Court documents shared during the hearings for the preliminary injunction requested by the FTC against the proposed acquisition of Activision Blizzard reveal that Microsoft made plans for the acquisition of Sega.
According to mail exchanges and presentation documents dated 2020, head of Xbox Phil Spencer requested CEO Satya Nadella and CFO Amy Hood for "strategic approval" to approach Sega Sammy and propose the acquisition, as you can read below.
"I'm writing to request Strategy Approval to approach Sega Sammy regarding a potential acquisition of their Sega gaming studios. For context, Bill and I have reviewed the business case for acquiring Sega and are both supportive. We believe that Sega has built a well-balanced portfolio of games across segments with global geographic appeal, and will help us accelerate Xbox Game Pass both on and off-console. Please find the attached memo and bullets below for additional detail on our strategy to prioritize our next acquisition target, a brief overview of Sega's gaming portfolio, and the value drivers for the potential acquisition."
At that time, the attached memo explains, Sega was identified as the "most attractive next acquisition target due to its global PC catalog, presence on mobile in Asia, and global brand affinity on console through its classic IP."
The value drivers for Xbox in the deal would have been the contribution to Game Pass' catalog and popularity, alongside the straight monetary earnings from sales of the games. What's perhaps even more interesting is the intended operating plan for the acquisition. Microsoft aimed to have Sega's games exclusive and released on day one on Game Pass in the subscription field, but they would not take them away from competing consoles like PlayStation's or Nintendo's. On the other hand, the deal would have permitted to release titles previously exclusive to other consoles on Xbox as well, similar to the current plan with the Call of Duty franchise.
Subject to diligence and discussions with Sega's leadership team, we expect Sega to report to Matt Booty with the following operating principles:
- We will continue to develop and sell all acquired games and franchises on all relevant platforms (e.g., Android, iOS, PlayStation, Steam, Switch, Windows, Xbox, etc.)
- We will bring previously exclusive to PlayStation and Nintendo titles to Xbox and launch future titles on Xbox in addition to other relevant platforms as rights permit.
- We will launch all acquired games and franchises with subscription exclusivity into Xbox Game Pass on console, PC, and cloud; future releases will ship into Xbox Game Pass on a day-anddate basis.
This is certainly interesting, because while the acquisition never materialized, most of these conditions actually happened anyway, excluding the subscription exclusive to Xbox Game Pass. Nowadays, almost all Sega games that are released on consoles also come to Xbox and are released on Xbox Game Pass on day one. They're often even presented in partnership with Xbox, as we have seen with Metaphor RePhantazio, Personal 3 ReLoad, and Persona 5 Tactica.
We don't know why the deal never happened, but the memo identified risks in a complex deal execution due to the fact that Microsoft did not know whether Sega Sammy would wish to divest its gaming studios, on top of the fact that Microsoft had limited experience in acquiring Japanese companies. The plan was to "preserve a degree of cultural & operating autonomy for Sega."
More court documents show that Microsoft also considered acquiring many other studios circa 2021, including Bungie, IO Interactive, Supergiant Games, Thunderful on the PC and console side, and Scopely, Niantic, Zynga, and Playrix on the mobile side of the business.
