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Phil Spencer really wants you to know that native Call of Duty will stay on PlayStation
Candy Crush sweetens the deal for Microsoft as it tries to acquire Activision.
www.theverge.com
The interview is wide ranging and covers how Phil Spencer became CEO, his leadership style, delays, subscription gaming, console stock and the economy, Activision Blizzard, cloud streaming, and the metaverse.Phil Spencer, CEO of Microsoft Gaming, is in charge of Xbox and all the game studios that Microsoft has acquired over the years, like Mojang Studios, the makers of Minecraft, and ZeniMax, which makes The Elder Scrolls and Fallout among others.
Phil came to talk to us hours before the European Commission announced an in-depth investigation into Microsoft's proposed $68.7 billion acquisition of Activision Blizzard, which makes the enormous Call of Duty series as well as Candy Crush on phones.
So I had the chance to ask Phil: will he make the concessions that regulators want in order to close this deal? And is the deal really just about Call of Duty or something else? Is Microsoft committed to keeping Call of Duty available on PlayStation?
Phil's a candid guy. He's been on Decoder before. I always enjoy talking to him, and this was a fun one.
On delaying Starfield and Redfall
There is a tension there that I really want to pull on. In the entertainment business, you said it's want-to-do, not have-to-do. The games industry, the entertainment industry, is moving from being this hits-driven business where every product lives or dies and makes millions of dollars or doesn't, to these recurring-revenue models of subscription. We have obviously seen it with television, and we have definitely seen it with music. The last time you and I spoke, we talked about game streaming and game subscriptions a lot.
That is in a very middle state. It hasn't happened yet, and you are now facing down the holiday quarter. You just made some big decisions. You delayed some big games that were supposed to come out for the holiday, Starfield and Redfall. Those would have been the hits. Talk through making that decision to delay the hits. Then I want to talk about this shift in the industry from being an "all hits all the time" model to this more recurring-revenue subscription model.
I think positioning it as a decision might be slightly wrong, at least for me. It isn't really a decision to move a game after spending the team's effort over multiple years just to get to a point where you know you're not going to deliver the game you want on the date that was promised. Now, it is at some level, because I have shipped games too early. We have experienced shipping games too early.
In hindsight, when you look at a game like Starfield, it's taken so long and so much investment in new IP from the team. The decision to give the team the time to build the game that they feel they should be building is just the right thing to do. There are financial implications to those decisions. Weighing what is going to happen, whether it's platform growth, subscriber growth, or frankly, the revenue that you generate when a new game launches, those are business decisions. You definitely have to weigh the outcome of those decisions.
For any game, but definitely for our games Starfield and Redfall — which are our first big Xbox games with ZeniMax coming into the team — I just wanted to make sure those teams felt they had all the support they could get from Xbox, and to maybe feel some of the benefit of being part of a larger organization that has other revenue streams and other helpful things going on. In the end, I believe the quality of the games will be better and customers will find the experience to be more interesting, which will hopefully feel like the right decision in hindsight.
Walk me through how the decision was made. Did those teams come to you? Did you look at the work? How long did it take to make that decision?
This is maybe where some of my experience in the industry comes to play. I know both Todd [Howard, Starfield game director] and Harvey [Smith, director of Arkane Studios] well, and we had a discussion about where those games are.
I'll focus on Starfield with Todd — he and I have an honest discussion going on, starting from the day the deal closed on the purchase of ZeniMax. "Where are we with the game? What are the risks that we see?" We have some internal teams at Xbox, like our advanced technology group, ATG, which we can deploy to help teams look at where they are with tech challenges and production challenges.
As somebody who has seen a few county fairs here, I might get some gut instinct about where we are, just by the way the teams are talking about their game and where we are in playing builds. One of the things I have learned is that you want teams to feel like they own their dates. They deliver better when they feel like they own their own destiny with their games, so you wait for the real signal from the creative and production teams. It's an ongoing discussion about where we are. It's not like one day, all of a sudden, somebody comes in and says, "Okay, our date is going to have to move." We track and understand the weighted risk on everything that is going on. It's a fundamental part of the job that [Head of Microsoft Studios] Matt Booty and [CEO, ZeniMax Media] Jamie Leder do in running our first-party studio organizations.
On subscription gaming
That's the hits business. "We have to have a hit. We're going to move the date, because it's not ready. There's going to be some risk to, I don't know, holiday revenue for Microsoft Games." Then there's the other side, which is, "Man, it would be really cool if everyone just paid us $15 a month all of the time," and the games come out and everyone's happy. That base of revenue is recurring and is a little more stable than hits and console generations. Is that the move? That seems like where you have been building for a long time, but it's harder to get there than maybe anyone anticipated.
We don't have this vision of everybody paying us $15 a month. We think the subscription is an interesting business model for certain kinds of games and for certain customers. I really see it as diversifying how people build their library of games or how creators reach the customers they want to reach with the content that they build. It will always be part of the business, in my view. I think people buying and owning their games will be an important part of the business for years and years to come.
Free-to-play games with post-sale monetization, add-ons, and battle passes that those teams have figured out will be a significant, probably majority of the business for a decade plus. Subscription will augment that. Really, that's the extent of it. We are not building towards a world where subscription is in any way dominant or predominant on our platform. We think for certain customers in certain markets with certain economic livelihoods, where they are managing their cash flows, subscriptions can be very valuable.
But having our customers choose the way they decide to play and how they play is really fundamental when going back to how we make decisions. It's why you don't see us doing exclusive games in the subscription or trying to drive people away from purchasing games. We love it when people purchase their games. It's fantastic. We also like it when people subscribe. The thing that we're really looking at is if we can just get more people to play more games and make it easy for every player who wants to play.
To be fair, I heard that line at the beginning of the streaming transition in music, very famously from Steve Jobs, actually. "People like to own their music," is a thing that he used to run around saying all the time. We heard it from the movie industry, and now I feel like we're hearing it from the games industry. Is that just the point on the curve that you're at? One day five years from now, are we just going to wake up and it's all going to be streaming and/or subscriptions? Is this a permanent state of affairs?
No.
Games are fundamentally different — and we play, so we know this. Games have a business model unto themselves. Songs don't. If you want access to the song, the decision is, "Do I pay for the whole album, do I pay for the track, or do I subscribe?" If you think of almost any game in the market today, it has a business model unto itself that should be sustainable and profitable for the creator of the content. That's not true of movies, that's not true of music, and that's not true of books. I think games are just fundamentally different that way.
That's why free-to-play is such a big model in video games, because if you can get people to play and you can compel them to continue to play, you can build a business around that. Obviously, there's a massive amount of free-to-play games across all platforms right now that we could look at as an example of that. To use that extreme, free-to-play and a subscription is a little bit of an anomaly. "Why would I ever pay a subscription to play a free-to-play game?" Now we'll do some things around perks and other things to maybe make it feel like you're a special part of that free-to-play community if you're a subscriber, but in the end, free-to-play is a great way of finding millions and millions of customers who will forever exist in video games.
I remember the time when people thought free-to-play was blasphemy. "How can you let people play for free?" Then people figured out, "Hey, this can actually work." I think that is the fundamental difference. I'm definitely not smarter than people who did music subscriptions or video subscriptions. I just think the fundamentals of gaming are different, so subscriptions will be part of the solution but not the only solution.
The fact that you can shop in a video game and you probably shouldn't shop during a movie —
Or while listening to a song.
