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Where the hell is Xbox 720?
Microsoft doesn't want to talk about its next console, known as Xbox 720 or Durango. But IGN does want to talk about the next generation and so do IGN readers. We want to know why Microsoft came to E3 without showing us anything of its next-gen system, which is currently with developers.
I caught up with Phil Spencer, corporate vice president of Microsoft Game Studios, at the Xbox 360 booth at E3. I understood that Phil was not able to talk about Microsoft's plans directly, but he was happy to talk in general terms about the company's thinking.
Reading between the lines of his answers, it's clear that the company is in no hurry to move on from Xbox 360, and has a lot of solid financal reasons to wait. But Spencer is also aware that the core audience will not wait forever.
Also, that the next machine will likely be all about multiple-device connectivity, new models for buying and playing games and priced, at least as an option, on a smart-phone subscription model, with a low entry price and further payments over a couple years.
You can best judge for yourself what's going on here with the transcription of the conversation. We also talked about Halo 4 and other now-generation topics, and I'll post those in the near future.
Colin: So a lot of people are saying that this has been a disappointing E3, that the hardware companies, including Microsoft, haven't taken enough risks.
Phil: Okay... Well, I think there are multiple audiences when you come to a show like E3. You've got the developers, who are looking at each other. You've got the people who are all about buying new hardware, and they're just really focused on when the next hardware's coming out. And then you've got the whole business, retail kind of people, who are looking at business stuff.
I think our business is really in a sweet spot, if you think about the installed base and the number of people, the addressable audience of a platform like Xbox 360 right now. So as somebody who's running a publisher, a first party publisher, but still, an entertainment publisher, it's a great time to be on Xbox. We've got tens of millions of people out there, so when we put out something like Minecraft, we sold two million units. That's a great business.
You're now at a scale, both on Live and the hardware, where you can come out with things that are not Call of Duty, Halo, Assassin's Creed, these big hundred-million-dollar productions. Because the audience is there to reach people and actually have real success. I think that creatively that's a great unlock. There's just more things you can focus on. You can focus on specific segments, or specific projects. We think about entertainment, television, sports, fitness... You know those people are out there because you look at the numbers and it just pours out. You're going to have more women, younger kids, a lot of people in the system. I think it's a really healthy place for us.
Colin: It must make it difficult for you to let it go, for you to say, well, let's move on to the next thing now. Because hell, everything is going really well. And yet we work in the games business, we want something new. Everyone is asking, where the hell is Xbox 720? Why did you come to the show without a new piece of hardware?
Phil: Well, I think we have to be careful when we say "everyone" is asking. Because I don't think it's everyone, right? There's a core set, and I'm one of these people. In my heart I'm a core gamer. There are some people that are looking for what's next. And I love that. Those are the catalysts for our business, those are the people who are going to line up outside the store the night before and get the newest piece of hardware when it comes out. You want to keep that core enthusiast involved in what you're doing, and they're the most critical. But we can't fool ourselves into thinking that that's all that this business is about. Because this business is much broader than that.
Colin: I think that you were going to show something and then you decided not to, that's my personal opinion. Can you comment on that?
Phil: We start our E3 plan in December and January, we start looking at assets and getting stuff together. But we've been pretty consistent on what our E3 plan was going to be all along. We haven't really changed that. Certain things start showing well and other things need more work, but in terms of our key messages at E3, Halo is going to be the biggest game. But no, our E3 plan has actually been pretty consistent from the beginning.
Colin: You're stuck with this problem of when to jump to digital-only, to release a console where all the content is downloadable or streaming and retail is gone, and there are no discs. But the world isn't quite ready for that quite yet. So if you wait you can get closer to that world, which is more ideal for your purposes. Right?
Phil: I would say, and not just for PR reasons, that retail is very important to us. Retail distribution of games is going to be very important for years. When you go to a midwest town, there are still people where retail is still the way they buy , even music. There are millions of people who still buy DVDs. And they're going to buy [retail] games and they're going to buy consoles.
Colin: I am trying to figure out what you have up your sleeve with the next Xbox. Something, maybe, in Kinect, I just can't put my finger on it. You've got to have some really interesting idea and I don't know what it is.
Phil: You look at the beginning of Xbox, talking about eleven years ago, the beginning of Xbox 1, to where we sit today, and you see that the amount of time spent on an Xbox 360 in the house has gone up dramatically. We've seen continued online growth, a growth in online gameplay and now we see online video actually eclipsing online gameplay in terms of just hours used. And that's not because online gameplay is going down, it's just because the box is literally on for more people in the house at more times during the day.
“
There are some people that are looking for what's next. And I love that.
This is a really interesting opportunity for us with the kind of entertainment that we can bring to the box. It doesn't mean that we have to diminish focus on the core. Just like if my TV shows a different thing in the morning than it does in the middle of the day than it does at night.
We really start looking at the Xbox as an entertainment product, plugged into the biggest screen in your house, the TV, and a unique display surface in the TV. That's why I try to focus on SmartGlass, trying to light up other things that are happening in the house, because we understand that it's a connected-device ecosystem.
It's a little bit like Kinect when it came out. We got Dance Central 3, the kind of game that didn't even really exist before Kinect came around. I think now we look at SmartGlass and these other opportunities, and I think the kind of entertainment that we're building will continue to push forward, multiple devices and opportunities to play anywhere, asynchronous multiplayer gameplay. We're trying to come up with new terms for these connected experiences. I think you're going to see just a ton of growth.
Colin: I was talking to Gaikai about their deal with Samsung. I asked if consoles are dead? They said, no, not just yet, but yes, one day it's all going to be through the TV, the cloud. That, presumably, is a problem that you guys have been thinking about.
Phil: Cloud is a huge opportunity. And someday, yes, someday. But if you look at the internet capabilities today, it's a challenge. Even, forget about games. If you said everybody was going to watch the Champions League Final concurrently via the internet at HD-level quality, the internet can't handle that. And that's just people watching a [soccer] game. That doesn't include the level of interactivity of a game and a two-way pipe going back and forth.
So there's just bandwidth issues in terms of metering and things that are out there. So I believe, yes, in the long run we'll land in a spot where there's cloud distribution of all content and Microsoft is clearly invested in that. I like the work that Gaikai does, I play games on Gaikai, and if I get the right bandwidth situation they're actually good experiences. But today it's not really up to scale. You're still going to be pushing boxes out to people's houses that they're going to plug into the TV. That's what they're going to use to play their AAA games. And I think that'll be the case for a while. But that's not trying to downplay what Gaikai is doing, because I think that it's great that they're investing in it.
Colin: Are you going to do a price cut this year for Xbox 360?
Phil: We're not announcing any price cuts right now. We feel good about where the console sits, number one console globally. The partners like the sales rate of games that are coming out, so competitively we feel like we're well-positioned. We announced the opportunity to buy an Xbox with a subscription, where you can sign up to a two-year Live subscription and you get an Xbox for $99 which obviously brings the up-front price point down on the console below a hundred dollars, which is a really attractive price to people. We've seen good uptake. We're just moving out of a trial on that. But it's... I think there are opportunities like that to continue to try to hit all price points.
Colin: So from what you've seen of that experiment, is it something that you guys can work with in the future?
Phil: I think it should be part of our model, absolutely. It's pretty new. I think you want to let it play through, to really get full analytics on what happened. But if we just take our early impressions that we've seen, it's been very positive.
Colin: Do you feel that when the new console comes, say in 18 months' time, there will be a lot of new IP that you've been sitting on?
Phil: Well, there's no doubt that when new hardware lifecycles start, it's always a great place to launch new IP. You just look at us historically, I'll say that we had three big hardware launches. Xbox 1, Xbox 360, and Kinect. Obviously Halo launched with Xbox 1, I'd say Gears was a franchise that was created with 360, and I'm going to look at things like Kinect Sports and Dance Central for Kinect.
if you look at the sales and the financial success of those games, they're big successes. I think it's a unique opportunity, when new things come out, to launch new IP. There's no doubt about that. Because you have that core fan there that wants something new. It aligns very well with what you're bringing in. People are looking for new things."
Microsoft doesn't want to talk about its next console, known as Xbox 720 or Durango. But IGN does want to talk about the next generation and so do IGN readers. We want to know why Microsoft came to E3 without showing us anything of its next-gen system, which is currently with developers.
I caught up with Phil Spencer, corporate vice president of Microsoft Game Studios, at the Xbox 360 booth at E3. I understood that Phil was not able to talk about Microsoft's plans directly, but he was happy to talk in general terms about the company's thinking.
Reading between the lines of his answers, it's clear that the company is in no hurry to move on from Xbox 360, and has a lot of solid financal reasons to wait. But Spencer is also aware that the core audience will not wait forever.
Also, that the next machine will likely be all about multiple-device connectivity, new models for buying and playing games and priced, at least as an option, on a smart-phone subscription model, with a low entry price and further payments over a couple years.
You can best judge for yourself what's going on here with the transcription of the conversation. We also talked about Halo 4 and other now-generation topics, and I'll post those in the near future.
Colin: So a lot of people are saying that this has been a disappointing E3, that the hardware companies, including Microsoft, haven't taken enough risks.
Phil: Okay... Well, I think there are multiple audiences when you come to a show like E3. You've got the developers, who are looking at each other. You've got the people who are all about buying new hardware, and they're just really focused on when the next hardware's coming out. And then you've got the whole business, retail kind of people, who are looking at business stuff.
I think our business is really in a sweet spot, if you think about the installed base and the number of people, the addressable audience of a platform like Xbox 360 right now. So as somebody who's running a publisher, a first party publisher, but still, an entertainment publisher, it's a great time to be on Xbox. We've got tens of millions of people out there, so when we put out something like Minecraft, we sold two million units. That's a great business.
You're now at a scale, both on Live and the hardware, where you can come out with things that are not Call of Duty, Halo, Assassin's Creed, these big hundred-million-dollar productions. Because the audience is there to reach people and actually have real success. I think that creatively that's a great unlock. There's just more things you can focus on. You can focus on specific segments, or specific projects. We think about entertainment, television, sports, fitness... You know those people are out there because you look at the numbers and it just pours out. You're going to have more women, younger kids, a lot of people in the system. I think it's a really healthy place for us.
Colin: It must make it difficult for you to let it go, for you to say, well, let's move on to the next thing now. Because hell, everything is going really well. And yet we work in the games business, we want something new. Everyone is asking, where the hell is Xbox 720? Why did you come to the show without a new piece of hardware?
Phil: Well, I think we have to be careful when we say "everyone" is asking. Because I don't think it's everyone, right? There's a core set, and I'm one of these people. In my heart I'm a core gamer. There are some people that are looking for what's next. And I love that. Those are the catalysts for our business, those are the people who are going to line up outside the store the night before and get the newest piece of hardware when it comes out. You want to keep that core enthusiast involved in what you're doing, and they're the most critical. But we can't fool ourselves into thinking that that's all that this business is about. Because this business is much broader than that.
Colin: I think that you were going to show something and then you decided not to, that's my personal opinion. Can you comment on that?
Phil: We start our E3 plan in December and January, we start looking at assets and getting stuff together. But we've been pretty consistent on what our E3 plan was going to be all along. We haven't really changed that. Certain things start showing well and other things need more work, but in terms of our key messages at E3, Halo is going to be the biggest game. But no, our E3 plan has actually been pretty consistent from the beginning.
Colin: You're stuck with this problem of when to jump to digital-only, to release a console where all the content is downloadable or streaming and retail is gone, and there are no discs. But the world isn't quite ready for that quite yet. So if you wait you can get closer to that world, which is more ideal for your purposes. Right?
Phil: I would say, and not just for PR reasons, that retail is very important to us. Retail distribution of games is going to be very important for years. When you go to a midwest town, there are still people where retail is still the way they buy , even music. There are millions of people who still buy DVDs. And they're going to buy [retail] games and they're going to buy consoles.
Colin: I am trying to figure out what you have up your sleeve with the next Xbox. Something, maybe, in Kinect, I just can't put my finger on it. You've got to have some really interesting idea and I don't know what it is.
Phil: You look at the beginning of Xbox, talking about eleven years ago, the beginning of Xbox 1, to where we sit today, and you see that the amount of time spent on an Xbox 360 in the house has gone up dramatically. We've seen continued online growth, a growth in online gameplay and now we see online video actually eclipsing online gameplay in terms of just hours used. And that's not because online gameplay is going down, it's just because the box is literally on for more people in the house at more times during the day.
“
There are some people that are looking for what's next. And I love that.
This is a really interesting opportunity for us with the kind of entertainment that we can bring to the box. It doesn't mean that we have to diminish focus on the core. Just like if my TV shows a different thing in the morning than it does in the middle of the day than it does at night.
We really start looking at the Xbox as an entertainment product, plugged into the biggest screen in your house, the TV, and a unique display surface in the TV. That's why I try to focus on SmartGlass, trying to light up other things that are happening in the house, because we understand that it's a connected-device ecosystem.
It's a little bit like Kinect when it came out. We got Dance Central 3, the kind of game that didn't even really exist before Kinect came around. I think now we look at SmartGlass and these other opportunities, and I think the kind of entertainment that we're building will continue to push forward, multiple devices and opportunities to play anywhere, asynchronous multiplayer gameplay. We're trying to come up with new terms for these connected experiences. I think you're going to see just a ton of growth.
Colin: I was talking to Gaikai about their deal with Samsung. I asked if consoles are dead? They said, no, not just yet, but yes, one day it's all going to be through the TV, the cloud. That, presumably, is a problem that you guys have been thinking about.
Phil: Cloud is a huge opportunity. And someday, yes, someday. But if you look at the internet capabilities today, it's a challenge. Even, forget about games. If you said everybody was going to watch the Champions League Final concurrently via the internet at HD-level quality, the internet can't handle that. And that's just people watching a [soccer] game. That doesn't include the level of interactivity of a game and a two-way pipe going back and forth.
So there's just bandwidth issues in terms of metering and things that are out there. So I believe, yes, in the long run we'll land in a spot where there's cloud distribution of all content and Microsoft is clearly invested in that. I like the work that Gaikai does, I play games on Gaikai, and if I get the right bandwidth situation they're actually good experiences. But today it's not really up to scale. You're still going to be pushing boxes out to people's houses that they're going to plug into the TV. That's what they're going to use to play their AAA games. And I think that'll be the case for a while. But that's not trying to downplay what Gaikai is doing, because I think that it's great that they're investing in it.
Colin: Are you going to do a price cut this year for Xbox 360?
Phil: We're not announcing any price cuts right now. We feel good about where the console sits, number one console globally. The partners like the sales rate of games that are coming out, so competitively we feel like we're well-positioned. We announced the opportunity to buy an Xbox with a subscription, where you can sign up to a two-year Live subscription and you get an Xbox for $99 which obviously brings the up-front price point down on the console below a hundred dollars, which is a really attractive price to people. We've seen good uptake. We're just moving out of a trial on that. But it's... I think there are opportunities like that to continue to try to hit all price points.
Colin: So from what you've seen of that experiment, is it something that you guys can work with in the future?
Phil: I think it should be part of our model, absolutely. It's pretty new. I think you want to let it play through, to really get full analytics on what happened. But if we just take our early impressions that we've seen, it's been very positive.
Colin: Do you feel that when the new console comes, say in 18 months' time, there will be a lot of new IP that you've been sitting on?
Phil: Well, there's no doubt that when new hardware lifecycles start, it's always a great place to launch new IP. You just look at us historically, I'll say that we had three big hardware launches. Xbox 1, Xbox 360, and Kinect. Obviously Halo launched with Xbox 1, I'd say Gears was a franchise that was created with 360, and I'm going to look at things like Kinect Sports and Dance Central for Kinect.
if you look at the sales and the financial success of those games, they're big successes. I think it's a unique opportunity, when new things come out, to launch new IP. There's no doubt about that. Because you have that core fan there that wants something new. It aligns very well with what you're bringing in. People are looking for new things."
