Phil Spencer, Sarah Bond and Matt Booty share updates on the Xbox Business

- Hello, and welcome to The Official Xbox Podcast. I'm your host, Tina Amini, and we have a very special episode today, as you can probably tell by the fact that, I'm joined by Phil, Sarah, and Matt. Welcome.

And we're going to talk about some updates at Xbox. We want to talk about game exclusivity. We want to talk about Activision Blizzard now that they're a part of our portfolio, how that might be an impact on Game Pass. And we want to talk about hardware too and how all of this fits into the strategy at Xbox. So where should we start, Phil?

- Well, when we originally had planned for this show starting back in December, I think we probably would have started with Activision Blizzard, maybe talked a little bit about the exclusivity with some of the news coming up, and then hardware. But we've had some unforeseen news that has come out.

So let's just go and tackle the exclusivity question, because I know it's on the minds a lot of people. We hear from the community, and that's an important input for us. So we made the decision that we're going to take four games to the other consoles-- just four games, not a change to our kind of fundamental exclusive strategy.

We're making these decisions for some specific reasons. We make every decision, really, with the long-term health of Xbox in mind. And long-term health of Xbox means a growing platform, our games performing, building the best platform for creators, reaching as many players as we can.

We're always looking to learn as a leadership team and to grow. And we think this is an interesting point in time for us to use what some of the other platforms have right now to help grow our franchises. So we're going to do that.

TINA AMINI: So these four titles-- what are they? Can you say?

- I'm not going to name those games. The teams that are building those games have announced plans that are not too far away. As we know, game teams put a lot of energy into their announcements with the partners. So I don't want to take anything away from those teams. So I won't be talking about the titles specifically. But I think when they come out, it'll make sense.

TINA AMINI: Can we say if either of those titles are Starfield or Indiana Jones?

- They are not Starfield or Indiana Jones.

TINA AMINI: Well, what was the criteria in how the team was thinking about selecting those four titles?

- Let me start a little bit outside of that, and then I'll get to the four specific games that we're talking about right, now because the fundamental decision driver for any decision that we make, anything we're going to talk about today is the long-term health of Xbox-- that we're running a growing platform that is reaching more players, that our games are having as much success as possible.

And I do have a fundamental belief that over the next 5 or 10 years, exclusive games, games that are exclusive to one piece of hardware, are going to be a smaller and smaller part of the game industry. And that's not some great insight because if you look at the last 10 years and what the biggest games are today, it's a natural place-- whether it's one console in PC, multiple consoles, mobile console in PC-- you see big games landing on multiple platforms.

And we want to be a great platform for creators that are trying to realize that potential. But now, back to the specifics of the question on these four specific titles. We looked at games that are over a year old. So they've been on Xbox and PC for a while. A couple of the games are community-driven games, new games, kind of first iterations of a franchise that have reached their full potential, let's say, on Xbox and PC-- there's always growth, franchises that we obviously want to continue to invest in.

Part of having the ability to continue to invest is that the businesses behind those franchises continue. We think it's important that these service-based games that have communities behind them, that they can have confidence that they're going to exist in the future. So two of them kind of community-driven games that will end up on other platforms and give us the ability to continue to invest in them. We think that's great for the business and great for the communities-- more players to play with.

Two of the other games are smaller games that were never really meant to be built as kind of platform exclusives and all the fanfare that goes around that, but games that our teams really wanted to go build that we love supporting creative endeavors across our studios regardless of size. And as they've realized their full potential on Xbox and PC, we see an opportunity to utilize the other platforms as a place to just drive more business value out of those games, allowing us to invest in maybe future iterations of those, so equals to those, or just other games like that in our portfolio.

And when we don't damage Xbox and we can grow our business using what other platforms have to help us with that, we're going to do that. And that's really the story behind these four games. And last thing I'll say looking forward, I think there is an interesting story for us of introducing Xbox franchises to players on other platforms to get them more interested in Xbox.

We think there's a good brand value for Xbox there. So four games, no promise beyond that. So if you're on those other platforms and you see these four games coming, please don't take it as some signal that everything's coming. It's not. And we're going to learn.

TINA AMINI: So when you are thinking about the future and this concept of live service games, games that can benefit from bigger audiences, new audiences, how does that apply to future titles and how you're applying that criteria there?

- Yeah. There's really no fundamental change to how we think about exclusivity. We just came out of Developer Direct, which was an awesome show where we showed great games that are coming to Xbox, and PC, and cloud, which really makes them accessible to hundreds of millions of people. So we're really focused on a couple platforms and what's going to show up there.

But our key of play the games you want, with the people you want, anywhere you want, when everybody plays, we all win-- these have been part of our strategy for years and will continue to be. Our focus is on, how do we continue to grow the games industry by reaching more players in more places? And how do we grow Xbox as part of that-- Xbox as a hardware platform, Xbox as a publisher of great games, and Xbox as a platform for the world's best creators.

- And then knowing that, how do we think about our first party games and Game Pass?

MATT BOOTY: Yeah. Well, to build on what Phil just said, one thing I would add-- you were talking about growth-- is just that we've seen this inversion over the last five years where it used to be that the platform was the biggest thing, and the games would tuck in within the platform. Today, big games like a Roblox or a Fortnite could actually be bigger than any one platform.

And that really has changed the way that we think about things. So in the midst of all that, I think we at First Party can come back to some core principles-- first, that all of our games will be on the Xbox platform. Second, all of our games will go into Game Pass on day one. And third, we know that Game Pass will only be available on Xbox.

So there's starting points for us. As Phil mentioned, there are games today that you can play that only can be found on Xbox. And at the same time, we want to bring more of our games to more players. So we're going to continue to look at that.

Kind of moving aside, though, from some of those and thinking more about, what does it really mean for the player? To me, the two key things are cross-play and cross-save. Those things allow us to deliver on the promise of Xbox, which is play with your friends where they are, play on the devices you want, play the games you want.

So that is really only possible at a practical level when you know that your saves and your player are going to be able to move across all those parts. So not all of our games today are necessarily built to take advantage of that. There still will be some games that don't. As we bring more teams into the Xbox family, there's some catchup to do as we get there.

But that cross-play, cross-save is so fundamental to what we're doing. And I think it's something that we as First Party get such a good benefit from being so close to the platform.

- Yeah, absolutely. That's one of the things, like you said, all of our games are always in Game Pass. And so I'm excited to announce, with the coming together that we had with Activision Blizzard King, that Activision and Blizzard games are coming to Game Pass starting with Diablo IV on March 28, which I'm super, super excited to share today.

And it's all part of our commitment to make Xbox, the Xbox experience, and the games that we build as widely available as possible. So now the 34 million Game Pass members can all enjoy the fantastic experience of Diablo IV.

TINA AMINI: Amazing. Can we come back to the point-- Phil, you mentioned at the top of this, this isn't really a change in strategy for us. Can you recap for me how it isn't?

- Yeah. And I thought both Matt and Sarah did a really nice job of talking about what we're doing on Xbox, where we're going. If you take a platform feature like Xbox Play Anywhere, which has been a promise that we've made on our first party games, that you can buy our game once, you're going to get to play across Xbox and Windows-- I think we're the only platform that does this-- that makes it possible for you not only to play with your friends wherever they are, but to know that you actually have multiple entitlements to the games.

I think that's a technology I'd love to see applied to more platforms. But it is this view that people are going to play Xbox in multiple places, whether it's play the games you want with the people you want anywhere you want, whether it's content, community, and cloud, whether it's when everybody plays, we all win-- we've had different taglines different strategy kind of words that we've used, but always with this view that Xbox is a platform for creators who want to reach the most players.

Our investments in xCloud, our investments in franchises like Minecraft, and now Call of Duty, and other large franchises so that we learn how to build those. This has been a strategy that we've been on for, I'd say, a decade. It's not about one device. It's not about games in service of a device, but, rather, the devices that people want to play on should be in service of making the games as big and popular as they possibly could be.

Because, really, a healthy creator community on Xbox, a healthy creator community in gaming all up is the thing that all of us as Game Pass should be voting for, because that's the thing that will lead to the best long-term success and growth in this industry.

TINA AMINI: And my understanding just from listening, and learning from you three over the past few weeks, just understanding what's happening with Xbox is that we see trends with player behavior where people are playing on multiple devices. That is the reality.

And we have put some games out on multiple platforms before. So my understanding is that that's been good for players. How does that come back to the business with all of that in mind?

- Yeah. As you said, we have shipped games on other platforms. In fact, realistically, if you look with the addition of Activision Blizzard and ZeniMax, we're one of the largest game publishers on PlayStation. We're one of the largest publishers on the Nintendo Switch, especially when you put Minecraft into the equation as well. And now, we're one of the largest publishers on mobile platforms as well.

And that's not something that we want to back away from. We want to continue to be building great games that millions and millions of people can love and that they can play those games where they want to go play. But we do understand the business success that Xbox has to have.

Us as leaders in this business, the system today, the system that all companies that we play video games from is a world of you've got to be growing your business-- growth in our Xbox business is critical to the long-term health of Xbox. Many people know I've been on Xbox for over 20 years, and I want to make sure Xbox is in the best position for the next 20 years.

That means healthy player community, healthy creator community, and healthy business. So when we look at opportunities to allow more people to play, more people to engage, more people to buy, more people to subscribe, it's all about putting Xbox in the best position. And our hardware is a critical component of that.

The absolute best experience somebody has on Xbox is hardware that our team builds and that people play on. But that's not going to be everybody. We fully accepted that we're going to have Xbox players across all kinds of devices.

- So I think a lot of people think about 2023 is this incredible year for gaming. And in a lot of ways, it was. There was some really amazing releases that I think we all enjoyed. But what were the signals behind the scenes that maybe indicated how we wanted to look at the future of Xbox and how we keep up with the industry?

- Yeah, such a good question. And I think as people who care about the industry, which I assume is people who are watching this, it was an amazing year-- some great launches. Some of the games that I think will stand the test of time and people will be talking about a decade from now. But it's an industry that didn't really grow.

And what happens when an industry doesn't grow? You end up with some job eliminations, which we had. We had even our own hard decisions to make about building a sustainable business for ourselves, but in no way were we alone in that.

When you think about a healthy industry, I want players who believe that they will find the best games on the platforms that they love. I want people who invest their careers in working here to feel like this is a place that they can be successful. And that really is down to being part of an industry that is growing.

If you listen to Lisa Su, the AMD CEO, she'll say that AMD-powered consoles are likely to decline in 2024. I think there's an amazing set of games coming in 2024, but if we don't get to growing as an industry, the industry will struggle. And today, there's really two choices on how do you grow the industry.

Do you say, I have a fixed number of players, the players that we have today, and do I find new ways to monetize those players to get more money from the players that I have? Or do you think about, how do I expand the business I have by finding new players and adding those to the base of players that already play? Our focus on Xbox for the last decade has really been on that latter point of, how do we make sure Xbox is growing? Growing for our players, growing for our creators so those people are finding success on our platform, which will grow the Xbox business and put Xbox in a position to be very strong for years and decades to come.

TINA AMINI: Matt, earlier, you were talking about these growing gaming communities, how they're incredibly large and comparable on such a different level when we think about console audiences-- like you mentioned Roblox, you mentioned Fortnite. So we're obviously thinking about our responsibility, our hardware responsibility in supporting the growth of gaming communities. How has that actually shown up for the players? Are there other games we can speak to from our portfolio?

- Well, as Phil mentioned, two of the biggest ones for us, Call of Duty and Minecraft-- they are driven just from the bottom-up by the communities of people that play those games, which is so great. Think about it, for the player community, it comes down to, where are the friends? Where are the people you play with?

And then equally important is, where have you built up your library of games, right? Where have you invested? Where is that library? I think those two things probably are some of the biggest influences on where people choose to play and what devices they choose to play.

- Absolutely.

- When we think about on the other side, the developer side, just any game developer wants their game to find the biggest audience possible. That's just the nature of building a game. You want people to enjoy and participate in what you've made.

And I think we're in a unique position to deliver on that just because we are the platform-- we build hardware. We've got a first party games group. And then we've got a system that ties that together that brings together your friends, your progression, your achievements, all of that. And I think that's really what has contributed to the momentum behind some of these communities.

SARAH BOND: Yeah, absolutely. When you just step back and you look at the history of the industry, we've moved from a place where it used to be that someone built and launched a game to accelerate hardware, to actually the things we do with our hardware and with our platform are all in service of making those games bigger. And we think about that across all of the investments we make-- the consoles we build, the investments we do with things like cross-play, cross-progression, the things that we're doing with cloud.

How do we actually give more options to game creators so they can have the greatest success? I think one of the fun recent examples about this is actually Palworld. Palworld was able to launch. They were a game preview. They launched in Game Pass. They also simultaneously launched in Steam.

And so the combination of those things, Pocket Pair was able to have this outsized success. And it was the largest third party Game Pass launch ever. And that's all because we give creators options on how they can launch their games.

We've got subscription. We've got retail. We've got free to play. We've got game preview. We have the consoles. We have our experience on PC. And they can access all of those things.

And when we step back and we just look at the performance of our platform all up, we know it's working. We're at the highest level of users on console, the highest level of users on PC, the highest level of users on cloud ever. We have double-digit growth rate on PC and cloud, places where we're enabling creators to actually reach new players beyond the console ecosystem. And that's why we're leaning into it and doing more, because we see all those signals.

- So we're talking about the role that hardware plays for creators, for the games, and those communities. What about the role that hardware plays for us as a business, for Xbox?

- When we look at our hardware, it really is, and Phil said this earlier, it's where you get the most flagship, seminal experience of Xbox. And it also represents a developer target. Our developers can build the specs of our hardware, and we invest to make sure when they do that the games are going to run great on our hardware, but they're also going to be able to be accessed across any screen because of all the other investments we make.

So we're giving them an easy way to access as many players as possible. And we actually have more creators right now building for Xbox than ever before, thousands of them, by nature of those investments. And we got more to come. There's some exciting stuff coming out in hardware that we're going to share this holiday.

And we're also invested in the next generation roadmap. And what we're really focused on there is delivering the largest technical leap you will have ever seen in a hardware generation, which makes it better for players and better for creators and the visions that they're building.

TINA AMINI: And then when we're talking about hardware, too, there's these other considerations that are really important to our community, probably to each one of ourselves as well. When you talk about library, because I want to dig in on that a little bit more-- as we talk about cloud and the wider entertainment industry, there's conversations about streaming. How is that impacting how I own my content that I've invested in? So what can we say about our stance around game preservation?

- Yeah. One of the highlights for me of being in this position was getting to stand on stage when we announced back compat(ibility) coming to Xbox One. It was fantastic. People were reading the teleprompter before I could read, I'm a slow reader, and just feeling the energy in the auditorium as we were saying that, and online.

One of the cues, I think, us as being part of Microsoft take is looking at Windows, and how Windows, over decades, has maintained software compatibility with things that are built on it. Like, I can still go back and play some of the games that I love playing on Windows from decades ago and it will still run.

And we try to bring that same view to consoles. It's harder in console because the line between what the hardware is and what the game is in consoles is traditionally tighter, which you end up doing these generational compatibilities that we've built. But I will say compatibility, the ability to not only play the games, but my saves are still there with our cloud save systems, to try to keep the services up as long as we can so that people can play is a tenet of what we are as Xbox.

It's at our foundation. And when we look at future hardware generations and what we're going to support, making sure that we respect, which is the word I use "respect" the investments that people have made in Xbox going forward is fundamental. And the fact that you get entitlements when you buy a game from us on both Windows and Xbox also means you have the ability to play that game across a multitude of devices, which I think furthers the compatibility of the games that you own.

- Can we go back to what Xbox stands for today? I think we've pretty much covered all of the elements. But if you could break it down for me.

- When you play on Xbox, what we're saying is you're playing on a platform where you know the biggest games in the world are always going to be. You're playing on a platform where you get to access Game Pass. And all of the games from our incredible range of studios will always launch in Game Pass day one. And you're playing on a platform that's dedicated to you-- player-first features-- cross-play, cross-save, cross-progression, backwards compatibility, being able to play your games in your library anywhere you want because of the investments that we make in cloud gaming.

And so you're playing somewhere where you're investing and you know you get to take the games forward with you and across all of the screens where you are. And I think most importantly, Xbox is a place where you know when you're investing in Xbox, you're investing somewhere that is dedicated to making games more successful and creators more successful, so that they can invest more to bring even better experiences to you all of the time.

- Yeah. That investment in the studios is so-- and we feel that as part of first party with the platform proximity-- it's kind of amazing now to look out across all the studios that we've got and just be reminded that we're now one of the biggest development organizations in the industry. What does that mean for players? It means that the biggest games are going to continue to come to Xbox. And this 2024, the year coming up, we've got more than 10 major releases coming up-- great stuff.

Hellblade 2, they've got Diablo expansion, they've got Avowed, Ara, the Indiana Jones game, and there's more in development, which I think we're going to be able to share more about at our June showcase coming up pretty soon.

- Well, I guess I should get ready to work on that show.

[LAUGHTER]

Well, thank you all for showing up on the podcast today. And we'll see the rest of you, this June.

- Yeah.

- Thanks, Tina.

- Thank you.