft and Sony. Nintendo is left out because the Switch isn't technically a high-end console (among other reasons).

In other words, Microsoft's 80-20 pie chart doesn't include Nintendo because it is based on the FTC's new "High-Performance Console Market" definition.

This was not made expressly clear to gamers or consumers that had not attended the press conference.

So why did the FTC remove Nintendo from the Big 3? It's simple: Regulators have determined that Xbox and PlayStation compete more closely with each other than they do Nintendo.

And they're right...well sort of.

Microsoft used FTC's anti-Nintendo market definition to make Sony seem bigger 32022

Read Also: Video recording Microsoft's merger press conference in Brussels has surfaced

Our analysis indicates that PlayStation and Xbox are indeed more similar in their levels of competition with one another than they are with Nintendo. That's not to say Nintendo should be discounted or removed from the console market entirely--that's how we get skewed data that disproportionately shows PlayStation's lead over Xbox--however it is indeed fair to say that Nintendo is both a competitor and an anomaly in the console gaming space.

It's worth noting that the FTC is the only regulator to outright segment the market in this way and to remove Nintendo from the console space. The CMA acknowledges Nintendo's presence and power in the market, however it has also focused more on the dynamics of Xbox vs PlayStation as it relates to the merger.

For a better analysis on why we think regulators have removed Nintendo from the market, click here.

Here's how the FTC describes the new high-performance console market:

Page 6

Of these three console makers, PlayStation and Xbox compete in a high performance segment that includes only the most technologically advanced and capable consoles.

In November 2020, both Microsoft and Sony launched their current generation of consoles, the Xbox Series X and Series S consoles (collectively, "Xbox Series X|S") and the PlayStation 5 and PlayStation 5 Digital Edition consoles (collectively, "PS5"), respectively.

Xbox Series X|S and PS5 consoles are the only high-performance consoles available today, and are considered to be in the ninth generation of gaming consoles. In contrast, Nintendo's most recent console-the Nintendo Switch-is not a ninth-generation gaming console.

The Nintendo Switch was released in 2017, in the latter half of the eighth generation of gaming consoles, which had begun in approximately 2013. The Nintendo Switch ("Switch") also has lower computational performance, more in line with Microsoft's and Sony's eighth generation consoles.

Page 11

The Proposed Acquisition is reasonably likely to substantially lessen competition or tend to create a monopoly in the Relevant Markets for High-Performance Consoles, MultiGame Content Library Subscription Services, and Cloud Gaming Subscription Services.

The Proposed Acquisition is therefore reasonably likely to result in harm to both competition and consumers.

I. High-Performance Consoles are a Relevant Product Market

63. High-Performance Consoles are a Relevant Market for evaluating the likely competitive effects of the Proposed Acquisition.

64. The only High-Performance Consoles offered for sale today are the most recent generation of Microsoft Xbox and Sony PlayStation consoles-the Xbox Series X|S and the PS5. The Xbox Series X|S and PS5 are therefore included within the Relevant Market.

65. The third major gaming console available today, the Nintendo Switch, is highly differentiated from the Xbox and PlayStation consoles in significant ways. The Nintendo Switch, therefore, is not included in the Relevant Market.

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Derek joined the TweakTown team in 2015 and has since reviewed and played 1000s of hours of new games. Derek is absorbed with the intersection of technology and gaming, and is always looking forward to new advancements. With over six years in games journalism under his belt, Derek aims to further engage the gaming sector while taking a peek under the tech that powers it. He hopes to one day explore the stars in No Man's Sky with the magic of VR.

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