The Joust: No, The Phil Spencer Era Isn’t Over, it’s About to Go into Overdrive
The recent controversy surrounding Redfall and the CMA blocking the Activision acquisition brought up a lot of questions about Xbox and its leadership under Phil Spencer. Some questioned the state of Xbox’s management under his tenure. While others outright have called for his head on the chopping block. No doubt these questions have led to interesting conversations across the internet about the state of Xbox, its leadership, and its future. Despite the setbacks, Phil is doing an incredible job leading Xbox in an ever-changing video game landscape. However, there are some considerations that are often missing from the conversation that are worth discussing.
Phil Spencer Saved the Xbox Division and Gets a Seat at the Table
When Satya Nadella took over as Microsoft CEO in 2014, he was known as the cloud guy. He was pivotal in shifting Microsoft towards its cloud infrastructure, Azure. So, when he sat down with Phil Spencer to get a feel for what Xbox is and how it fits into the Microsoft corporate structure, the meeting could have brought about a different fate for the Xbox division.
Murmurs arose that the Xbox division might have been spun off entirely. Instead, Phil managed to align Xbox with Microsoft’s greater cloud-oriented/services vision. In 2017, he was promoted to the role of Executive Vice President of Gaming and got a seat on the Senior Leadership Team at Microsoft, reporting directly to Nadella. And I’m sure the job description did not include “to save Xbox and guide it to dominance once again”. Instead, Phil Spencer successfully aligned the Xbox division with the overall corporate strategy and trajectory of Microsoft. In other words, he made Xbox a core pillar of Microsoft for the foreseeable future.
Phil Spencer Goes to Work
Despite social media doom and gloomers, Xbox has never been as profitable since Phil has taken the reins. From 2017 to 2022, Microsoft’s gaming revenues increased from $9.05 billion to $16.23 billion, accumulating over 120 million monthly active users across console, PC, and mobile platforms in the process.
Xbox has expanded its repertoire of studios increasing from 4 studios to 23 studios as of 2022. That’s not including the studios under Activision Blizzard King if the deal goes through that is.
Xbox Game Pass was introduced in 2017 and disrupted the industry. Estimates put Xbox Game Pass subscribers at around 25 million users. The service has well over 300 titles at any given time and caters to all types of gaming tastes and preferences. Despite a slow Q1 in 2023, which saw hardware revenue decrease by a whopping 30%, Xbox content and services managed to increase slightly by 3% year-over-year (almost $1 billion from gaming subscriptions alone) despite a slow year in 2022 Xbox first-party game releases.
Xbox was also Metacritic’s publisher of the year in 2022 for notable 2021 releases such as Halo Infinite, Age of Empires IV, Forza Horizon 5, Psychonauts 2, and Microsoft Flight Simulator averaging an 87.4 Metascore. Now some of these titles might not be the “bangers” that some like to talk about on Twitter. But titles like MSFS and Age of Empires IV are known to have extremely long legs. These titles are great at servicing their enthusiast fanbase for years that might not be a vocal presence on social media platforms. In particular, Flight Simulator has an active mod community that has set up an impressive, albeit pricey, mod shop where players can purchase all sorts of user-generated content, a system similar to Roblox (which is valued at $21.4 billion by the way!).
Old Metrics Dont Paint the Full Picture
Gaming as an industry has shifted a lot in the past decade. People consume games differently from previous generations. Unit sales are not as indicative as they once were. Games now have marketplaces that sell additional services and goods such as DLC, battle passes, in-game currencies, and cosmetics. The biggest games in the industry are free such as Fortnite, Counter-Srike Global Offensive, League of Legends, Robolox, Minecraft, and Call of Duty Warzone.
Platform holders like PlayStation, Xbox, and Steam are given a cut (usually around 30%) of any transaction on the platform, including microtransactions. That is one argument Sony has made against the pending Microsoft acquisition of Activision Blizzard King. Sony reiterated that it depended on funds raised from microtransactions from games like Call of Duty to fund its first-party game development.
The same applies to consoles as well. Hardware is now an entry point to a larger digital market. Yes, the more hardware you sell the more customers you can potentially serve. But what if you deliver the marketplace without a proprietary console? What if your customers can reach your marketplace via any PC, mobile device, or smart TV? That too could also increase your player base.
The “Big Three” Don’t Reflect the Video Game Landscape Anymore
Most console warriors on Twitter will be quick to point out that Sony is number 1 in the gaming space and there are only 3 major competitors. That is not the case. By far, Tencent is the largest video game company by revenue. In Q3 2022, the Chinese giant brought in $8.3 billion in revenue, while Sony is a distant 2nd with its revenues reaching $4.24 billion, and Apple is in 3rd with $3.64 billion. Microsoft and Nintendo were ranked 4th ($2.9 billion) and 8th ($1.89 billion) respectively.
All this is on the back of Tencent’s limited presence in the home console space. A vast majority of its IPs are free-to-play titles such as League of Legends, and Valorant. Tencent also has a slew of strategic investments in notable publishers/studios such as 40% of Epic Games (Fortnite), 84.3% of mobile giant Supercell (Clash of Clans, Clash Royale), 11.5% of Bluehole (PUBG), 80% of Grinding Gears Games (Path of Exile) among others.
Last year in 2022, Tencent upped its stake in Ubisoft to 11%, and the Chinese conglomerate also invested in Digital Extremes, the developer of Warframe. Tencent does not sell boxed games, its entire business strategy is primarily focused on live-service games that are primarily played on PC and mobile space.
Apple has cemented itself in gaming thanks to its Apple Arcade subscription service which launched in 2018. Estimates indicated that in 2019, Apple Arade brought in $1.9 billion. Services and subscriptions (which includes Apple Music) are considered a growth segment for the tech giant and are projected to reach $8.2 billion by 2025.
Being platform agnostic has served companies like Tencent well. Their primary focus is engagement because it is engagement that is likely to turn free-playing players into customers for digital services and goods. Phil Spencer and his team are cognizant of this and wanted to position Xbox as entering a whole new landscape where traditional metrics and practices were quickly being swept away by emerging trends and norms.
Shifting Landscape
The industry as a whole is quickly shifting towards long-term live service or games as a service model while AA and indie game releases fill the remaining games market. Part of this reason is as AAA video game development costs have soared and games are taking longer than ever to ship, generating recurring revenue streams is a way to offsets these costs and risks. Especially since $70 games reduced overall game sales. Add the fact that the home video game console market is plateauing so new avenues of growth have to be pursued.
The home video game console market remained somewhat static at around 270-290 million home consoles since the seventh (PlayStation 3, Xbox 360, Nintendo Wii) and eighth (PlayStation 4, Xbox One, Nintendo WiiU) generations. This is why Sony is shipping its exclusive titles to PC and is betting big on live service games.
PlayStation is slated to release 12 live service games and this does not include their acquisition of Bungie. One of those titles, Babylon’s Fall, has already closed down its server in February 2023. This goes to show that live-service games are not an easy nut to crack.
The Video Game Industry has Always Been Dynamic
People seem to forget that Nintendo altered the way it competes. It pivoted and carved its own unique place in the video game industry. Despite having a strong offering of titles, including the seminal Breath of the Wild, the Wii U ultimately failed. Besides the confusing naming convention, it wasn’t clear whether the Wii U was a dedicated home console or portable. That confused customers and cemented the ill fate of the Wii U, despite having a stellar offering of games like Mario Kart 8, and The Legend of Zelda: Breath of the Wild.
Things had to change if Nintendo. Before the Nintendo Switch, Nintendo always had a dedicated home console and a handheld console. The Switch represents the first consolidation of the two. It was a gamble, but it paid dividends because it offered hybrid usage with clear messaging that consumers could understand. Now, the Nintendo Switch is the third-highest console sold ever with over 122 million units.
Similar to Nintendo, Xbox has moved beyond the traditional home console space. Both are competing on their own metrics. Now every major first-party game is released concurrently on PC. This includes shipping Xbox titles on the Microsoft Store, Steam, and the Epic Games Store as well. Xbox, similar to Tencent and other tech giants, looks at monthly active users where player engagement is the most important Key Performance Indicator. That is become active users are more than likely to make more purchases in their digital storefronts. Add to that active users continue to engage in the ecosystem.
Key Takeaways from the Kinda Funny Interview
Let’s not beat around the bush, Phil Spencer did look aggravated during the Kinda Funny interview. His frustration with letting down Xbox customers was as clear as day. Although some doom and gloomers were dissecting his comments within the context of social media console-warring narratives, there is more to his words than they appear.
The statement above might appear defeatist in nature, but it is an admission of several factors. First, it suggests that people are already locked into their preferred ecosystems. Second, it suggests that like Nintendo before it, Microsoft is competing on different terms.
Now, its focus is on engagement, and it is trying to take on the biggest player in the video game space, Tencent. To achieve this they have to look beyond the dedicated hardware and bring their goods and services directly to customers.
The same approach was taken in Microsoft Office where before the software was only available on Windows PCs. Now, it’s everywhere and even become a subscription service via Microsoft 365.
Xbox is looking beyond the static console space, instead opting to bring its ecosystem to multiple platforms. PC is an area of growth it is targeting. That is why there’s a heavy push there and it’s creating unique offerings on the PC platforms. This includes the recent Riot Games PC Game Pass deal. The deal unlocks a variety of perks like access to all in-game characters and more. However, some console warriors on Twitter felt that they were left out and voiced concerns on the faltering social media platform. That is something Xbox needs to address and ensure their customers feel their needs are serviced.
The Phil Spencer Era Shifting Into Overdrive
During the interview, Phil stressed an important point that seems to have gone over the heads of pundits.
When I look forward over the next quarters, which has always been my focus, is how do we get a big game out every quarter at quality? Things are lining up, finally! After the slow down by COVID… But I can see now we got games coming every quarter that can surprise and delight our customers.
Yes, it has been a meme within the gaming social media communities of “wait ‘til next year” or “wait ‘til next E3 (RIP)”. Phil’s tone and body language suggest that a hit title released every quarter is on the precipice. But for me, it had already started.
The overdrive has begun. The release of Hi-Fi Rush in January marks the beginning of this release cadence. Redfall was the second title in the line. Though it didn’t exactly meet critical acclaim, despite seeing some engagement success. Redfall seems to be a symptom of Zenimax’s final push for service-based games before being acquired by Microsoft. Hopefully, it will be the last and the studios can move on to developing games they are passionate about.
Starfield and Forza Motorsport are slated to release this year as well. And who knows what’s going to be announced during this year’s Xbox showcase. Then there’s Hellbalde 2, Avowed, Perfect Dark, Contraband, Outer Worlds 2, and a plethora of other titles that are in the pipeline. That doesn’t include other third-party releases in Game Pass. All of these titles are varied and diverse and are intended to feed Game Pass content to keep its users subscribed. This is essential when you want to cater to as many gamers as possible. Sticking to “safe” choices will diminish the broader appeal and pigeonhole creativity. That is something Phil Spencer and his team intimately understand.
Turning the Ship
Phil Spencer has done a tremendous job at saving the Xbox brand and aligning it with Microsoft’s corporate strategy. I do feel that his transparency and openness to interacting with the media and fans is a double-edged sword. It’s great that people can have high-level access to a senior leader at Microsoft. But at the same time, if any issue occurs, it is highly magnified and perpetuated across gaming media.
There are still questions about the management of certain studios under Xbox, and that criticism is valid and warranted. It does seem that Phil is aware of these issues and is trying to rectify them. It’s also important that note that Microsoft is a massive corporation with over 200,000 employees. So there is probably a lot of bureaucratic tape to go through to implement any significant administrative/management changes.
To add, the nature of game development is a lot more complicated and nuanced compared to previous years. That is why games are taking longer to release and when they do ship, they are often riddled with bugs. Seldom do gamers see a game release without a hitch, though some titles like Dead Island 2, are surprising exceptions.
The Phil Spencer Era is More than the Last Reviewed Game
No, I don’t expect Phil Spencer to lose his job any time soon. Especially over one game getting a less-than-favorable review. He’s been growing Xbox despite the challenges the brand has faced. He has come to the realization that “bangers” alone will not grow Xbox. It will take radical pivots, and those seeds have already been planted, and the harvest is right around the corner.
Excellent article. Glad to see that somebody in the clickbait-driven gaming press actually gets it.
How the hell do you write something like this ?
Phil Spencer admitted Xbox is not going try anymore. There’s no game that’s going to win people over. They are just going to chill and make money instead of making quality games.
Also Phil has been in charge for years now and not much has been accomplished. Game pass is 2013 Xbox plan the long way around.
Halo infinite Microsoft flagship IP is worse than ever. Halo infinite wasn’t the worse but when halo 3 launched with more content on day one there’s a problem.
Game Pass is from 2017.
Phil never said they weren’t going to try. Get that bs outta here.
Lol, you are just regurgitating clickbait bullshit that has very little to do with the truth. Phil didn’t say anything remotely close to this. He said MS doesn’t have a way to win the console hardware sale war regardless of current software quality because console games now carry over from the previous gen and people already have large digital libraries of games which keep them on their respective platforms (where Sony obviously has an enormous advantage). This is why Microsoft is working on finding new ways to compete with Game Pass, cloud, and simultaneous console and PC releases. He also said MS is very hard at work on a regular stream of high quality games as they want their customers to get a great experience. At no point did he ever say they are “just going to chill”.
Nothing has been accomplished? Game Pass has been an enormous success and a crazy good value for its customers. Meanwhile MS has become a big player in cloud gaming while selling an awesome set of consoles. Also the 360 backwards compatibility project has been beyond amazing and is well beyond anything that Sony has offered their customers for older titles. In terms of hardware, the One S and X were already an enormous improvement over the failed Xbox One Phil inherited from previous management and the Series S and X are great as well. The S focuses on an affordable price and a tiny form factor, while the X is an absolute beast. All of these systems have had a rock solid reliability record as well.
What MS needs to do now is make good on their first party promise and keep a good pace of future releases. Hi-Fi Rush was a great start to this year while Redfall was a bit of a dud they inherited from Bethesda. The rest of the year will be very important. Also worth noting, they’ve just made major strides in improving Halo Infinite’s multiplayer.
It’s funny that I forgot to mention backward compatibility and enhanced games being a pretty big deal. I play orignal xbox games all the time at work lol. I get a kick out of being asked what game is that!? and I am like, that is Conkers bad fur day remastered bud! haha.
No, he said was that Xbox lost the worst console generation because it was the generation of the digital library.
People built digital libraries consisting of hundreds of titles, and they’re not just going to switch because of one game.
That means if you built your library up on PS4 no matter what Microsoft releases they’re not going to switch which is backed up by consumer metrics.
He did not say they’re not going to make quality titles, he said he believes in allowing creatives the risk to fail which is the only way great games are ever going to be made.
And we’ve already got a few like that for example grounded, and hi-fi rush.
Hi-Fi the one of handful of games in 10 years made by microsoft that was good at launch.
Halo infinte garbage, Redfall ( granted was already in production but was approved to be released by microsoft), Perfect Dark (MIa) , Fable (MIA) , Hellblade 2 maybe news on it this year who knows.
Not to mention the fact the 10+ years Xbox being bland in terms of making quality games. They could barely managed the studios they had and them buying bethesda and activision isnt going to help much. Sure business/ money wise it will but quality wise eh.
Btw i think Microsoft has a golden chance to make COD great again but simply making it free to play and not release every year.
Those were decisions made before Phil Spencer took over you are aware?
By the end of Xbox 360 Microsoft executives had closed everything down except for rare, turn 10. 343, and the coalition which were startups to run Halo and gears of war after epic games sold gears of war ip, and Bungie separated.
They launched Comcast one with these 4 studios. They don’t begin acquiring studios until 2018.
Xbox had been dead in the water since midway through Xbox 360. You, and others seem to want to put this on Phil Spencer who inherited the titanic after it sank. The guy had to fight to rebuild xbox, to kill the albatross Kinect, and to refocus on acquiring, and building new studios to create content.
Game pass doesn’t launch until June 2017, they don’t begin to aquire studios until 2018. Not counting Mojang studios, they went from four studios to 22 since 2018.
I’m am very aware Mojang was acquired in 2014 because I had nothing to play and Microsoft spent an insane $2.5 billion dollars on that trash. I also didn’t include it in the 22 total because Minecraft is trash. So 23 studios technically. But I digress.
I have built a digital library close to a thousand titles across PS5-4 & PS3 which I bought after PS4. Which is the point Phil Spencer was making about losing the worst console generation. Most people are not going to abandoned their library.
Sony is closing their best studios, Japan studios is unforgivable, and they just closed pixel opus.
So a guy like Phil Spencer that is giving creatives the freedom to fail is huge in my opinion.
Hellblade is one of my favorite games that I platinumed on playstation so I am glad Microsoft is making hellblade 2. Psychonaughts is an awesome series, and yes hi fi rush.
Obsidians avowed too, and we got Forza horizon 5, eventually elder scrolls 6.
I only played Halo 4 last year, I don’t care about galo, never did, never will, and gears is terrible too.
Anything with potential on Xbox literally comes from the “Phil spencer era” and I don’t care if he galo or redfall are mediocre. Xbox was dead before, if you cancel Phil Spencer you drive the final nail in the Xbox coffin.
After that we get one game from Nintendo ever 5 years, and Sony pushing Ubisoft clones then gaming is dead across the board.
Phil Spencer was put in charge of Xbox in 2014.
9 years with barely much to show for it in terms of games.
I don’t blame everything on Phil and I do agree Xbox was on a downward trend since before he was in charge.
Like I said business and money wise Xbox is doing fine. But in terms of games it’s meh
Fyi I’m not a Sony fanboy. Sony has its own problems.
Well he was put in charge of Xbox live, groove music, and movies/ TV, and Microsoft studios in 2014.
I am going to refute your 9 years with nothing to show because What did he do that first year? He killed Kinect! That was a huge because Microsoft was all in on casual and kinect. Then he orchestrated, and launched Xbox one x in November 2017. Game pass launched June 2017. Those are three huge corner stones.
The reality is by that point he was still leading 4(5) game studios when he is appointed to the senior leadership team directly under CEO Nadella when he is named executive vice president of gaming in september 2017.
The only game being made by Microsoft that I care about at this point is the externally developed Forza horizons by playground games. Playground games is not acquired until 2018.
That’s when I feel like Phil Spencer gets significant power to affect change, because 2018 is when they opened the big purse, and begin acquiring studios.
So you have two Phil Spencer eras, 2014-2017 where he’s taking the blame for two console generations that he had no say over their design, and direction that were set in stone, and 5 studios all making set ip. Then 2017-present where they acquire 18 studios, and are currently fighting to bring Activision in.
I don’t think Microsoft should have revealed playground games was making fable at e3 2018 because the game and team didn’t exist which is typical E3 nonsense.
Playground games opened a mobile studio in 2014, and announced they were opening another team in 2017 to make a non racing adventure game with an expected head count of 200 people between those two teams which is why it has taken so long. Whether it is Ubisoft, Activision, Bungie, these studios have thousands of people and multiple studios working to make games.
What we have is a new indie team put together to build out a controversial ip that you and everyone else should temper your expectations for.
The good stuff is going to come from obsidian, inxile, Bethesda, Id, ninja theory, double fine, tango, machine games.
Redfall is more traditional janky arkane if you ever played their original stuff before the breakout dishonored. Arx fatalis and dark messiah were weird and janky titles. But for whatever reason Bethesda set them out doing this coop crap after prey.
There games developed look like a tech start up stock trend graph where it slowing climbs, then spikes, then drops off a cliff since young blood which they auxiliary developed with machine games. Redfall is Bethesda’s answer to the everything must be a games as service trend. I am glad it failed because games as service, and co-op games are mediocre at best.
Prey is a whole other can of worms, they co opted arkane’s game to steal prey ip while failing a hostile takeover of now defunct human head studios. I guess the point I’m making is that Bethesda was not being well run before Microsoft acquired them. Games take years to make and redfall is hopefully the last of the red water in arkane’s pipes.
So there were a lot of legacy deals in place like deathloop and redfall which is why several games released exclusive to playstation after Microsoft acquired them. So they are years into some of these acquired studios fulfilling previous obligations but the cement has been poured for the foundations future.
Releasing an Xbox with better hardware is nothing special.
And yea I understand game now take longer to make but come on 9 years and maybe 3 games are worth it
Side note. Where the hell is my banjo kazooie for PC. Like as we don’t want Banjo in 10K with path tracing. How cool would that be!!!!
Btw thank you for arguing in good faith and not just going oh you’re just a Sony fanboy 👍👍👍
My point of view is different than most. The games I really like tend to be one offs like jet force gemini, kameo, knack, psychonauts, hellblade, so i am happy when I get sequels to these kinds of games. I would love to see rare revisit the canceled kameo 2! I don’t care about platform, or who makes them, I am not a share holder! For long time for me that was sega, skies of arcadia is one of my all time favorites, and I love the shining force series. I really don’t care about platforms. I taught my buddy how to build a pc in an xbox 360 party chat while playing battlefield 3. helped him ebay parts on a shoe string budget, and install his first linux os, because he wanted to get into pc gaming, and didn’t think he could afford it. He is a pc gamer, and streams now and occasional we chat about parts and builds, that is fun for me.
I don’t think it was easy or simple for phil spencer to reverse xbox course. I wasn’t ride or die for anyone or anything, I was gone, and I didn’t care. But after Microsoft acquired ninja theory and obsidian in 2018, things turned, I could see the new direction, and I liked it. I picked up the gold rush xbox one x bundle that holiday 2018, if nothing else it had a 4k bluray player lol
The thing I like about phil spencer is that I think he gets creatives, and the need for a variety of experiences, and I like that he is willing to risk failing. That is so huge because when your not open to that risk, you close studios like Microsoft did, like Sony is doing now. I really hate that crap. I don’t want to play the same game for the rest of my life, I hate open world games, or the idea of only playing halo or horizons numbs my soul.
The reality is anytime those studios are closed, those games never get made again. project gotham racing or motorstorm, no ones going to make knack or concrete genie again. fable will never be the same even if playground games version is decent, its going to be an open world game inspired by modern game design. It’s not gonna be peter molyneux’s magic.
It was 1 million sales, then 3 million, then 5 million, now its 10 million, that is the standard for triple a games now. So the field narrows, everyone makes the same thing, everything is boring game as service design to keep you playing continuously. I had more fun playing deus ex invisible war than I ever did playing halo, resistance, killzone. I really like killzone but even that is no longer good enough for Sony, shadow fall was one of my favorites games on ps4 but now I get horizons, like yuck. I had ubisoft for this crap. Sony is killing anything they don’t think will sell ten million units, I just can’t get over jim ryan shutting down japan studios, I been playing their games since the beginning PS1-4, and it is crazy to me they are gone now because of this clown.
I like that phil spencer gets it, and can take one on the chin, and keeps it moving. i am not with the calls for him to go, I think it is ludicrous when you stand back and look at what he has achieved to go from 4 studios to 23 and what that means for the future.
Check out my blacked out PS5, dbrand plates before sony sued them. I put western digital 4TB SN850X with an ElecGear EL-P5C Heatsink. phil spencer is right about alot of things, I am not abandoning my library either. I am still gonna play those jrpgs, right now I am most excited for suikoden remaster, and immortals of aveum. I may actually play that on on pc though.
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Microsoft got wet in the head when the Wii sold 100m units, abandoned the core gamer to chase soccer moms that still don’t know why they need U to play with their Wii.
All of their developers were put on Kinect duty, and both epic and Bungie were done making gears, and halo. So by the end of Xbox 360, PS3 takes over in sales, and microsoft had closed almost all of its studios down to 343, turn 10, rare, and the coalition (black tusk games). This is what they had going into Xbox one, this is what Phil Spencer inherited.
It isn’t until 2018 that the green light for acquisitions begins. Games take years to make, two to six years is fairly common. Even call of duty requires three years with three teams rotating releases.
We get a few legacy titles like psychonaughts 2, redfall, deathloop, I don’t know all of them but we’re still in that window where announced or unannounced titles before acquisitions were made are releasing like starfield. Then after that you have years for these investments to pay off with new titles.
One thing I am excited about is that game pass gives these studios an option to develope content that doesn’t have to sale ten millions units to be considered. So that means we will get more of the psychonaughts, grounded, hifi rush, and hellblade type games that are the soul of gaming.
It’s ironic to me that these titles that help build a brand are now considered no longer a value with the closing of Japan studios and pixel opus. Something Microsoft did during the 360 era, now Sony is pushing the 10 million plus type franchises. It feels like they swapped executives.
So I tend to agree with this article that the Phil Spencer era is just beginning, and I hope to God this guy sticks around for 10 or more years because as soon as he goes everything he’s put in place is going to drop like flies.
Redfall is an absolute blessing because Phil Spencer is allowing creatives to risk failing, and that is frankly the only way great games will ever be made.