Phil Spencer, CEO of Gaming at Microsoft spoke with Polygon at the GDC that ended last week. During the discussion, he addressed different issues including the possibility of having a handheld console, and gave insights on the reason for the Activision layoff and by extension the mass layoffs in the video game industry.
Phil Spencer, CEO of Microsoft Gaming
“I reflect on friends of mine in the industry that have been displaced and lost their jobs and how just, I don’t want this industry to be a place where people can’t, with confidence, build a career,” Spencer said.
“So that’s why I keep pivoting back to: How does this industry get back to growth? But to your question, for us as Xbox or any of the teams that are out there, it is really an outcome of an industry that’s not growing. It can grow and it will grow again. But you see this time right now and the implications have human impact. And we should all reflect on that and think about it.”
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The Xbox boss noted that part of the problem with the gaming industry is the rising cost of game production. According to him, the path forward involves rethinking exclusivity and attracting new customers.
Although Xbox, PlayStation, and Switch consoles continue to make sales, Spencer said those purchasing the consoles are not new customers, but rather old customers who need an upgrade from one generation of consoles to another and don’t add to the growth of the market.
He said that without growth in the market, the only way to get ahead and sell more games is by targeting players on other consoles, or as he put it, “everybody else’s customer is your success state”.
“You can’t succeed unless you draw in customers from other publishers and other platforms. And because you’re not finding new customers with the games that you’re building, everybody’s kind of fighting over the same-size pie.”
Phil Spencer explained why Activision layoff was necessary
When asked whether the layoff in Activision Blizzard King was part of a wider trend or due to a specific challenge with the Xbox business, Phil Spencer said it was a bit of both. According to Phil Spencer, the reason why anyone will invest in a company is because they see the company growing.
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So, when there is stagnation in growth, the next place that investors will scrutinize is the cost side. “If you are not going to grow the revenue side, then the cost side becomes challenged,” Spencer said. The Xbox boss also said that the game industry is projected to shrink further next year “in terms of players and dollar,” which invariably means the industry may see more layoffs next year.
Phil Spencer blames exclusivity for the stagnation of the console market
More than once, Phil Spencer has expressed his displeasure with the concept of exclusivity. He also made a case against it during the discussion with Polygon. Spencer said exclusivity limits the number of players that a game can reach, games that need to make additional money to justify the subsidization of the console by the maker.
Consequently, last month, Xbox sent four previous exclusives to Nintendo Switch and PlayStation. The decision was harshly criticized by members of the Xbox community who believe that exclusivity sells consoles.
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“I know sometimes things get weaponized, that there’s some evil in the background that’s making us do things — ‘Phil hates exclusives and that’s why we’re like PlayStation and Switch now,’” Spencer said. “Every decision we make is to make Xbox stronger in the long run. It doesn’t mean everyone’s going to agree with every decision we make. But it is fundamental for how we make decisions.”
“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.’”
