Microsoft's Phil Spencer on Xbox growth, recent job cuts and the future of games on discs (+ ABK/COD on Game Pass Day 1)

[Welfare]

Microsoft's Phil Spencer on Xbox growth, recent job cuts and the future of games on discs

Plus: A brief chat with legendary Nintendo composer Koji Kondo

www.gamefile.news

Phil on the industry today

“I don't think we're doing a good enough job finding new players,” Spencer said. “Let's pick consoles as a good example: We found 200 million global households that will play console games. And that number really hasn't changed in the last five, six years.”

“We've raised the price of games,” he added, acknowledging the increasingly common $70 price point following nearly two decades of $60 games. “We went through COVID. We found ways of getting more money per player. I think at some point you reach a peak on that, and, frankly, it can go to some places that are manipulative that I'm not a big fan of.”

The solution, he said, is to “find new customers, and you find new customers through new ways of delivering games to players who can't play those games today, whether that's device, whether that's access, whether that's price point of video games.”

Cloud gaming growth: Now +10% of total hours played of Xbox games, demand for cloud servers higher today

Cloud adoption and expansion had been slow, but is finally picking up, Spencer said. Gaming via the cloud now accounts for a double-digit percentage of total hours of Xbox games played, he noted. “There was a time when we weren't deploying more [server] blades because we had more supply than we did demand for the server racks that we had in place,” he said. “That's clearly not true today.”

Cloud Growth from new markets, TVs, Chromebooks, and Android tablets

Xbox cloud gaming growth in the last six months, he said, has been “in markets that are never going to be console markets,” and has been spreading across TVs, Chromebooks and Android tablets.

Phil still believes Series S will outsell Series X

As for the Series S, Spencer told me in 2020 that he expected it to outsell the more expensive Series X lifetime. He told me last week that he still expects that to be the case.

Phil on the 1,900 job cuts

“I have a commitment to the company on the Xbox business being a profitable and growing part of Microsoft,” he said. “And I need to put us in the best position for long-term growth. Most of that is about building great products that exceed their expectations and find millions of customers. But honestly, you know, the cost of building the products inclusive of the people who work on them—I need to make sure we have enough of the right people and the right number of people in the right places for us to succeed.”

Why cut so deep? “I'd say it was a combination of us looking across the full portfolio of what was working, which we have to do, and running the business, as well as areas of alignment between Activision, ZeniMax and Xbox,” Spencer said. He also noted that, since the acquisition of the ZeniMax family of studios three years ago, the organization added “about 15,000 people” to its business.

On discs in the Xbox ecosystem

Spencer wouldn’t talk to me last week about that leaked all-digital Series X, but said Microsoft will “follow what the customers are doing.”

“We are supportive of physical media, but we don't have a need to drive that disproportionate to customer demand,” he told me.

“We ship games physically and digitally, and we're really just following what the customers are doing. And I think our job in running Xbox is to deliver on the things that a majority of the customers want. And right now, a majority of our customers are buying games digitally.”

He also hinted at some economic concerns. “Gaming consoles themselves have kind of become the last consumer electronic device that has a drive,” he said. “And this is a real issue, just in terms of the number of manufacturers that are actually building drives and the cost associated with those. And when you think about cogs that we're going to go put in a console—and as you have fewer suppliers and fewer buyers—the cost of the drive does have an impact.

“But I will say our strategy does not hinge on people moving all-digital,” he said. “And getting rid of physical, that's not a strategic thing for us.”

Commitment to releasing the full portfolio of ABK, Zenimax, and XGS titles on Game Pass Day 1, and that PC and Xbox would get ABK games simultaneously

“Our intent is the full portfolio of games from ZeniMax, Activision Blizzard and XGS—Xbox Game Studios—will be on Game Pass, day one,” he said. (Day one = when they also go on sale.)

Spencer said there is development work to be done to get Game Pass launches going for the Activision Blizzard games. “We're doing the back end work to make them come to PC and console simultaneously,” he said.

More context in the linked article.

 

[ItWasMeantToBe19]

Microsoft should definitely fire Phil before Call of Duty can be on Game Pass day 1.

Should avoid throwing away hundreds of millions of dollars for no reason.

 

[Aquamarine]

Microsoft is definitely phasing out physical discs. Their PR is deliberately non-committal so as to not offend anyone or generate any headlines, but the writing is on the wall for sure. Double digit physical SW declines YOY, incredibly small physical SW marketshare in all territories, Xbox just fired most of their physical licensing team, leaked docs showing that Microsoft is planning for an all-digital Series X refresh to launch this year, etc.

2024-era Microsoft is desperate for growth, and their first target to drive growth through cost-cutting is disc drive costs as well as ~$10 margins sacrificed to disc manufacturing, shipping, and retailer / wholesaler cuts now that the Xbox userbase is fully conditioned to playing their games digitally.

I personally expect that the original Series X from 2020 will be the last integrated disc-based console that Microsoft will ship. Maybe they'll have an external disc drive add-on with small disc print runs for collectors, but it will be ancillary to their Xbox strategy moving forward.

 

[salesguy]

He also hinted at some economic concerns. “Gaming consoles themselves have kind of become the last consumer electronic device that has a drive,” he said. “And this is a real issue, just in terms of the number of manufacturers that are actually building drives and the cost associated with those. And when you think about cogs that we're going to go put in a console—and as you have fewer suppliers and fewer buyers—the cost of the drive does have an impact.

see, thats interesting and speaks to what i talk about sometimes about hardware decisions being driven in ways we dont have visibility of (nvidia vs amd, arm vs x86 etc). he's basically saying disc drives have fewer and fewer manufacturers and are getting more and more expensive. this means discless is a complete inevitability for both MS and Sony. new information was learned today for me.

about the cloud, i'm sorry but talking up cloud doesnt set well with me when xbox cloud efforts are anemic at best and some of the worst amongst it's competitors like geforce now or even stadia previously. last i knew for example, they limited to 720p bitrate where competitors did much more. worse, absolutely no timeline for improving this seemed known (correct me if that's changed). it's like the sad state of windows on handhelds. talk is cheap, and phil is good at talking, but ms seems to have an inability to actually get things done.

i dont feel like his talk of trying to make it seem like cloud is expanding horizons to new gamers has any truth at all right now. maybe one day.

also, it's gonna be gulp and blink time when it's time to push the button for cod on gamepass lol. thats a lot of money to stare in the face. but, they will have ps5 and pc to spread out the blow for sure.

 

[allan-bh]

I think they will basically let physical media die naturally on Xbox, they're almost there, so no need to abruptly end.

 

[ohlawd]

day one Game Pass ABK is all I need

 

[Terrell]

He also hinted at some economic concerns. “Gaming consoles themselves have kind of become the last consumer electronic device that has a drive,” he said. “And this is a real issue, just in terms of the number of manufacturers that are actually building drives and the cost associated with those. And when you think about cogs that we're going to go put in a console—and as you have fewer suppliers and fewer buyers—the cost of the drive does have an impact.

There’s a solution to this problem, but they don’t want to take it because it means trimming their take-home per software unit sold. Because he’s not wrong, disc drives are a big expense (both in original manufacture and frequency of repair) and manufacturing of the drives is beginning to ramp down from lower demand. But there are non disc drive methods to keep retail going without everything going to digital codes, they’re just not going to like those methods. And that leads me to the conclusion that…

Microsoft is definitely phasing out physical discs. Their PR is deliberately non-committal so as to not offend anyone or generate any headlines, but the writing is on the wall for sure. Double digit physical SW declines YOY, incredibly small physical SW marketshare in all territories, Xbox just fired most of their physical licensing team, leaked docs showing that Microsoft is planning for an all-digital Series X refresh to launch this year, etc.

2024-era Microsoft is desperate for growth, and their first target to drive growth through cost-cutting is disc drive costs as well as ~$10 margins sacrificed to disc manufacturing, shipping, and retailer / wholesaler cuts now that the Xbox userbase is fully conditioned to playing their games digitally.

I personally expect that the original Series X from 2020 will be the last integrated disc-based console that Microsoft will ship. Maybe they'll have an external disc drive add-on with small disc print runs for collectors, but it will be ancillary to their Xbox strategy moving forward.

That last point is absolutely what I expect, far cheaper to fix a disc drive when it’s not an integrated piece of the hardware. And it doesn’t need to be, as PS5 Slim proves.

 

[Pancracio17]

Microsoft should definitely fire Phil before Call of Duty can be on Game Pass day 1.

Should avoid throwing away hundreds of millions of dollars for no reason.

The damage this does is kinda mitigated because the biggest audience for CoD is on PS, which doesnt have gamepass. And also the MTX heavy nature of these games.

Still, if I were MS id be looking to delay CoD on gamepass to at least december or january. Its gonna be interesting to see if day 1 CoD changes any trends at least.

 

[Danny]

CoD on gamepass will be an interesting case study, if that series on gamepass can't lead to huge jump of gamepass subscriptions it would mean that nothing could do that, this is the biggest series in the western world today so if such a huge series doesn't lead to gamepass seeing a radical rise its almost a lost cause for them in the end.

 

[allan-bh]

CoD on gamepass will be an interesting case study, if that series on gamepass can't lead to huge jump of gamepass subscriptions it would mean that nothing could do that, this is the biggest series in the western world today so if such a huge series doesn't lead to gamepass seeing a radical rise its almost a lost cause for them in the end.

A radical rise will only happen if it's drived by PC and cloud subscribers because Xbox has a limited install base were likely a big amount of owners already has gamepass and hardware sales shouldn't increase that much because CoD will remain on Playstation and is coming to the next Switch.

 

[duvjones]

The solution, he said, is to “find new customers, and you find new customers through new ways of delivering games to players who can't play those games today, whether that's device, whether that's access, whether that's price point of video games.”

On that, I think that me and Phil are in agreement. Building a wider customer base should be the focus.

There’s a solution to this problem, but they don’t want to take it because it means trimming their take-home per software unit sold. Because he’s not wrong, disc drives are a big expense (both in original manufacture and frequency of repair) and manufacturing of the drives is beginning to ramp down from lower demand. But there are non disc drive methods to keep retail going without everything going to digital codes, they’re just not going to like those methods. And that leads me to the conclusion that…

Honestly, it feels as if Mircosoft, a company that concerns itself with software, was never married to physical media to begin with and did it because the market leader at the time (SIE) was. I think that if you see them walk away from disk media to all digital box, it would be a rather logical move.
That said, their are means around disk media without moving to an all digital box, whither Mircosoft does that is anyone guess but personally, I don't expect it.

 

[Godzilla]

A radical rise will only happen if it's drived by PC and cloud subscribers because Xbox has a limited install base were likely a big amount of owners already has gamepass and hardware sales shouldn't increase that much because CoD will remain on Playstation and is coming to the next Switch.

The issue with PC Gamepass is that there's not a "digital monopoly" as in Xbox, there's plenty of digital stores which can have their own potential sales, etc... Also, regional pricing is a much more normal practice in PC than in Consoles.

So, i can expect PC gamers to be way less open to subscriptions since they have ways to find cheaper games, in console? you are a bit tied up (especially in this digital era). They need to work that out, but lowering price in regions to make it more enticing might go against their potential revenues.

Another point of contention is that PC gaming is way more skewed towards a set of games compared to console gaming, or so it seems.

It's a hard decision.