For Xbox, The Phil Spencer Era Is Over

Whether they want to admit or not...

"In Phil We Trust"

When Phil Spencer took over as head of Xbox in 2014 fans were elated. The previous Xbox lead, Don Mattrick, represented everything wrong with Xbox and bore the brunt of criticism for its failures during his reign. The Xbox One launch was an unmitigated disaster. Focusing on seemingly everything but video games and the conversation about the console always being online was the dagger that the competition was all too willing to take advantage of. In stepped Daddy Phil, as fans have called him, to save Xbox and guide it to dominance once again. Flash forward to 2023 and Xbox is again at a crossroads. One which may be even more dire than with its stewardship under ole Don, so what happened?

The above was Phil Spencer's 3-point strategy to save Xbox and move the company forward. To his credit, he did all of those things for better or worse. While he's credited with saving the brand, I'll propose that's dubious. Microsoft was far too invested in XBOX to abandon ship following the smash hit that was the 360. The fan outcry following his promotion was gung-ho because he represented a breath of fresh air, he also wasn't Don Mattrick. Phil wasn't corporate, he wore cool t-shirts and handled himself well on stages like at E3. He was open with the media and fans. Constantly keeping them informed and apprised of what was going on with Xbox. Phil was likable, we like that in our corporate overlords. That likability has given Phil Spencer a long rope but there's always an end to every rope.

In the years since Phil has taken over though, Xbox hasn't gained any ground on its competitors. There was initially a ton of optimism surrounding the launch of the Xbox Series X. That optimism has bred a loyalty that's carried forward the goodwill from fans and media for a lot longer than it deserved if you're asking me. The Xbox Series X was touted as being the most powerful home console ever made, it isn't. Xbox Series X launched with no exclusive games and the major AAA offerings that followed were mostly disappointments. Xbox routinely sells fractions of software compared to its competitors on third-party releases and quite often, these third-party games released on Xbox perform technically worse than the competitors' PlayStation 5 versions.

The lone bright spot this generation has been Gamepass, a service only a company the size of Microsoft could provide. Promising subscribers a massive catalog of older classics, third-party titles, and most importantly, day and date XBOX exclusives. This level of value is unmatched in the video game landscape and fans ate it up, at least at first. As of 2023 reports on the state of the service are in a word, conflicting. Gamepass has seemingly hit its crescendo with dwindling growth targets 2 years running. The numbers released by Xbox's most recent financials are muddy and somewhat misleading given the lack of total data transparency. Xbox hasn't given hard numbers on the state of its Xbox division since the end of the 360 generation and without the necessary context of costs going out, it's hard to determine just how reported revenue is indicative of a healthy Gamepass service. The truth is we just don't know. Many media members state Gamepass isn't profitable at all and even Phil himself wavers back and forth on the subject. Sustainable =/= profitable.

Further on this, Xbox's CEO has again flip-flopped, this time on the effect Gamepass has on software sales. After initially claiming the service actually INCREASED sales of video games on Xbox, it's since been shown through CMA financial data that this statement is false, Gamepass cannibalizes sales on Xbox. The Gamepass situation gets even murkier the more you delve into the data and using year-over-year comparisons for revenue is futile when you aren't taking inflation into account. Needless to say, if Gamepass was doing gangbusters, it wouldn't be this hard to find that out. If this all sounds familiar that's because it is: another disappointing next-gen console launch, underpowered hardware, and few exclusive games to speak of, I think you're getting my point.

Pretty much everyone can agree that they've seen enough to admit something is wrong with Xbox, and if something is wrong with Xbox then someone has to be blamed...

“Phil Spencer: Setting expectations lower with each passing year”

It's not about Redfall, but it's also kinda about Redfall

Microsoft acquired ZeniMax Media and all of its studios in March 2021 for US$7.5 billion, becoming a sister organization of Xbox Game Studios. Arkane Studios is a widely respected studio under the ZeniMax and Bethesda umbrella. While not slapping commercial successes left and right, critically, games like Dishonoured, Prey, and Deathloop have fit the bill. Rare is it to hear someone criticizing the actual quality of Arkane Studio video games. That is until the recent launch of Redfall.

Don't let your favorite Xbox pundit sway you on this, Redfall absolutely sucks. It performs horribly, visually looks worse than launch PS4/X1 games, and the enemy AI is inadequate, to put it kindly. And all of this was after a significant delay! Not only that but pre-release messaging misrepresented key components of how the game ran and played. How does a studio known for quality video games suddenly release a dud of this magnitude? Redfall isn't a one-off unfortunately, it's a symptom of a years-long AAA title, Xbox trend that many have tried their best to ignore.

Unlike others, I don't find it coincidence that Arkane suddenly releases the worst game in its history after being acquired by Microsoft. Long-standing questions have surrounded the management and day-to-day running of Xbox's first-party studios and rightfully so. Halo Infinite was touted as a return to form for Xbox's biggest exclusive gaming brand. After being pushed out of the launch window for Xbox Series X, it released without promised features and visually wasn't up to snuff at all. It's taken over a year to get the game to its promised launch state and by now, people have more or less forgotten about Halo Infinite outside of diehard fans. How does this happen? How does a brand as big and as prominent, with almost infinite resources continually fumble their most valuable properties? Mismanagement, that's how, and more specifically? Phil Spencer.

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Recently, Ryan McCaffrey at IGN spoke about the state of Xbox after the Redfall debacle. Always a staunch supporter, Ryan seemed at a loss for words at the state of the game and really, the brand itself. Everyone on the panel of IGN's Podcast Unlocked looked and sounded bewildered, betrayed even after the vertical slice they all had played during preview coverage was not at all indicative of what was delivered at launch. What I want to latch onto is Ryan's analogy to sports and how video games don't work the same in terms of hiring and firing executives. Well, video games are a business and in business, there are winners and losers just like sports. Maybe not at the trigger finger level, but at some point after repeated misses at the first-party level and a distant last place in relation to your competitors. You have to look to the top of the mountain and take a hard look at what is going on.

When All Else Fails, Throw more Money at the Problem

With any console, exclusive games are paramount and to that, Phil Spencer has yet to be able to solve the first-party enigma with Xbox game studios since he's taken over. It's difficult to argue their game situation is in better shape now as a result of his tenure as big boss. Sure there have been smaller hits, Hi-Fi Rush and Pentiment are recent examples of excellent video games but these experiences are infrequent. They're also not what sells consumers hardware. Games like the aforementioned insulate your tentpole, AAA exclusives, not supplant them

To Phil's credit, he somehow sold Microsoft on pivoting the brand's strategy with the Xbox Series X's launch to one of assimilation. If they couldn't beat their competitors with what they had in their first-party stable, Xbox would simply throw as much money as possible at their deficiencies and buy their way out of their problems. But that has only exacerbated the issue. Phil Spencer's Xbox definitely transformed, becoming an acquisition-first venture but without fixing the mismanagement issue that had plagued their studios and games. That strategy, at least in the short term, has failed with the CMA rejecting Xbox's purchase of Activision/Blizzard and now with Redfall's disastrous launch representing the first release after their purchase of Zenimax.

If your studios are constantly having management issues, with multiple losses at the executive level happening repeatedly, you have to look at the people who are in charge. You can't keep blaming the players/studios, if you're making the big bucks along with all the big decisions you have to be accountable. It's also convenient to claim success on the back of a new Gamepass service-based strategy when you are getting clobbered in the only ways the video game industry has measured success historically since its inception; console and video game sales. The moving of the goalposts seems all too convenient from a business standpoint, especially when you aren't being entirely transparent with the data to back up those claims.

The Interview and the Proverbial White Flag

What spurred me to write this though wasn't Redfall, or Microsoft's history, acquisitions, mergers, or cool t-shirts paired with a blazer, it was Phil Spencer's recent appearance on Kinda Funny's Xbox Podcast. In my nearly 4 decades of playing video games and subsequently being a part of the industry's media, I've never heard someone wave the white flag quite like this.

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"We are not in the business of out consoling Sony or Nintendo. There is no real solution or win for us"

Wow, just wow. In one capacity I respect the candid nature of the interview. You rarely if ever get someone at Phil Spencer's level to speak like this. But, this admission of defeat is astounding. A testament to how poorly it's going at Xbox when your CEO flat-out admits it. That said, this quote, along with other statements, made here are entirely misleading, a few being flat-out lies. Let me break down why with Phil's own quotes:

"It's not true that if we go off and build great games all of sudden you'll see console share shift in dramatic ways"

This is false and it's unbelievable to hear the head of Xbox say this when the direct competitors Phil is referencing specifically fixed generational dips by releasing great, first-party video games. PlayStation 3 was losing to the Xbox 360 and rightfully so. They were arrogant, the PS3 was overpriced and everything around it was convoluted. Sony pivoted mid-generation and embraced a mantra of releasing as many great first-party video games as possible, listening to developers, and facilitating relationships with indies to gravitate to PlayStation. Here is Shawn Layden, former PlayStation CEO, describing exactly this: (please forgive the fan nature of the source here)

https://twitter.com/i/status/1654514034983546889

Layden called it PlayStation's "Icarus Moment" and that "they hadn't listened to their customers". What followed was a miraculous turnaround for the PlayStation 3, ultimately outselling the Xbox 360 with a year less on the market, and the launch of the PS4, the third-best-selling home console in video game history.

Further, Nintendo bounced back as well after 2 straight home console flops in the Nintendo 64 and Gamecube. While their strategy was slightly little different, they proved that mediocrity was not a mainstay, simply temporary, and that great gaming companies battle back. How do they do this? By releasing great video games.

I'm not naive, Phil isn't saying that Xbox's goal isn't to still try and release great games, but what is he saying then? An admission that Xbox is resigned to a distant third in the video games business comes across as defeatist and even if you do believe this internally, you definitely don't say it out loud. Why? You insult the fans that have backed you and send the message that all their support was mostly in vain. "Gee, sorry guys, I know you backed us with your hard-earned money after we promised that Xbox would be the best place to play games this generation, but we can't do anything about it even if we tried. You were wrong to believe in us" I'm paraphrasing of course but that's what I got out of Phil's statement here.

"We lost the worst generation to lose in the Xbox One generation where everyone built their digital libraries"

This is a stunning quote that shirks responsibility entirely. Yes, Xbox lost the X1 vs PS4 generation but what role did Phil play in this? Don Mattrick took the fall but who was right there beside him? It was Phil Spencer and he had plenty of time to pivot mid-generation once he took over just like PlayStation did with the PS3.

One generational miss doesn't squander the loyalty built from the 360 and what you see from Xbox fandom today tells that tale. Phil continued to double down further, that even by releasing great games, Xbox wouldn't be able to shift the needle as fans were now too entrenched within their digital loyalties. Nonsense and even if that were true, you're not even going to try to change the tide? It's one thing to say that you can't change hearts and minds with great games but it's another entirely to make this claim while not releasing the number of great games required to put up the necessary fight!

Resigned to Last Place

Whether Microsoft wants to admit it or not, this is the end of Phil Spencer's tenure as head of Xbox. I'd be shocked if there wasn't some sort of mutual parting of ways within a year's time. It's hardly unprecedented, PlayStation themselves moved on from an undeniably successful CEO in Shawn Layden simply because Sony felt his vision for the future was too small. No CEO in video game history has resigned his company to its last place fate like this outside of Phil Harrison and that was right before SEGA announced they were leaving the home console industry entirely. A truly sad day for this proud SEGA fan, but I digress...

“So many of these IPs have been squandered, what happened?”

I like Xbox, I want them to do well and competition is pivotal in the video game space. We've all seen what an arrogant Sony PlayStation looks like when they're alone at the top. Xbox is the home of wonderful franchises born purely because of the brands' existence. Sadly many of those have either all but disappeared (Fable) or are in a state of turmoil due to gross management issues (Halo).

Xbox Must Hasn’t Learned Their Lesson

Going all in on acquiring new studios gave fans fleeting wins but it was duct tape to mask the real issues. Instead of the billions spent on buying shiny new toys, Xbox should have invested in their current studios to figure out what was going wrong. Fix communication, patch up pipelines, give support where and when your current studios need it, and get some quality first-party video games out the door in a consistent manner.

It wasn't like Xbox's competition was clamoring to buy up rival publishers at the beginning of this generation. Not before the billions started getting tossed around anyway. Xbox got that ball rolling and set the tempo for the new reality in the video game landscape. PlayStation begrudgingly followed their lead and by doing so, broke a tradition of only acquiring companies they had long-standing relationships with.

I like Phil Spencer, he's hard not to like and he's been refreshing to see in terms of his candor and openness. But I can confidently say in 2023 he's done a poor job as the head of Xbox. Their first-party game situation is actually in worse shape to me than when he took over. The console has gained no ground on its competitors, not in the traditional sense we measure this anyway, and Xbox have raised spending by billions and billions with little to show for it. The gross mismanagement that's badgered Xbox hasn't rectified itself at all. Redfall does not happen to Xbox's competitors at scale, it just doesn't. Under Phil Spencer, Xbox has proven an inability to rectify mistakes. Now with his admission in recent interviews and podcasts, he's driving the most staunch Xbox fans to the brink.

Year after painful year Xbox faithful were told the games were coming. "I know 2021 didn't work out but wait until 2022" Now with 2023 hinging on the hope of Starfield it's almost looking like never, isn't it? I'll end this with one final quote that summarizes a lot of what I've put forward here and why it's time for a fresh set of eyes on the multi-billion dollar experiment that is Xbox.

"There is no world where Starfield is an 11 out of 10 and people start selling their PS5s"

Read between the lines people, this is called lowering expectations and for Xbox, expectations have been lowered enough.