The games industry, especially the console market, is stagnating, according to Microsoft Gaming CEO Phil Spencer. He believes that this leads to several major problems, outlining possible solutions that Xbox and other publishers could take to drive the growth.
Phil Spencer (Image credit: Xbox)
As Spencer told Polygon at GDC 2024, the way publishers set game budgets has changed over the last several years. They used to make estimates based on sales and earnouts goals, as well as the base price of $59.99. However, companies now have to take into account multi-platform distribution, subscription services, longer production times, larger team sizes, and other factors.
According to the Microsoft Gaming CEO, it can cost “$300 million to build a video game.” This results in three major problems he identifies:
- Publishers don’t want to take risks due to rising production and marketing costs, when a new AAA game must sell millions of copies instead of the previous few hundred thousand units to make a return on investment (“I think it impinges on the creativity of this industry, which I don’t love. Creativity is like the cornerstone of what we should be about in gaming”);
- The point of making exclusives is becoming more questionable, as they are not only extremely expensive to develop but also have to generate additional money for the platform holder to cover the cost of producing the hardware and selling it at a lower price;
- The console market is not growing, with platform holders “fighting over the same-size pie” — many gamers simply upgrade to the new hardware and “you can’t succeed unless you draw in customers from other publishers and other platforms.”
One of the saddest parts is that these problems, especially the lack of growth, lead to layoffs. Spencer noted that public companies always have to show their investors growth on the revenue side, otherwise they just start cutting costs.
“I don’t get any luxury of not having to run a profitable growing business inside of Microsoft,” he said, reflecting on Microsoft laying off 1,900 employees across Activision Blizzard King and its other gaming divisions.
Spencer doesn’t want the industry to be a “place where people can’t, with confidence, build a career.” That’s why companies have to reflect on this and find a way to make the market grow again.
I will say, every decision we make today and tomorrow is for the better of Xbox. 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.’ 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. CEO of Microsoft Gaming
So Microsoft’s plans to bring some of its first-party titles to other platforms are part of the strategy of fighting the industry’s stagnation and stimulating sales of its older platform exclusives. He also told Polygon that he doesn’t rule out the possibility of someday bringing the Epic Games Store, itch.io, and other platforms to the Xbox ecosystem.