Microsoft has been gradually moving Xbox away from the idea of a single piece of hardware in recent years, with ambitions to reach billions of gamers across consoles, PCs, and mobile devices. Now it’s officially bringing four Xbox-exclusive games to PS5 and Nintendo Switch amid an “Xbox Everywhere” effort inside Microsoft that will likely see even more games arriving on rival consoles.
It’s a seismic strategy shift that the company is downplaying publicly, so I sat down with Microsoft Gaming CEO Phil Spencer to get some answers and discuss the company’s vision for the future of Xbox.
Launching a few Xbox exclusives on rival consoles feels like the natural next step in Microsoft’s grand plan, but it’s also a risky one: it could undermine the Xbox hardware sales that support Microsoft’s Xbox Game Pass subscription effort and its Xbox ecosystem, forcing Microsoft to go fully multiplatform and become a software-only games company like Sega.
Spencer is all too aware of the risks, but he sees an opportunity to make more money on rival consoles to support Microsoft’s game creation, and ultimately bring games to more players.
Beyond Xbox-exclusive games coming to PS5 and Switch, Spencer also teases “unique” next-gen Xbox hardware, and I quiz him about all the posts on X he keeps liking about an Xbox handheld. We also touch on the regulatory efforts against Apple that could affect the Xbox business, and what exactly Xbox is to Microsoft now.
This transcript has been lightly edited for clarity.
Why is publishing more games on multiple platforms key to improving the long-term success of Xbox?
The games themselves have just a great opportunity to grow. When you find a successful game that’s working, that’s finding great customers on our Xbox console, on PC, you think about how do I make sure those game franchises continue to grow? We can invest in them, they can continue to thrive and find new customers. The software part of the business is an easier part of the business to grow and scale. It becomes more about access, both how do the bits actually get to the screen and even some business model access.
For us, it’s Game Pass plus retail. There’s obviously plenty of free-to-play games on Xbox, but I’d say that business model diversity of giving people more choice and how they build their library, our platform needs to enable those things. And then I think the games themselves on top of that have just an incredible opportunity to reach the billions of players that are out there. You can see something like the launch of Palworld in the last month, right? It’s effectively one game that was built, they continue to update it, and it’s finding just massive numbers of players on Xbox and PC. Games just have that ability to continue to grow, and we want to make sure that our games as part of Xbox are one of the strongest parts of what Xbox is about.
If the goal is more people playing games and more people discovering them, why just these four games and not more? You say you want to learn from these, but surely if they’re hugely successful and you see that more people are playing them, then you’ll do more in the future, right?
Yeah, but we haven’t seen that yet. We’re obviously one of the biggest publishers on PlayStation and Nintendo today, when you think about the Activision Blizzard and Bethesda lineup of games. So we know what it means to ship games on Steam, PlayStation, Nintendo, and Xbox.
These are games that originally launched on Xbox. They were Xbox-branded games and we want to see what happens, because going and doing the development work to bring them to new platforms is real work. We want to make sure that the return makes sense. We want to make sure the audience that’s there has an appetite — maybe they don’t.
We’ll also watch what happens on Xbox as well. Our goal would be that the communities of those games grow, they grow and they thrive, but we’ll see. We’ll see what happens when we take games that launched originally on Xbox and PC and bring them over to other consoles, other closed platforms. We don’t know.
We’ve done it a couple times. Obviously, Ori went over to the Switch after we had launched. We’ve launched Psychonauts 2 on both platforms and launched Minecraft Dungeons and Minecraft Legends on both platforms simultaneously. So we have some data about what happens there. We just want to make sure it’s good for the long-term health of Xbox.
You mentioned that Starfield and Indiana Jones aren’t part of the four despite rumors, but will those ever come to PS5? Can you rule that out?
I don’t think we should as an industry ever rule out a game going to any other platform. We’re focused on these four games and learning from the experience.
But I don’t want to create a false expectation on those other platforms that this is somehow the first four to get over the dam and then the dam’s going to open and that everything else is coming, that’s not the plan today. I also don’t want to mislead customers on those other platforms. We’re launching these four games, and we’re excited about it. We’re excited about the announce and everything else, but we’ll see what happens for our business.
Obviously you saw the Xbox fan reaction to some of the rumors, people worried about their digital library and the future of the console. How are you going to keep those fans, and keep the Xbox ecosystem alive?
I always take the feedback from our most ardent fans very seriously. We’re coming out of a December where we had our highest Xbox engagement ever in the history of the console, more players than we’ve ever had. I know there’s this fictitious world where people think that one exclusive game kind of kicks off the sales of a platform, but the industry just doesn’t really work that way today.
We’ve made a commitment in recognizing and respecting the library of games that people have purchased on our platform. I think we have a good track record with our backward compatibility, with Xbox Play Anywhere giving you a PC and console entitlement when you buy a game from us. When we’ve talked about future hardware that we’re going to go build, compatibility and library support is just kind of fundamental for us when we think about what our plans are. So we’re very, very committed to that.
I would put our commitment on that front, that we’ve made, up against any of the other platforms. I don’t know that other console manufacturers go out and say that the games that you’re purchasing now are going to be playable in the future. And frankly with like FPS Boost and Auto HDR, maybe even playable better than they were in their original state. That to me is a pretty fundamental brand promise for Xbox.
I want to go back to something you mentioned in the FTC v. Microsoft case. You testified that putting Xbox games on PlayStation means that Sony uses that 30 percent of revenue that they get from those transactions to try to basically kill Xbox or undermine Xbox in certain ways. So why would you want to do more games on that platform if that’s the case?
Maybe this is why we’re doing four [laughs]. I’m going to learn about our partnership with other platforms. I’m going to learn about what happens with our players. I think it will benefit the games that we’re putting there and that’s a good thing for us, and if we can use other platforms that have gamers and maybe some of those gamers don’t want to play it on PC and don’t want to play on Xbox and that can help us grow our business, I think that’s great. If the net result is that other things are punitive to the Xbox platform and try to limit our growth, then we’ll have to think more carefully about how we support those other platforms.
Microsoft used to track the success of Xbox, or at least the executive compensation based on Game Pass, and that switched to content and services revenue. Can you tell why that changed, and how does this overall impact how Microsoft tracks the success of Xbox internally?
It doesn’t change how we’re tracking success. Revenue that we make on other platforms will be part of content and service revenue, as it is today. Minecraft on PlayStation counts as part of our content and service revenue today. In terms of why we shifted, I think it was important when we were kickstarting Game Pass that there was a discrete focus on trying something new.
In the end, and I know there’s people who don’t believe it when I say this, our goal is not to make everybody a Game Pass subscriber. I’ve said many times that maybe 10-15 percent of our content and service revenue is subscriber revenue. It’s a good business for us today, Game Pass, but in no way is there a plan that says ‘Okay, everybody needs to become a game pass subscriber.’ If somebody wants to play a free-to-play game on Xbox and that’s what they’re happy doing, or if somebody wants to continue to build their library of games by buying games on Xbox, we’re totally happy.
We went to content and services because it’s actually more reflective now that Game Pass is kind of at a scale where it’s a sustainable, profitable business for us. We don’t have to have a discrete focus just on Game Pass, we should really just think about the health of the overall business on Xbox, which is people buying games, subscribing to games, buying items in games, and the things that people do on the platform that drive the business.
Ultimately, am I correct in thinking you’d prefer to have another Minecraft and another Palworld situation than another X amount of Game Pass subscribers? That success of a multiplatform game is proven out in the revenue from Minecraft. That’s a successful game.
I tell you honestly, running the business, having a diversity of business models that are working is pretty critical. The one thing I will say about the Game Pass subscriber revenue is that it’s consistent. You can look at it, it’s growing. You can kind of see its growth. You know plus or minus what it’s going to be next month and the month after.
In a business that’s very hit driven, you get Palworld out of left field that does incredibly well, and you have other games that don’t. We love it, obviously, when a Hogwarts comes out, a Palworld comes out, or an Elden Ring comes out and does really well.
I like the fact that we get a mix of things happening with our business. Our business model is not just about hardware sales, it’s not just about first-party game sales. It’s a diverse business model that leads to the business success that we’re seeing today, which I think is kind of a testament to the path that we’ve been on for the last few years.
Switching to the hardware side of this equation, you’ve mentioned that new console and controller options are coming this holiday. Are those the leaked refreshed models that we saw in the FTC documents?
I don’t know about any leaks. I don’t know what you’re talking about. [Laughs]
Well you said that they were old plans, so what’s happening there, is that what you’re teasing?
[Laughs] We’ll talk about things that are coming up. I will say I’m very proud of the work that the hardware team is doing, not only for this year, but also into the future. [We’re] really thinking about creating hardware that sells to gamers because of the unique aspects of the hardware. It’s kind of an unleashing of the creative capability of our hardware team that I’m really excited about.
Does that involve a handheld? You keep liking loads of tweets about handhelds.
I’m a big fan of handhelds. [Laughs] I’m a big fan, but nothing to announce.
When I look at Xbox and I say, ‘Okay as a platform, how do I know that we’re doing well?’ I look at how many players there are, I look at how many hours get played. It turns out that the number of hours played on a monthly basis across Xbox, across cloud, PC, and console is a pretty good metric for how we’re doing.
So, okay, what keeps people from playing certain hours? Well there’s some sleep, school, and kind of normal life, but some of it is just access. Do I have access to the games that I want to play right now? Obviously we’re kind of learning from what Nintendo has done over the years with Switch, they’ve been fantastic with that. So when I look at Steam Deck and the ROG and my Legion Go, I’m a big fan of that space.
We do have real work. One of the weak points in the experience on a ROG or the Lenovo [Legion Go] is Windows. How Windows works on controller input only on that kind of DPI, on a smaller eight- or seven-inch screen. That’s a real design point that our platform team is working with Windows to make sure that the experience is even better.
On the mobile side, you’ve also talked about an Xbox mobile store and the potential for that. Is that still happening this year, what’s the status of that?
There are three sides to it. There’s regulatory work to actually open up the ability to install another store on an Android or an iPhone, which isn’t done yet. We’re actively engaged in the Digital Markets Act, and the work that has to happen to make that possible. Then there’s us actually building the store. We have some history there from having our own mobile store in the past. So we know how to go get that work done.
And then there are discussions with our own first-party and partners about the business opportunity. There’s a lot of excitement there for alternative storefronts on mobile devices that can offer better economics and are more, let’s say, gamer first because it’s going to be an Xbox store that we would go put there. We’re able to drive engagement to that store because we’re now one of the biggest mobile publishers with Candy Crush, Call of Duty mobile, Diablo Immortal, and Minecraft. So we can actually use those games to help drive engagement to our store, which can benefit third parties as well.
Some of that regulatory work isn’t done like you mentioned, so what do you think about Apple’s changes for the DMA? And is there room for Xbox Cloud Gaming now on iOS?
There’s not room for us to monetize Xbox Cloud Gaming on iOS. I think the proposal that Apple put forward — and I thought Sarah Bond’s comments on this were right on — doesn’t go far enough to open up. In fact, you might even say they go the opposite direction in some way, but they definitely don’t go far enough to open up competition on the world’s largest gaming platform.
We will continue to work with regulators, and Apple and Google, to create a space for alternative storefronts. I’m a big fan of how Windows works, and you’ve got a Microsoft Store on Windows, you’ve got Steam, you’ve got the Epic Games Store, you’ve got GOG. You have alternatives, and I think alternative ways for people to buy things creates goodness for consumers and creators. I think the largest platform for gamers, which is mobile, should have the same.
Final question. With more Xbox games coming to PS5 and Switch, what is Xbox to Microsoft now?
Xbox is our gaming platform and content business. It’s the number one consumer business that Microsoft has. I think you might have commented on looking at last quarter’s earnings, we’re now with the third largest [business] in the company. It’s an important business, it’s a consumer category that is driven by technology and creativity. It’s a partner-lead business for us, so we get a lot of feedback and interaction with some of the world’s best creators. It’s been amazing the support that this company has given this business over the last five or six years. Honestly, it sounds so cheesy for me to say it, but I’ve never been as excited as I am now about the opportunity ahead for us.
The gaming teams, the games that we have in the market, where our cloud is, the growth that we’ve seen on PC and cloud, our hardware roadmap, it’s just a really exciting time at Xbox. I want to be part of game industry growth, and I want Xbox to play a leading role in the growth of this industry, finding new players and new creators. And yes, we will take our share of that in the business as it grows, but as an industry we need to be really focused on how do we grow this industry.
