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The big XO19 interview: Xbox boss Phil Spencer on Game Pass, streaming and Project Scarlett

"I'm not going to sacrifice performance for the sake of price."

At Microsoft's big XO19 event in London yesterday, Xbox boss Phil Spencer told the gathered press all about Game Pass, the company's video game subscription. He spoke about the Yakuza games coming to Xbox for the first time. He spoke about Final Fantasy games coming to Xbox for the first time, including even Final Fantasy 14. And he spoke about Project xCloud, Microsoft's take on video game streaming, which already seems like a cool proposition as it plans integration with Game Pass in 2020.

That's a lot of Game Pass. And why not? It's such an incredibly good deal for gamers, and, it seems, is doing the business for Xbox, so it feels right it should form the basis of Microsoft's video game strategy in the near to medium term. And yet, it seems, doubts linger.

In a recent interview with Eurogamer sister site, Spencer's counterpart at Sony, Jim Ryan spoke about his company's rival video game subscription service PlayStation Now, which is on the up after a recent price cut. Essentially it's the same as Game Pass, but there is a stark point of difference: Sony will not put its big first-party PlayStation exclusives on PlayStation Now at launch. Microsoft puts all its big first-party games on Xbox Game Pass day and date with their launch in the shops. Why does Sony keep the likes of God of War, Spider-Man and Days Gone off PlayStation Now at launch? To have those launches be "clean and pure", Ryan said.

This was on my mind as I sat down to talk to Phil Spencer at XO19. This, his interest in streaming longer term, whether he's done buying studios after aquiring the likes of Obsidian, Ninja Theory and inXile, and of course righting the wrongs of the terrible launch of Xbox One with Project Scarlett.

Xbox boss Phil Spencer.

Game Pass is clearly a big deal for you. What are you most interested in when you try to measure the success of a title on Game Pass? Is it engagement? Is it downloads? Are you just looking at pure subs? How do you work out if a thing that is on Game Pass that you've put there is successful?

Phil Spencer: Players. How many people play a game. But I think we'll get more sophisticated than that over time. As Game Pass continues to grow, I don't want us to think that every game has to reach every subscriber. Because the subscriber base is already too big for that. What I love is when creators can understand that in a base of players that's that large, there are sub-communities inside of Game Pass where you can say, hey, I'm gonna go do a black and white puzzle game because I know there are a few million people there who will go play that game. Somebody else can say, I'm gonna do a turn-based strategy game because I know there are enough people.

I really want to foster diversity, not every game trying to reach every player from now until the end of time, which so many games I see that are pure retail today, their model is, here's how I bring people in and here's how I keep them playing forever and ever. That's great for some games, but I don't want every game to be that kind of game, because it's just not true that the creative lends itself to every game being that game.

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You touched on this in your opening remarks, where you said this enables games with a beginning, middle and end. I found myself marvelling that I'm cheering that games can be games again, that this is the world we live in.

Phil Spencer: The number of single-player games being built has gone down as an overall percentage of the games being built. I say that and people throw Sony's first-party at me or something, and they've done a great job building single-player games. It's not really about that. I see all of the games all of the publishers are building. I have - not because I'm smart - I have insight into what's coming and what the publishers are thinking. The thing I saw a couple of years ago was, everybody is kind of chasing this perpetual, how do I keep everybody into all of my franchises all of the time? This is when I said, Game Pass can actually enable great single-player games and stories to be told.

There was a little bit of conflict when I said that. But it was nice to see something like Outer Worlds. Yes, it's from one of our studios, but to boot that game and know that if I want to be done in 20 hours from now I can be. And if I want to play it for longer I can. There are certain games where that's what they should be, and I love that.

In that context, how do you view the success of a title like Gears 5? It's obviously not about sales for you. So how do you justify the investment in a big project like that? How do you measure its success when you've got this game that's coming out on Game Pass day and date with retail?

Phil Spencer: Gears 5 sold well for us. It sold better than Gears 4. And we feel good about it. If people want to make the choice of buying Gears, that's an option we want to give them. I'm not trying to funnel everybody who wants to play Gears into the subscription. It's about giving gamers choice. Certain players will make the decision as part of Game Pass that they'll either want to start to subscribe, or they're already a subscriber and they stay subscribed.

Right now the easiest metric to talk to Rod or anybody about the success is, how many players did we find with this game? And let the gamers choose how they actually want to get the entitlement for the game. It is an evolution, there's no doubt. Studios have been trained that, what I look at is what are my day one sales, what are my week one sales? And as an industry, the press wants to know. Hey, how do I judge if Gears 5 has been a success? What I will say is we're incredibly happy with Gears 5. It did review well. It has a tonne of players. We're taking feedback on certain things. The economy - I see the feedback on the game as well. But I thought it was a great release in the Gears franchise and it drove a tonne of players who wanted to go play, and that's awesome.

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You've committed to having your first-party games launch on Game Pass day and date with retail. In fact you put all of them on there. This is in stark contrast to Sony's approach. Sony does not put its big first-party games, the God of Wars, the Spider-Mans on PlayStation Now day and date. There is a really interesting quote from Jim Ryan in a recent interview with our sister site, where he talked about why Sony does this, and I'd love to get your take on it.

He said, and I quote: "... given how some of our first party IP is incredibly special and valuable, we just want to treat them with amazing care and respect, and have those launches be clean and pure."

What I think he's saying there is, our big first-party games are too good to give away on a subscription. That's such a different approach to what you guys are doing. How do you apply that thinking to Gears 5, for example? Does putting it on a subscription platform day and date detract from the sense of it being this big, great first-party title?

Phil Spencer: It hasn't in any other form of media. I don't think people look at Game of Thrones and say somehow it wasn't quality because it shipped inside of a subscription. I think most people would look at the amount of investment and the quality of execution that happens in TV at least in the subscriptions as being incredibly high.

What I'll say for us - and I'm trying to figure out how much I want to dive into this because it could get messy - giving developers a business model that's already working at scale inside of a subscription - and I think there's some confusion out there whether Game Pass works. Game Pass works as a business model. There's no doubt about that. Even today. It works. It works incredibly well - allows us to go and invest in the studio acquisitions we've done and the quality of content we're building over the next two or three years that's gonna show up. It's an integral part of the business model that allows that. And we also do retail.

I think those games can be and will be very special. I think Gears 5 can be a game of the year award winner. I think Outer Worlds can be a game of the year award winner. The fact it shipped inside of Game Pass and found more players does not take away from the experience. In fact it's more inviting to more people.

Gamers in general, there is sometimes a tendency that the more walls we put up around things, the more valuable it is. But if we're focused on growing the games industry, we should not be less accessible. We should be more accessible. We had this argument for years over cross-play. Should we allow people to play across different platforms? Or does that somehow diminish the value of an individual platform?

The thing at the highest level, which will probably get me in trouble, is as gamers you should focus on what you want, not focus on, like, my P&L [profit and loss statement], or the P&L of the console you chose to invest in. I see this dialogue about somebody worried that somehow Xbox is gonna make less money, or their console is gonna make less money if they tell me a game is going to be on a different platform before it actually comes out, or it's gonna be in a subscription, which is really what I want, but somehow that's gonna mean less money for them so I don't want them to do that because I'd rather pay more money so...

You should focus on you as a gamer and the things that matter to you. We as the people running the business - I am incented to run a good business inside of Microsoft and in the long term. I've been here for 31 years. I don't know that I'll make 31 more, but I'm not going anywhere tomorrow. We're building an Xbox business for the long run. I'll tell you, Game Pass today is a strong part of that, and it continues to get stronger, and it supports the building of great IP.

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You have 15 studios now. You've been on an impressive acquisition spree. Are you done now?

Phil Spencer: No!

I do think we can sometimes get a little infatuated with putting a bunch of studio logos on a slide and that becomes the news. They're not trading cards. They're studios. And we want them to build great games. I love the fact we're here announcing three new IP, two from our internal studios. As I look forward, there's not a show I can look at where we're not gonna be announcing new games, just because of the breadth of studios we have. It's not really some kind of PR battle about how many new acquisitions we can put on stage. Because if we're not building great games, the acquisitions don't matter.

But are we done? I don't think so.

You're still on the hunt then?

Phil Spencer: Yeah. There are great creators out there. Our business continues to grow. The company is incredibly supportive of what we're trying to build. Microsoft talks about gaming as a key pillar of its consumer interest and its strategy. We're getting a tonne of support from Satya Nadella, Amy Hood and the board. And we're running a good business today, so we've earned the right to continue to look.

What are you looking for?

Phil Spencer: I look at the geographic diversity of our studios. I love the fact we now have three studios here in the UK. You can go back decades... you could argue the UK is as strong as any country in terms of its impact on the history of video games. I love that we're here in such strength. Now we have studios in Canada, studios in other parts of the US. I think we have a hole in Asia. I've said that both to Matt and publicly. I would love to have more of an influence in our own first-party team from Asian creators. There's nothing that's imminent, so it's not a pre-announce of something. But if you just plotted where we are on the map with our first-party, that's a real opportunity for us.

I love the fact we can stand here and announce Yakuza and Kingdom Hearts and Final Fantasy coming. That's through third-party relationships, which take time. And we've been really focused on that. But I think we could have stronger first-party creation capability there. We have in the past and I think we should again.

You could just buy Nintendo and that would be sorted! I know this isn't your focus here, but you are launching Project Scarlett in a year, which isn't far. You have started to talk about it a bit more. With that in our consciousness now, is it a tough sell for Xbox One for the rest of the year? Is it, ultimately, a waiting game until next-gen?

Phil Spencer: For certain people we're doing things like Xbox All Access, which has the upgrade program of buying an Xbox for a monthly fee. You and I are probably too close to it. There are millions of people who play console games today on any of the platforms who couldn't name what generation they're in, or when the next-generation is coming. I look at our Xbox stats all the time. We still have millions of players who play on Xbox 360 every month. Still. That hardware is 12, 13 years old and they're still playing. Maybe they know there's an Xbox One or PlayStation 4 out there. Maybe they just enjoy playing their games.

You say, is it harder to sell a console? We're gonna sell millions of consoles this year. Yeah, for people who are aware, which is the reason we wanted to talk about it early, who know what an E3 is, or a Gamescom or an XO, we want to be transparent with those people. But we shouldn't lose sight that there are millions and millions of our customers who, just because it's the holiday season or birthday or somebody's got some spare cash says, hey, maybe we're gonna add a game console to our family. Let's just go to the store today and see what they have. And they're not thinking about what's next year or what's last year. It's very much a now decision. We want to have a great value proposition for them, and great games for them as well.

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You had talked about new future Xbox consoles plural. But I think you're talking about Project Scarlett in the singular now. We've heard about this Scarlett lite, or Project Lockhart. Can you put this to bed and say you are definitely not making that? Are you still doing new Xboxes plural, as you've said in the past?

Phil Spencer: Will I say I'm not doing something? We're focused on Project Scarlett and delivering a high performance console. There's no doubt about that. I will never remove options for us. When we launched Xbox One, would I have predicted S would have come? Or X would have come? Or the All-Digital edition would have come, which frankly is doing well, which is good to see. We also did just ship the development kit, which is another console.

But you know what I mean when I say Xbox consoles plural.

Phil Spencer: I know what you're saying, but I will say from the team's perspective, shipping the dev kit is as much work as shipping a retail product. You're shipping thousands of them out to partners. It is a dedicated piece of plastic they're gonna plug in and develop for. It's just a tonne of work. So I won't remove options from the future.

I will say, from the launch of Xbox One, I've definitely learned that being too expensive and not powerful enough is not a great place to be. And price and performance are gonna be important, and we're very focused on both of those things.

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Mark Cerny, talking about PS5 and the price of silicon and SSD costs now, you're looking at a potentially high price for the console. But you're suggesting you're gonna be aggressive when it comes to pricing, that this is something you've learnt from the Xbox One launch - that you're somehow going to deliver such a generational leap but also keep it reasonably priced.

Phil Spencer: If you remember at the launch of Xbox One, we were $100 more expensive and less powerful. So, I won't be in that position. There's no doubt about that. As an industry that's growing so fast, we do think about price. We do think about performance as well. I'm not going to sacrifice performance for the sake of price.

Moving on to streaming. Would you consider trading selling consoles if it meant you had ownership of streaming? Like, you owned video game streaming globally?

Phil Spencer: No. No. Streaming is not a replacement for the console experience today. I'll be open: we looked at that. When Satya and the board gives us freedom to go drive gaming for Microsoft, they don't mandate that we make Project Scarlett. They don't mandate that we go do streaming. They say we want to become a global leader in gaming. We want to build our first-party. We want to build out the platform. We've got complete hardware capability. And we looked at it and we said, should we do Project Scarlett? A bit like when we did X, we did Project Scorpio and we said, why should Xbox One X exist? And we said, we want to design a 4K console. Certain people made fun of us when we said that. Is it true 4K? I think now when people look at it they say, okay, it's capable of doing 4K. Not every game will, but it's capable.

So we looked and we said, will Project Scarlett play a role in the gaming future we see? And that's really a question of, is playing local on a local device in your home still the best way to play for many many years? We're as invested in cloud as anybody in terms of the cost standpoint, and we said yeah, local play on a device is going to be the best way to play, whether it's a gaming PC or a console. And that's for years.

So if you ask me today would I go all in on streaming, and ignore the console? Project Scarlett is the most important thing we're doing next year. Leading in the console industry is something we want to do both in sales as well as leading in things like cross-play, back compat and Game Pass and all of the innovations we've brought in Xbox One. Yeah, we're going to continue to invest in cloud because we think it allows us to bring that experience to more and more people. But we're years away from that competing from a fidelity standpoint and a kind of feel for what people do on a local device.

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