In a wide-ranging interview, the CEO of Xbox Game Studios seemed to admit Xbox can’t compete in the console race against Sony and Nintendo.
Phil Spencer, the head of Xbox Game Studios, has appeared in a somewhat extraordinary interview with Kinda Funny Games, which has provided some fascinating insight into the thinking at Xbox HQ. It’s a surprisingly candid interview for the CEO of a big games company, and we’ve already covered Spencer’s reaction to the disappointing reviews of Redfall. But the really juicy insights come right towards the end of the video, at around the 36-minute mark. I’ve reproduced Spencer’s comments in full below, and I’ve highlighted some of the key statements in bold. This quite a long chunk of text, but I think it’s worth reading through in its entirety because it’s so revealing of what the strategy is at Xbox right now:
“We’re not in the business of out-consoling Sony or out-consoling Nintendo. There isn’t really a great solution or win for us. And I know that will upset a ton of people. But the truth of the matter is that when you’re third place in the console marketplace and the top two players are as strong as they are, and have in certain cases a very discrete focus on doing deals and other things that make being Xbox hard for us as a team – that’s on us, not on anybody else – our vision is that everybody who’s on console has to feel like they have a great experience and they’re a a first-class citizen, they’ve invested a ton in our platform.”
“But we’re not in a position… I see it out there, I see commentary that if you just build great games, everything would turn around. It’s just not true that if we go off and build great games, all of a sudden you’re gonna see console share shift in some dramatic way. We lost the worst generation to lose in the Xbox One generation, where everybody built their digital library of games. So when you go, and you’re building on Xbox… we want out Xbox community to feel awesome, but this idea that if we just focused more on great games on our console somehow we’re gonna win the console race I think doesn’t really lay into the reality of most people. Like 90% of the people who every year walk into a retailer to buy a console are already a member of one of the three ecosystems, and their digital library is there. This is the first generation where the big games that they’re playing were games that were available last gen – if you think about Fortnite and Roblox and Minecraft – like the continuity from generation to generation is so strong.”
“I see a lot of pundits out there that kinda want to go back to the time when we all had cartridges and discs, and every new generation was a clean slate, and you could switch the whole console share. That’s just not the world that we are in today, a world where Starfield's an 11/10 and people start selling their PS5s – that’s not gonna happen. So what we have to do, and we have this unique vision because we see what creators want to do, creators want to build games that can meet players on any screen, people play with their friends regardless of what other screen they’re on.”
“And the console is the core of the Xbox brand, there’s no doubt, so like we will stay focused on making sure that console experience is awesome. But I know some people want to hold us up as just being a better green version of what the blue guys do, and I’m just gonna say there’s not a win for Xbox in staying the wake of somebody else. We have to go off and do our own thing, with Game Pass, with the stuff we do with xCloud and the way we build our games.”
Taken as a whole, the statement seems to indicate that Xbox has essentially given up on the current console race: “We’re not in the business of out-consoling Sony or out-consoling Nintendo.”
The figures back this up. Although we don’t have any exact numbers for the amount of Xbox Series X and S consoles sold, Microsoft’s latest quarterly financial report revealed that Xbox hardware sales were down 30% year on year. In the UK, Xbox sales were down 18% in the first quarter of 2023, while PS5 sales rose by 180%, according to GfK figures.
Spencer clearly doesn’t see a way back into the console race at this point: “That’s just not the world that we are in today, a world where Starfield’s an 11/10 and people start selling their PS5s – that’s not gonna happen.”
Despite Spencer’s hurried protestations to the contrary – “our vision is that everybody who’s on console has to feel like they have a great experience … the console is the core of the Xbox brand” – it’s clear from his other comments that Microsoft sees the future of Xbox is not in selling consoles.
“Creators want to build games that can meet players on any screen, people play with their friends regardless of what other screen they’re on … I’m just gonna say there’s not a win for Xbox in staying the wake of somebody else. We have to go off and do our own thing, with Game Pass, with the stuff we do with xCloud and the way we build our games.”
To me, those statements are an obvious indication that Microsoft intends to double down on cloud gaming. In other words, it wants to remove consoles from the equation, or at least dial them down in the mix.
Like Nintendo back at the dawn of the Wii era, it seems like Microsoft might be planning to sidestep the console race and instead go after a different market. The Wii showed there was huge potential in tapping into the more casual gaming sector, encouraging families and older people to play on a console that was cheap and didn’t even try to compete in terms of graphical power. It was a massive success.
There are signs that Microsoft might have something similar up its sleeve. The Xbox app has already launched on certain Samsung smart TVs, allowing access to Xbox games via the cloud, and without the need for an expensive console. We’re likely to see the app rolled out even more widely in the years to come. It allows Microsoft to reach a potentially enormous market of people who might be interested in gaming, but would never consider buying a console. Then there are all those folks who only ever use their Xbox or PS5 to play one or two games like Call of Duty or FIFA. Why buy a console, when you could just download the Xbox app for a meagre subscription cost?
Seasoned gamers might turn their noses up at the prospect of cloud gaming, with its in-built latency and variable fidelity. But just as we’ve seen with Netflix and other streaming services, the vast majority of the population is happy to put up with a lower-quality picture if the price is right and the service is convenient. People who really care about picture quality will still buy their films on Blu-Ray, but they remain in the minority. We’re likely to see a similar trend in gaming, where ‘hardcore’ gamers will still buy an Xbox or PlayStation console, but for most, cloud gaming will suffice.
Of course, many remain sceptical of the future of cloud gaming. The failure of Google Stadia is fresh in the mind. But that service was hamstrung from the start by an expensive pay-per-game pricing system and a strange marketing focus on picture fidelity over convenience. As is clear from its all-you-can-eat Game Pass strategy, Microsoft won’t make those same mistakes.
Spencer’s hints that Microsoft plans to pivot more towards cloud gaming come at an interesting time. Just last week, the UK’s Competition and Markets Authority (CMA) blocked Microsoft’s acquisition of Activision Blizzard on the basis that it would give Microsoft a dominant position in the emerging cloud gaming market. Microsoft president Brad Smith claimed that the decision was based on “flawed understanding” of cloud streaming.
But was it? In his recent Hit Points column, former EDGE editor Nathan Brown pointed out that: “The core of the CMA’s argument is that Microsoft already has a lot of potential advantages in cloud gaming, and the report cites a number of redacted internal Microsoft documents as evidence that the company agrees and sees a pretty successful future in it.”
It appears that the CMA looked carefully at Microsoft’s future plans, and cloud gaming was a pretty big part of it. Now Phil Spencer seems to be saying exactly the same thing.
