In recent months, there’s been a lot of debate and concern about the future of the Xbox brand, with Microsoft seemingly tip-toeing away from exclusives and the traditional console business. In a recent “business update,” Xbox boss Phil Spencer and other execs sought to calm fears, saying major exclusives like Starfield are staying put (for now) and Microsoft is working on powerful new hardware, but fans have been skeptical in the face of “flatlining” demand for Xbox consoles.
Well, Spencer sat down for an interview with Polygon at GDC, and it seems he has a new pitch – in Spencer’s estimation the console business has gone stagnant, and some of the things he’s proposing, like stepping back from exclusives, are needed to get back to a place of growth. The lack of growth becomes a particular problem when the cost of AAA game development seems to be growing exponentially, from around $100 per game last generation, to up to $300 million per game this gen.
“I’ll say the thing that has me most concerned for the industry is the lack of growth. And when you have an industry that is projected to be smaller next year in terms of players and dollars, and you get a lot of publicly traded companies that are in the industry that have to show their investors growth — because why else does somebody own a share of someone’s stock if it’s not going to grow? — the side of the business that then gets scrutinized is the cost side. Because if you’re not going to grow the revenue side, then the cost side becomes challenged.”
Spencer always likes to talk in broad industry terms – Everything he does is for the good of everyone! – but Nintendo has had great success with the Switch this generation. The PS5 is on par with the very successful PS4. The only console badly stagnating is Spencer’s own Xbox Series X/S. Sony is struggling to keep costs down, but ultimately, nobody’s going to potentially benefit more from upending the console business than Microsoft.
That said, Spencer does make a good point that ballooning costs do limit the chances publishers are willing to make, and that bringing games to more platforms may be a way to mitigate that. Of course, carefully keeping costs tamped down, as Nintendo has for decades, is also a possible solution. Spencer also points to a move away from exclusives as an inevitability, because those TikTok-loving Gen Z kids just don’t understand closed platforms…
“This notion that Xbox can only be this one device that plugs into a television isn’t something we see in the Gen Z research. Because nothing else is like that for them. Some of them will have an iPhone, some will have an Android, but all the games and everything is the same. I can still get to TikTok on both of them, at least for now. All of their stuff is available wherever they want. So for Xbox, our brand pivot — as we attract and maintain relevance with a younger audience — is ‘Xbox is a place where I can find the great games I want to.’”
Interestingly, in his effort to upend the console business, Spencer is even willing to take aim at the core financial model that makes them possible. Basically, companies sell consoles at a narrow profit or even a loss, but make up for it by having a monopoly on the games sold on that console. Spencer, meanwhile, would be willing to let storefronts like the Epic Games Store, Itch.io, and others on Xbox (Polygon’s article doesn’t mention Steam for whatever reason).
“[Consider] our history as the Windows company. Nobody would blink twice if I said, ‘Hey, when you’re using a PC, you get to decide the type of experience you have [by picking where to buy games]. There’s real value in that.”
Again, it all sounds very interesting, but we’re coming off years of hype for Game Pass, which ultimately hit a ceiling in terms of growth. Even more years of hype about how wonderfully open the Xbox ecosystem is, leading to a distant third-place console. So, we’ll see if Phil’s latest big ideas pan out.
What do you think? Are you intrigued by what Phil Spencer is pitching? Can these ideas grow the industry? Or is this a man desperately looking for footholds as his Xbox business sputters?
