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Phil Spencer on exclusivity, monetisation and game development

We spoke at length with Head of Xbox Phil Spencer about first-party software, monetisation, and what The Initiative is actually doing.

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At this point in time, it's hard to imagine Xbox without Phil Spencer. After all, he has, in a few short years at the top, shaped the brand, the platform, in such a way that it's quite unrecognisable next to the Xbox One that Don Mattrick introduced in May 2013. It's equally hard not to give Spencer credit, regardless of one's perspective and platform allegiance, seeing as Xbox Game Pass is a runaway hit for consumers across the globe, xCloud is presenting a convenient and consumer-friendly cloud solution to players on Android (and perhaps soon iOS), and there's a renewed focus on software through a number of studio acquisitions.

Rosy words, sure, but credit where credit is due, Spencer and his global team has worked hard to turn the ship around in recent years, and through the launch of Xbox Series X, and Series S, as well as the plan to acquire Zenimax, his vision for the brand, is coming full circle.

But what about the future? Well, we recently had a chat with the man himself about first-party games, monetisation, development pipelines, and much, much more, and you can take a look at that interview below.

If you, however, fancy some reading, below is a slightly edited version of our interesting conversation, where we got to know more about his thoughts surrounding some of the more pressing topics on gamer's minds today.

Before the first round of purchasing studios - what made you get up one morning and say; "we need more studios, we need more first-party games"?

If I think back during the early Xbox One years and even late in the 360 years, at this time we as a company didn't invest enough in our creative capabilities with our studios, and it showed. Now, the thing with game production is that it takes a lot of time, so if you underinvest it actually doesn't show up next year or even in the next two years. It's maybe three, four, or five years down the road.

I had this feeling or belief that we were underinvesting and I was head of first-party, so I felt it directly. I wanted to invest more, and we weren't able to. So when I got into this job, I needed to put the business in a good space while getting the support of the company. And then we built a business model that prioritised investing in content knowing that we would have to invest early and wait a while for those investments to pay off.

But there wasn't kind of a "one morning." It was something that I felt, as I said through the late 360 and early Xbox One years, it just took us a little time to get into a position to find the right partners and get the support from the company. But I'm incredibly excited. Now with ZeniMax we're coming up on 23 first-party studios and an amazing line-up. So I'm feeling very good with the support we have.

Phil Spencer on exclusivity, monetisation and game development
Microsoft

Are you content with the current line-up now, or is there a chink in the armor somewhere? A certain genre, a certain type of studio that you feel is still missing?

If we look at what people are playing on Xbox, what Game Pass subscribers are playing, I think what is missing from our portfolio is casual content with a broad appeal. E-rated content (to use an ESRB rating) is not a strength for us. We obviously have Minecraft and we have some other franchises. But when I think about expanding the creative palette that our teams have, I think that is critically important.

Teams that can build new franchises, tell new stories, those are always sought after. That's why I'm excited about projects like Starfield and the next Compulsion game because I like teams that think about new creations. And frankly, as Game Pass continues to grow, we need to continue to feed that subscription. So, with the growth that we are seeing, I expect we will constantly be in this mode of bringing more creators into the fold.

You recently said that it no longer makes sense to release Xbox first-party games on Switch - has your stance on software on Xbox platforms (and Windows PC) changed over the years?

If I start at the highest level, I believe great games should be able to be played by as many people as possible. I believe that in my core. I love this art form of video games, the interactivity, and the community around it. Both the social discussions, the camaraderie that you and I might feel as we are doing a Destiny strike together, and so on. I love the fact that games can bridge political lines, geographical lines, socioeconomic lines, and religious lines. Online I'm just P3 playing on Xbox Live, you might be whatever you are, and I think that is an awesome, awesome thing about gaming. That is not an Xbox thing, that is true of our industry. So, when I think about games, I want games to be played by as many people as possible, that is part of our strategy at Xbox.

The question that we get then is sometimes, what about this specific closed platform? And that I really mean there is we're either kind of all in or not all in on one of these closed platforms. I don't think its healthy where for every first-party game that comes out I have to get the question, is that coming to Switch or is that coming to Switch, and it not because, I love Nintendo and our relationship with what we are doing, that want us to be all in or not, and there is this expectation from customers like there is now on PC, where people don't really question - there might be some timing things, on when certain things happen - but if we are shipping a first-party game it's coming to PC. If we are shipping a first-party game on PC it's coming to Steam and our own store. Like we built an expectation from our customers. That's my goal, and then there will be, as you said, maybe little anomalies every so often and because of relationships and certain developers that want to do certain things, but my goal is: make games as playable by as many people as possible so that this art form continues to grow. And I wanna be all in on the places where Xbox is, so a customer of those platforms can have an expectation that I'm gonna get to go play. And I feel good about the games that we are building, and I feel good about that on PC. You know if I rewind five years ago, I would say over and over, that we are committed to PC and then get a bunch of eye rolls, and rightfully so for we weren't doing much. But I think now when you look at what our standing is on Steam and Game Pass on PC, we have shown that our commitment over time has paid off. PC customers may or may not love what we do, but they know that when we are shipping things, we're gonna do our best effort on PC as well as on Xbox.

In terms of exclusivity, how do you view it in general? Aren't there certain perks or advantages for studios to work solely on one or two platforms, and providing value for said platforms?

In the short term, there is. But I think in the long term, that camaraderie very quickly turns into weaponising of exclusive games, of mine versus yours. And I think exclusive games for closed platforms are a marketing tool to drive adoption of those closed platforms. And do they work? There is data that says they do, and data that says they don't. Clearly, as you said, they are good at driving excitement. Let's take this holiday, obviously, PlayStation and Xbox are shipping new consoles. We are both going to ship as many consoles as we can, and I am going to predict that we are both going to sell every console we build in 2020. And if I had another exclusive game, all I could do would be to sell out more quickly, right.

The excitement for gaming is bigger than the excitement for exclusive games. Especially right now with Covid-19 and a high level of engagement in our business due to people being stuck at home and not physically socialising in the way they are used to. From an exclusivity standpoint, they are great marketing vehicles and they can lead to some great games. But if we take a higher-level view, is gaming better if more people get to play more of the great games in our ecosystem? I think that is true. And that is why we ship our game on Xbox, we ship our game on PC, and if you have an Android phone you can play our games too.

The fact that we sell our games on PC does undermine one of the value propositions in that it doesn't force somebody to go buy our console. Our high-level goal inside of our team, of how we measure ourselves, is how many people are playing on Xbox. And when we say 'playing on Xbox' it doesn't mean an Xbox console. It means somebody who is logging in and playing a part of our ecosystem, whether first-party or third-party. And it could be on an Android phone. It could be on a Switch. It could be on a PC. That's how we think about it.

Phil Spencer on exclusivity, monetisation and game development

So the Bethesda deal was monumental and took most of us by surprise. What do you hope to gain from this long-term, and I'm talking more broadly here than simply Bethesda titles making it to Game Pass on launch day?

First of all, I would like to say that we haven't acquired ZeniMax. We have announced our intention to acquire ZeniMax. It is going through regulatory approval and we don't see any issues there. We expect early in 2021 the deal will close. But I say that because I want people to know, I'm not sitting down with Todd Howard and Robert Altman and planning their future. Because I'm currently not allowed to do that, that would be illegal. Your question is completely inbound, but I get a lot of questions right now: "is this game exclusive? Is this game exclusive?" And right now, that is not my job in regards to ZeniMax. My job is not to sit down and go through their portfolio and dictate what happens.

In terms of what I want long term. I want those amazing studious to create the best games they ever created. That's when Todd and I sat down and had a discussion. Todd and I have known each other for years and years, and we talked about this partnership. We looked each other in the eyes and we said, 'okay, what are we really gonna do here?' And he said, 'I wanna build the best games that I've ever built and I want the support of Microsoft to be able to do that.' And I say the same thing about the studios at Arkane and id Software and Machine Games. I want them to do the most amazing work and support them in doing that.

Monetisation is becoming an increasingly important topic for consumers across the globe. With a renewed focus on strong first-party titles, is there a certain strategy you deploy for how these studios should handle monetisation?

We don't dictate at all the business model behind the games that are built, but I will say, I think that a healthy games industry, the more business models works for video games. So I think retail is an important part of video games, I mean I'm buying my games and I want that to continue to flourish. We've seen growth in subscriptions like Game Pass, free-to-play is obviously a huge business model for video games. I think there's other business models we could potentially bring into video games that could help, but the diversity of business models should be a strength for us as an industry. So for first-party, I would like us to kind of experiment with the different models, because I don't think we want to be beholden, as an industry, to one model to rule them all, if we were everything would be free-to-play, because free-to-play is clearly the biggest business model on the planet today, not even close. But I don't think we want one business model, I think we want gamers to have choice in how they engage and pay for the games that they're playing.

The same can be said for games with an inherent online focus, or even Live Service titles. Do you have a certain strategy as to how many projects at any given times are strictly single-player, or strictly multiplayer, or is it more fluid than that?

Yeah, it's totally up to each studio, and I know some people that, when they've looked at the model around Game Pass, have assumed that Game Pass is actually a better model, if there's more Games-as-a-Service games in the subscription. I actually argue the opposite and believe the opposite. The last thing I want in Game Pass is that there's one game that everybody is playing forever, that's not a gaming content subscription, that's a one-game subscription, that's WoW, right? So for us, having games in the subscription that have a beginning, middle, and end, and then they go on to play the next game, maybe those are single-player narrative-driven games, I just finished Tell Me Why, an amazing game from DontNod, those games can be really strong for us in the subscription. In many ways, they're actually better than one or two games that are soaking up all the engagement in the subscription. I want a long tail of a lot of games that people are playing, and I think the diversity of online multiplayer versus single-player, we have to support the diversity there, and that's my goal. If anything I'd like to see more single-player games from our first-party, just because that over time we've kind of grown organically to be more multiplayer-driven as an organisation.

Phil Spencer on exclusivity, monetisation and game development

Game Pass has become a fundamental part of Microsoft's identity going forward, and it's become a huge success on Android devices (through xCloud) and Windows 10 PC. Do you want to see it expand to Nintendo and PlayStation platforms? Is it "them" that is keeping the service from launching there, or are there any other challenges in regards to that?

I think for us it's all about priority, and reaching more players. So we went to PC first after Xbox, because there's just so many players there, globally, that don't own an Xbox, that we could go reach. We went to mobile next because there's a billion Android phones on the planet. It's significantly larger than any console player base. We still have iOS to go after, we will come to iOS at some point. We're still working on some of our technology on PC for larger screens in terms of streaming, and getting to iOS, and I think once we get through that, we look at what the other options are. There's smart TV's out there, there's Chromebooks out there, there's FireTV out there, there's a lot of discussions we would have, we would prioritize it based on where we would find the most new players, that we could naturally bring content to. I love the Switch, I love PlayStation, honestly, I think they've done an amazing job as being a part of this industry. I'm not sure that those are the next big set of users for us, but we could be open to those discussions.

In terms of consoles not being outpaced by PC development, are you planning for console life cycles to be shorter in future, or is there a value in having the same basic development pipeline for a long period of time?

It's a trade-off, and I think you hit it. Stable platforms for longer periods of time, means developers get more familiar and comfortable with engines and the technology. It's why we have the same core gaming platform across Series S and Series X, and frankly, we've moved that onto PC as well, so that developers now can look at more consistent development platforms across our devices. Because previously you built a Win32 game, if you were on PC you built something called an ERA game - so we're bringing those technologies together in something called GameCore that can help developers build more easily across broader platforms.

I don't think the development platform has to preclude underlying hardware from improving. We've seen that on PC. So, I think there's a slight difference between, "does your development platform grow and stabilise", and "will every individual piece of hardware underneath that platform also stabilize over years", in order for developers to get the most out of them. I think the software layer is more important.

I don't think we'll get to a world where we see console life cycles mimic what we see on say graphics cards, where it seems like every year there's something new that comes out. Because with graphics cards you're changing one component of a device that's in your home. Whereas a console tends to get installed into your rack, under your TV, and you just want it to work. You want it to be there, you want it to turn on. I think there will be a difference. Maybe the cycle will upgrade a little bit more than in previous years. But we are still supporting Xbox One. Frankly, we still have millions of people that log into Xbox Live on Xbox 360. We in the industry can get involved in this new, new, new, but we still have a lot of customers who are happy with their launch day Xbox One, and I want them to be happy for years to come.

Phil Spencer on exclusivity, monetisation and game development

What kind of lessons have you taken away from this year's "summer of announcements"? Has a year without E3, Gamescom, etc worked better than you thought?

It has worked better than we thought. Like going into it, everything starting in February and March, and looking at the summer, we had no idea, we hadn't trained in dealing with a global pandemic and what that was gonna mean. So I think when we look at the engagement numbers that we see, if we just go for the metrics standpoint, we feel pretty good about how the summer went with all the different announcements. There are always learnings, but I feel good with the reach that we had.

The thing I miss most is the gamer community coming together. And that is something that we haven't really replicated on any of the platforms yet. That is not a shot, that is just us as an industry. I'm on the board of the ESA who runs E3, and we talk about that. Sony, Nintendo, EA, Activision, they are all on the board as well, Ubisoft and Take 2, so we are all kind of thinking through these issues. That's the thing I miss.

I'm a comic book nut so I love Comic-Con, I love people going and experiencing the kind of physicality of what it is. It's not safe to do that now, so I'm not questioning the decision that was made. But I think we can do both. I think we can have strong digital platforms where we reach tens of millions if not hundreds of millions of viewers, but I also like that physical community, I think it's a healthy thing for our industry, and I like to see us continue to work in how we celebrate gaming together as fans of this art form. And that's an area I like us to see continue focusing on.

Oh, and one more thing...

Without going into too much detail, which first-party studio's currently unannounced game are you most excited for the public to see?

I'm gonna give you two if that is okay? One of them is Compulsion. When I first saw We Happy Few, there was an art style and a setting that I thought was really unique. It's a young studio and they are still growing and learning the craft of what they are as a team. But looking at what they're gonna do next, I love their ability to create new worlds and unique settings. That is always something that is fun. So without saying too much that is one of them.

The other one I would say is The Initiative. Which is our studio in Santa Monica. I've played what they are doing next. Just the talent we have been able to bring into that studio led by Darryl Gallagher is amazing, especially when you bring such an amazing group of creators together, and create such a culture that Darryl is working to create there.

I'm incredibly excited both to be able to form a new studio, to attract the talent we have, and the game that they are working on will be fun to get to announce.

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