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Success Involves More Than Just Xbox One Sales To Microsoft’s Phil Spencer

How soon we see the next proper generation of consoles is anyone’s guess. Sony and Microsoft have modified their approach to console hardware to resemble something like the mobile phone market, first with the PS4 Pro last year and next month with the Xbox One X. You’d expect the impending launch of a new console to be a time for executives to pump up how everyone needs to get their hands on one. And indeed, Microsoft says that everyone stands to benefit from an Xbox One X, 4K TV owner or not. But Xbox boss Phil Spencer has been open in positioning it as merely an option–and one that he admits will be outsold by the cheaper, less powerful Xbox One S.

We caught up with Spencer at the ongoing Brazil Game Show, where we discussed everything from cross-play to Cuphead to his Destiny 2 Power level. But most notable is his stance on how he measures success: Spencer seems less interested in the number of consoles he can ship and more taken with the idea of, as he says, “growing the number of people who have a relationship with Xbox in some way.”

“I think if you get so focused just on hardware sales at this point, as gamers, we lose sight of what’s going on around the console business,” he tells GameSpot. “Console’s important. I love the console space, but it’s part of the gaming business, it’s not total. So I just don’t define success by any one individual version of our console and how many we sell. Are we growing the business? Are we growing the number of customers?”

With PS4 outselling Xbox One, that will undoubtedly be interpreted by some as a veiled defense of his console’s position in the marketplace. But there’s no questioning that many of his initiatives–offering backwards compatibility, pushing for cross-play–are good for everyone. Below, you’ll find an edited transcript of our chat with Spencer.

GameSpot: As I promised, my first question is about Cuphead. Have you beat it yet?

Phil Spencer: I haven’t beaten retail. I mean one of the things [is], we get games as they’re kind of getting finished, and as you know, Cuphead is … I think I finished all of the bosses at one point before it launched, but no. I’ve been traveling it seems like four weeks in a row, so I haven’t had much chance to play.

Sounds like an excuse, Phil.

It is. It is. But it’s fantastic. I’m so happy for the studio. They worked a long time on the game, and to have the success they’re having, selling very well, the reaction’s been great–it’s fantastic when those things come together, so it’s great.

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There was some big news a little bit earlier this week about yourself. Congratulations on moving up to the senior management team at Microsoft. I’m assuming that means for you just more meetings, but what does that mean for the Xbox business now that you’re a part of that sort of core leadership within Microsoft?

It’s been a journey in a positive way with the senior leadership team at Microsoft and my three and a half years in this job now, and educating them about what the gaming market is. I mean, the gaming market’s a billion gamers. People play video games [around] the planet. Last year it was a $120 billion business, and it’s growing double digits. It’s a real business with big companies investing. Microsoft has a real presence in gaming that we can grow. I think the important thing for us to internalize, both internal and outside, is this is about Microsoft as a gaming company, not just a console company.

I think sometimes people define what gaming is by the device that they play on, but more and more you have to define what gaming is by the player. When I’m on the airplane, I’m playing on my phone or my PC; I’m at home and my butt’s on the couch, I’m playing on my console; and I play games on every device that I have, and more and more people do that. Microsoft leadership, from the board down–the amount of support we’re getting right now is incredible. Let’s go be a global gaming leader by gaming all out.

Our console is incredibly important. We’re shipping Xbox One X [on] November 7th, coming to Brazil here this holiday. [It’s the] most powerful console, [and we’ve got Xbox One] S. Console’s an important part of that, but it’s not the total of that. Things like Xbox Live on multiple devices, things like Mixer as a streaming platform across multiple devices, putting things like Minecraft across multiple devices. All these things are really important to our ambitions in gaming.

Xbox One X launches in a few weeks time. What’s keeping you up at night so close to launch? What are your key stress points right now?

Trying to get my Light level up in Destiny 2 so I can do the Raid and evolve it. That’s actually, honestly, what’s keeping me up at night. [The] part where I feel great, the [Xbox One X] unit I’m using at home is a retail unit. It came off the line. It’s in a real box that a consumer will get on November 7th. [I] feel really good about where the hardware is and all the work that the team has done there. Service, reliability–every holiday is always a peak for us on Xbox Live and on Mixer as those things continue to grow.

Execution this year [is] a longer term strategy for us in the gaming space. When you see what gaming is and how it grows–what are the right things for us to be investing in so we don’t just invest in what gaming has been, but actually what gaming can be come–that’s fun. It’s an amazing opportunity. It keeps me up at night only in the way that I don’t have all the right answers, and I continue to grind on what the right answers are while I’m trying to get my Light level up.

“We talk to Sony all the time. … The relationship with Nintendo on this front’s been stronger.” — Phil Spencer on cross-play

You guys are obviously trying to stay ahead of the curve, with the Xbox One X as the future face of console. Do you ever worry that you’ve pushed it too far ahead of the consumer in terms of where everyone else is at in terms of 4K and HDTVs right now?

Well, at some level, the market will decide what happens. We have a line of products, a family of products in market, and I’ve said over and over, I think even on your show at E3, [Xbox One] S will be the market leader for us. It’s the more affordable console, plays all the same games, it’s the 4K Blu-ray [player]. I mean, you know the spiel. It will be the console that sells.

X is for the customer who wants the very best experience. Whether you’re on a 1080p TV or a 4K TV, you’re going to have a great experience. I have an X on both [types of TV] at home, and load times, supersampling, things that you see on a 1080p TV are fantastic, but it’s not for everybody. It’s like when we built the Elite controller. We didn’t try to say to everybody, “Hey, you need an X controller. Go buy the Elite controller.” Yet, we sold a ton of those controllers, ’cause we know in the gaming segment, there are a lot of people who play games casually. There’s also a lot of people where gaming is their number one hobby, their number one form of entertainment, and we can give them the very best experience.

I’ve played games in true 4K, HDR and they look fantastic. [It] doesn’t mean everybody has to go do that, so we’re giving gamers a choice. Whether we push the innovation too far, it’s hard to do that with gamers. But I guess we’ll see. I feel very confident about the product that we have coming to market.

What can you say about the status of third-party titles moving into 2018 and the end of this year? I mean, obviously you have your big first-party titles that are already out. For a lot of gamers, that exclusivity they get with third-party titles is still really important. What can you say about what you’re hoping to see next year in terms of that and Xbox?

People always kind of knock me on this. I’ve been on record, I don’t love the idea or the practice of us paying so other platforms can’t play–use a certain gun in a game, or go do a certain level. I know I say that [despite] Xbox history back with DLC windows, with [Call of Duty]. I understand the fingers are pointing right back at Xbox. I can only be who I am, so maybe it’s not the best PR answer, but I don’t like that.

When there’s games that come along–Cuphead is a good example, actually, where it comes along as a game, this one in the ID[@Xbox] program, and the team had certain ambition about what they wanted to go and do. Together with them, we wanted to invest more. We saw more opportunity, and what that turned into was us having an exclusive game on our platform, because we continued to invest with them in the game. That’s a game that probably wouldn’t have happened the way it did if we didn’t invest the way we did.

Us with PUBG right now, which, as you know, [is] a massive game. Crazy success on PC, and we’ve got the console launch exclusivity with that game, and people ask, “Well, when’s that coming to PlayStation?” I’ve got a deal working with them to build the very best version of PUBG I can, and that’s where I’m focused right now. We’re helping that game come to console. I think [producer Chang-han Kim] and [director] Brendan [Greene], they would all say that. Our focus [is] on making the best games possible. We use our first party to test out new things that we’re trying to do. We have Sea of Thieves here on the floor doing co-streaming with Mixer, cross-play across PC and console. I think all those things are important.

Third party games in calendar ’18 look fantastic. I was in Japan last week, got to see some exciting things. [I] was looking at the calendar this morning; I think it’s going to be a great year. I know I always kind of say that, but I think any year when you have a Red Dead game shipping, it’s going to be a good year for gaming.

I do agree with you about the sentiment behind not wanting to lock out gamers just depending on what their console preference happens to be, but do you think it’s still a reality that exclusivity still drives console sales?

Well, I think if you define the gaming market as console, and that’s all you’re focused on, then maybe that’s an important part of the business consideration. I’d say one of the reasons PC is still so strong–and frankly [as] strong now as it’s probably ever been in gaming–is because it’s an open platform. You put a game on PC and people can go play that game, and through things like cross-play, we’re working to allow people to play games together regardless of where you bought the game. We just put Killer Instinct on Steam as an example, allowing people who bought the game on Windows, or on Xbox, or on Steam just to go play together.

I think if you’re really about trying to drive just a specific device, and you say, ‘Okay, I looked at the gaming opportunity all as a single device opportunity,’ maybe that’s an approach. We don’t see it that way. When we look at things that are really large in gaming today, when you look at Twitch and you look at Steam, look at PUBG, look at Minecraft. You know, Minecraft [is] everywhere. People on Minecraft on Switch are playing with people on an iPhone. They don’t own a Windows machine or an Xbox, but they own our game, and they’re using Xbox Live across multiple devices, that’s what gaming in the future’s about, right? And this getting caught in a definition of gaming that’s about me trying to do everything I can to get you buy one specific device to play one specific variant of games, is not really about growing the business.

So gaming as an ecosystem as opposed to a box? Is that fair?

Oh, absolutely it is. I mean, you look today, it’s easy for me to come back to Minecraft because I’m so close to it. I don’t try to say Minecraft’s the only example of this, but is Minecraft a console game? Well, some people would say yes, some people would say no. I look at the numbers. It was the number one selling 360 game of all time, so I think that’s a pretty good console game. Is it a phone game? [It’s] usually the number one pay-to-download game on iOS and Android every year. Is it a PC game? [It] started on PC [and] is one of the biggest PC games. It’s like yes, ‘game’ is what it is. It’s a video game. PUBG, it’s a video game. As a games industry, how do we make games bigger? How do we do things to help developers build the best games that they can build, using cloud, using local, whatever they want to use, and reach as many players as they can?

Not just players, but also viewers. This year more people are going to watch video games than play video games, and playing time is up, so both these numbers are going up. Reaching people who are on their phone watching games get played. [There’s a] lot of Cuphead being watched right now as people try to figure out how to solve bosses. That’s all good for the games industry, ’cause it expands the footprint of number of people that care about your franchise and your game.

Now, I’m going to go to another topic that you’ve quite a lot on in the last few years, and that’s about cross-play functionality. Now Fortnite accidentally did it, was it a week ago or two?

I think it was a little under.

Yeah, so yeah it’s possible.

I don’t think the world stopped.

No, the world didn’t stop.

I think actually everything kept going.

Yeah, as far as I know, gravity still works. Yeah, people are still playing games. But what I wanted to ask you was, have you officially reached out, have you crossed the aisle to try and talk to Sony at all, in any official capacity about this?

Oh, we talk to Sony all the time. I mean, with Minecraft on PlayStation–we have to be one of the biggest games on their platform in terms of sales and gameplay, so same thing with Nintendo. The relationship with Nintendo on this front’s been stronger. Like, I think everybody can see that. They’ve been great supporters, and we continue to collaborate with them.

I think, Sony’s view is different. Sony, I mean, they should talk about what their view is in this space. Steam has been great about us saying, “Here, we’re going to put Killer Instinct in Steam. We want those people to play with people who bought [it on] the Windows Store, bought on Xbox. Gabe [Newell] and Scott Lynch and all the team there have been great. I think people look at it and say, “Is this better for gamers?” If it’s better for gamers, I have a hard time thinking why we shouldn’t go do this, especially when you’re trying to make the gaming business a bigger business, kind of grow it, get more games, create more opportunity especially in the indie space, actually.

You know, you’d think if you’re creating an online indie game, and you’re worried you’re going to create five shards of your game–the Steam version, the Xbox Live on PC, the Xbox version, the PlayStation version, the Switch version–creates hard matchmaking scenarios or managing multiple online [services]. We should help developers not make their lives more difficult.

Is it fair to say then that you don’t think it’s a lost cause?

I have [a] real struggle making comments about their motivation or timelines there. I know that there’s a certain view that says, ‘If my friends have this console, and they can’t play with people who buy another console, that’s a reason they go buy my console.’ That reason’s not going to go away, right? We’re putting Minecraft out there as one of the biggest games on any platform, allowing people to play together regardless of what device they bought. I don’t think everybody’s taking that same approach to the ecosystem. I’m never going to call anything a lost cause, but I think some of the fundamental reasons in certain scenarios are not really going away, so I don’t know what would change.

Backwards compatibility is obviously a big concern of yours. You’ve been pushing it for a while, and obviously Xbox One X is going to launch with it, and Xbox One, I think the Xbox [1] compatibility is still to come. Is that right?

We’re close. We’re really … I mean, so I have a little dashboard I go to, but I can see all the games where they are in getting approvals in pipeline. I know the games that are coming for the original Xbox. I don’t think we’ve announced them all. We have to do this in partnership with partners and stuff to do it, but we’re still on track. I feel really good. The games look great.

You’re still hopeful for this year?

Phil Spencer: Oh yeah. I feel good. There’s some stuff we’re going to talk about in that space in terms of how compatibility’s going to work on X specifically that I think people will find pretty interesting, but games, some of the games hold up really well, some of them don’t, but the game play mechanics and kind of what put the smile on your face 15 years ago playing those games, those are things that are still there. I see it like Crimson Skies, getting back to go play Crimson Skies. Fantastic, and the game actually looks really good, even though it’s obviously been around.

In the past, other console manufactures have used the rational of, for not including backwards compatibility, that their data showed that no one actually played backwards compatible games when it was offered. Is your data showing that as well, or why is it important to have backwards compatibility, even if it’s not a feature that a lot of people will actually play?

Well, one, it’s just not true that people don’t play it. I’ve seen those kind of online arguments about nobody uses it, or everybody used it. It’s not true that everybody plays backwards compatible games. It’s not true that no one does. A lot of the data is third-party data, so I can’t really tell you how many people are playing a certain game that’s not my game. I think the best signal we probably had so far is when Black Ops II landed in back compat, and I think that month hit NPD’s top 10 for game sales. A 360 game that’s years old–that shows that people care.

We have continued to invest in back compat because it matters. Not because somebody else doesn’t have it. If somebody else did it tomorrow, we wouldn’t stop, ’cause we see it as a commitment to our customers of the games that you buy from us. We’re here in Brazil where 360’s still a vibrant platform, and when I’m doing press with the Brazilians, they ask me, “Well, should I go buy a 360?” What I say [is], “If that’s the right value for you, go buy a 360.” Our commitment to you is we’ve got over 400 [Xbox] 360 games. If and when you move to Xbox One, those games are going to come with you. You don’t have to re-buy the games.

I think some of the rationale in previous generations of our data shows is kind of justification of we don’t want you playing on the old box. We want you to go buy our new box. I want to give gamers a choice. It’s about growing gaming, not being divisive and trying to artificially move you ahead. It’s why Xbox One X plays the same games Xbox One S does. It plays and looks better. PC’s done this for years. It’s not rocket science on how you figure this out. It’s pretty important to me as somebody [who] gets to run the platform that we continue to invest in that.

This time next year, what are the success metrics you look for to judge how successful Xbox One X has been?

I think about how successful Xbox has been, and what I think about is how many people are in engaged with something to do with Xbox, playing our games, watching things on Mixer, on Xbox Live, on our console. But I look at those in aggregate, and so it’s not actually about how many Xbox One Xs do I go sell, or how any Ss do I sell, or even how many of one individual game that I go sell. I look at, are we growing the number of people who have a relationship with Xbox in some way? [It] could be an Android customer in China playing Minecraft, but that’s a person who’s connected to our platform who’s able to use Mixer, who’s able to connect to Xbox Live, meet their friends online. That’s really the metric for growth right now.

I think if you get so focused just on hardware sales at this point, as gamers, we lose sight of what’s going on around the console business. Console’s important. I love the console space, but it’s part of the gaming business, it’s not total. So I just don’t define success by any one individual version of our console and how many we sell. Are we growing the business? Are we growing the number of customers?

I want to go back to your biggest stress point, which is Destiny. I read a great story about some just random gamers joining your fireteam the other day.

Oh, my fireteam’s always open, so I get people that jump in all the time. Many times my party on Xbox Live is open … people jump in all the time. One of my problems is when you’re in the Tower, you actually get … I can’t go do the raid yet, ’cause my Light level’s not 280, so I get six people in my fireteam in the tower, and I can’t leave the Tower, so sometimes I have to punt the people so I can go do a Strike or something. Apologize to those people, but yeah, my fireteam’s open.

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So what’s your Power level now?

237. I was in Tokyo … This is my excuse now, so I had Tokyo last week. Week before that I was on the east coast, so it’s been awhile, and Bungie won’t let me play my Xbox character on PC–[Bungie CEO] Pete Parsons! [laughs] So I can’t make progress on my PC when I’m on the road, but they should add that feature for me. But yeah, I think I’m at 237 still–don’t have MIDA, gotta get MIDA Multi-Tool. That was my gun in D1, so I need that in D2.

You playing any Switch games right now?

I’m not actually. Not for any bad reason. I didn’t bring it with me on this trip, but I want to applaud Nintendo. I mean I always do this, so people are like, “Oh, here goes Phil again.” I remember two years ago when the Wii U was there, people were kind of like, “It’s all about Sony. Don’t worry about Nintendo.” Somebody brought it up today in the press. I’m always amazed by Nintendo’s innovation and what they do. They’re great. They’ve been fantastic partners for us with Minecraft on the platform, and it’s doing really well there. I think they’ll have a great holiday.

We’re speaking to you in Sao Paulo in Brazil. This is your second time at the Brazil Game Show. What does that say about the importance of the market here that you’re here just a few weeks before the Xbox One X launches?

I think a lot of times when I’m talking to my friends in the US press or the British or European press, there’s almost a lack of appreciation for how big Latin America is as a market. Mexico is a huge market for us, top five globally. Brazil’s a huge market for us, top five globally, and these are real, big markets. You see Sony’s station right across the hall from us here. You got all of the big publishers here with their biggest games. I think there [are] 76 million gamers in Brazil, so we sell a lot of consoles here, we have a lot of players here. We’ve invested historically in the Brazilian market, and the Mexican market, actually, but here in Brazil we’ve done local manufacturing in the past. We’re launching things like Game Pass here. We’re localizing Mixer in Brazilian Portuguese.

We’re here with PUBG playable on the floor. The Rare team’s here [with Sea of Thieves]. This is a big show. 300,000 people at this show, and I think the fact that you see the global gaming market showing up is just recognition of the size of the market in Brazil. And as I said, I think sometimes people [act] like if it happens south of the equator, it doesn’t count or something, but these are real big markets and they’re important to us.

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