While Microsoft says it remains committed to the Xbox console, it also has come to understand that to succeed in gaming at a scale that matches the growing form of entertainment, the company can’t simply court people who play games on a console.
And that is Microsoft’s goal, to reach not just a market in the tens or even hundreds of millions, but in the billions.
“There are 2 billion people who play video games on the planet,” said Phil Spencer, Microsoft’s vice president who oversees gaming. “The business is over $150 billion and both numbers are growing by double digits.
“Then talk about Microsoft, which is a huge company with huge aspirations and this is a business we are in with great leaders, great teams, great fans. I love the Xbox One team, they did an incredible job with that and we have a long term commitment to the console space, but when you think about 2 billion people, we’re not going to sell 2 billion people a game console.”
Spencer is sitting in a downstairs room at the Microsoft Theater in L.A. Live, just across the street from the LA Convention Center and the heart of a bustling E3.
Popular on Variety
It’s the day after he took the stage at that theater to host what became the most-viewed Twitch stream ever. In it, Spencer served as a sort of emcee to a stream of developers and videos which showed off about 50 games. He also used the international stage to succinctly address the state of the Xbox and Microsoft gaming in general.
It was the first time Spencer, who started at Microsoft 30 years ago as an intern, spoke to this audience under his new title, a title that brought with it a sea change in the way Microsoft views gaming.
That promotion, Spencer told Variety during an interview, came along with a conversation with Microsoft CEO Satya Nadella, the first of many as Spencer now reports directly to him.
“The discussion inside the company in previous years has always been, ‘How can gaming help Microsoft? How can it help Windows, Windows Phone, Azure?’,” Spencer said. “The pivot [last summer] was ‘How can Microsoft help us lead in gaming?’ It really turned the equation around. ‘What are the investments we can make?’ That was part of my position changing, being on the senior leadership team and having a higher-level discussion with Microsoft.”
Spencer said the company was already heading in that direction before his promotion, and was shifting its focus from thinking of its devices first to the gaming customer first and all of the devices they may want to play on.
“We were putting gamers at the center and content, services, and devices around that,” he said. “You don’t dictate that one device has to be the thing when you think about your brand or content.”
The Future of the Xbox
That doesn’t just beg a question, it practically opens the door to a fear: Is Microsoft doing away with the console?
When Spencer said that the company has a long-term commitment to the console space, Variety pressed him on what that means exactly. How, for instance, does he define console? Could it simply be a box that streams content, like a Microsoft take on Apple TV or Amazon Fire TV Cube?
“When I say console, I mean console the way you and I grew up playing consoles,” Spencer said. “It’s a device I play on a screen that has high-fidelity experiences, that’s highly immersive and is the way I play most of my games.”
Spencer pointed out he was just playing “State of Decay” on an Xbox One while waiting for the interview to start.
“Strategically, this is important to us,” he said. “Our content partnerships are from consoles. The foundation of our great relationship with EA, Take-Two, Activision is the fact that we have a console and those companies do an amazing business on that console. We are a platform provider for that.
“When people hear Xbox they think about a console plugged into a TV. More and more I want to think about how I get access to what I want everywhere, but the center of the experience we have on the console is something we are committed to.”
Variety notes that Microsoft sort of shook the foundation of that console definition when it first announced the Xbox One, saying it required an internet connection and seemingly promoting the entertainment facets of the system more than its gaming cred.
“That was a time when we weren’t as clear as a company about whether we wanted to be a gaming company or an entertainment company,” Spencer said. “It wasn’t always clear what the core of that product was when we were talking about it.
“The thing I love about being the head of gaming, not entertainment, is that gaming is now a top pillar of the company. I sit next to the head of Azure and Office. So when we say console, we mean a gaming console, not some local device that plugs into a television.”
That commitment, and perhaps the fear by some fans that it may stray, is why after noting that Microsoft was looking into streaming game services, he also announced that they were working on the next Xbox consoles. It was almost in the same breath.
Spencer said had he been in the audience listening to the head of gaming at Microsoft and heard him talking about the cloud and knowing that the Xbox One X had shipped, he would have wondered if Microsoft was as committed as he is as a gamer to the console he had purchased from the company.
“We have to earn our dedication,” Spencer said. “The point about (talking about the new) console was to be transparent with the people sitting in the front rows screaming about the product. The investment made in us, in our product and platform is something we’re going to take seriously.
“I was reassuring fans by just letting them know that we know what their heart investment is about today.”
Microsoft’s commitment to the traditional console aside, the company is certainly aware of and pursuing its own take on streaming services that would allow a much greater portion of that 2 billion-person audience to play Microsoft games.
Spencer said that this year is a sign that video games are a mainstream business, the companies like EA and Microsoft are in a mainstream form of entertainment, and that evolution and innovation will happen.
“Frankly,” he said, “we’ve been on that journey since you and I were playing on the original Xbox. There is an evolution of experience, it is never static.”
The idea of a platform is the latest thing to be changing and it has been changing for awhile. While some may worry over what it will mean when people can stream content from cloud servers to a television or smartphone, laptop or tablet, Spencer points out that the industry has already taken quite a few baby steps in that direction.
“So many games rely on a backend to keep them running,” he said. “Sitting next to the leader who runs Azure, Microsoft’s cloud platform, it has been a great discussion of what is the definition of a platform when you have intelligent edge devices and intelligent cloud and how you work with developers to understand this world.”
You can have an incredible experience on a console, but a customer who plays on a console isn’t always going to be at home. When they move out of their house and only have a less powerful device to use, they may still want to play the same games and connect with the same friends through those games. Enter the cloud and the ability to extend that service to less powerful devices. So now platforms can morph and games can transform based on compute power.
And all of that is powered by cloud-based servers.
“One of the advantages we have in a company like Microsoft is that we have invested huge in Azure,” he said. “We have 50 data centers, so we have first-party cloud infrastructure.
“Ubisoft is using our cloud services, ‘PUBG’ is using them, AWS (Amazon Web Services) is a huge business.”
All of that backend cloud connectivity doesn’t mean games as a service, or always online games, it’s how many games today stay up to date with patches and updates. That includes single-player-only games.
Ultimately, what needs to happen, Spencer said, is that all of those ways to play need to be thought of as a single platform, an experience that can move seamlessly from device to device.
Xbox Game Pass
The thing is, Microsoft already has a sort of Netflix for gaming. They call it Game Pass, and in its infancy, it’s not really a full-fledged all-you-can-play service, but it seems to be moving in that direction.
Launched in February, 2017, the service went live with a handful of games to what amounted to a group of opt-in beta testers. Then it was rolled out to Xbox Live Gold members, and finally to everyone.
At last year’s E3, Microsoft announced that the service, which allows a person to pay a monthly fee to download and play as much as they want from a list of supported games, would start to include some Xbox 360 titles as well.
At the beginning of this year, the service started to host first-party games the same day they were released for sale.
Currently the Game Pass has players download the entire game they want to play to their console before being able to play it. It’s also only supported on the console, but both sound like they could change.
“We’re not announcing anything here,” Spencer said. ”But the path for taking a service like Game Pass and bringing it to PC is a natural pass.”
The success of the service has been “awesome,” he added, and it’s a service the company has evolved rapidly in a short period of time. While the company has a timeline in mind, they also make sure to stay agile so they can respond to what players want.
Streaming games to a system sounds like it may be on the timeline as well. The ability to do something like that, Spencer notes, isn’t years away. “We’re much closer than that. That’s why we announced it on stage.”
A 2 Billion Person Point of View
Microsoft isn’t in the business of trying to win over the existing game console market to a new way of playing games.
“We’re not trying to convince you to turn off your console,” Spencer said. “But think about scenarios that aren’t around the console or parts of the world where they won’t ever have a console. You need to give gamers value. Creating restrictions where they don’t find more fun or more community is a losing proposition. What’s in it for the gamers?”
Spencer acknowledged that Microsoft still has some work to do on that front, on not just communicating that important message, but genuinely creating more value for gamers so they might try these new things.
And 2018’s E3 seems like it may have been the first step in that direction.
“This conference … ” Spencer said, pausing. “It will be interesting to look back at this E3.”