The first quarter of 2024 has been another interesting one for Xbox. There have been positive announcements, a very well-produced Developer Showcase, and an Xbox Business Update which are all buoyed by a slate of fantastic looking first-party games scheduled for release this year. And yet, despite this, the news somehow feels negative. Without trying to sound overly dramatic, it seems like this has become a bit of a recurring theme for Xbox over the past couple of years. The question I find myself asking is: Why?
Prior to the Xbox Business Update with Phil Spencer, Sarah Bond, and Matt Booty (and hosted by the awesome Tina Amini), I wrote this perspective on what we should expect to see. I talk and write a lot about business decisions like this, and, as you might expect, sometimes I’m on target and sometimes I miss by a mile. On this one, however, I hit the mark and thus didn’t find any of the information surprising. In fact, I would argue that the news was far more positive and targeted than the wild rumors and “leaks” that were distributed so heavily prior – including Starfield and Indiana Jones remaining Xbox console exclusive (at least for now).
I’ve said this before, but the reason I write about Xbox more often than other console manufacturers or publishers is that they are generally more accessible. They share information more broadly, and they have a more communicative nature with their fanbase. As a fan of the industry, a podcast host, and an EiC, I naturally appreciate it. That said, I also think it’s at the crux of what I’m attempting to decipher. With that in mind, I’m writing this article in response to Phil Spencer’s latest interview with Polygon while simultaneously using it to demonstrate a point. Let’s see where it takes us.
There are three core points that Spencer calls out in his discussion with Polygon regarding the state of the industry and AAA game development. To paraphrase:
- The cost of AAA development has grown so much that it becomes a substantial risk for publishers to take risks on new IPs. That impacts creativity, which he believes is a cornerstone for the industry.
- That cost is particularly prohibitive with regard to exclusives given their limited reach.
- The overall console market is not growing. This means they all just continue fighting for the same piece of the pie despite rising costs.
Let’s address each of these independently.
First, I believe it to be quite widely known that the cost of AAA game development has ballooned to an unsustainable level, generally speaking. We’ve heard this from studio heads, publishers, and industry leaders alike. In fact, it was something that former PlayStation and SIE CEO, Shawn Layden, was very outspoken about late in his career (and has continued to state since leaving SIE).
As a recent example in this space, you can point to Immortals of Aveum. Developed over years by very talented industry veterans at Ascendant Studios, published by EA, and widely accepted as a “good” game, it failed to meet sales expectations. Since that point, Ascendant Studios has had to layoff approximately 45% of its workforce and restructure. Examples like this are commonplace in an industry where a single “miss” can devastate a studio after years of work.
Ahhh, exclusives. At least we’ve never discussed these before, right? The debate over exclusives feels like an endless battle where nobody ever wins. So as I typically do, let’s stick to the facts and the data. And, generally speaking, they are quite clear, which is likely why Spencer chose to mention it.
I wrote this last month prior to Xbox’s Business Update:
In 2022, the global console market accounted for just 28% of global gaming revenue. Of that, a minority percentage was actual game sales compared to in-game or service content. And of that, an even smaller, minority percentage were exclusive, platform-specific releases. Exclusive game releases account for a very small percentage of overall gaming revenue (particularly if you exclude Nintendo, which is almost a separate segment in itself). Perhaps more notable is the fact that growth in the overall console segment is relatively stagnant.
The fact is that the market for “console exclusive” releases has evolved greatly in the past 10-15 years. And, while there are certainly success stories to still point to, they are fewer and further between.
The most common push back I see on this (in my circle anyway) is, “But if you publish great exclusives, it will drive players to your ecosystem, and they will then spend more on your platform.” It’s one of those thoughts that, when said aloud, makes sense and begins to convince you that it’s the reality. The issue? It’s not.
There are countless data points to show this, and, again, Spencer has talked about this on several occasions. The fact is: players have largely moved to digital ownership and therefore have already built an association with their platform of choice (which is further compounded by aspects like achievements/trophies, friends lists, etc.). So while there may be an occasional push to buy a spectacular exclusive that comes around on a platform that isn’t your “main,” the continued, downstream revenue simply doesn’t exist on a large scale.
I see it out there, I see commentary that if you just build great games, everything would turn around,” he said. “It’s just not true that if we go off and build great games, all of a sudden you’re going to see console share shift in some dramatic way. We lost the worst generation to lose in the Xbox One generation, where everybody built their digital library of games.
This idea that if we just focused more on great games on our console, that somehow we’re going to win the console race, I think doesn’t relate to the reality of most people.
On Spencer’s third point that the console market isn’t growing notably: again, this has been true for some time. Technology has changed the global gaming industry substantially, and, of course, it will continue to do so. Depending on the models you look at, growth in the console space is only expected to be a couple of percentage points over the next few years. As Spencer pointed out, this means that the companies are all fighting for the same size pie despite costs rising substantially.
No matter how you slice the numbers, it’s an unsustainable model. And that means new ways of thinking have to occur. And just to be exceedingly clear, this is true for Xbox, PlayStation, and Nintendo. In fact, Sony’s President, Hiroki Totoki, recently pointed to the same thought process regarding broadening margins by delivering more multi-platform releases.
In the past, we wanted to popularize console and the 1st party titles’ main purpose was to make the console popular. It is true, but there is a synergy to it. So if you have strong first party content, not only with our console but also other platforms like computers, 1st party can be grown with multi-platform and that can help operating profit to improve. So that is another one we want to proactively work on. I personally think there are opportunities out there for improvement of margins, so I would like to go aggressive in improving our margin performance.
I hope to be able to talk more about PlayStation in the near future, and, in fact, it’s fair to say that Nintendo successfully made a major shift when they developed the Switch, thus combining their home and portable markets into one.
So, coming full circle, if these aspects of the gaming industry in 2024 are widely known, accepted, and understood, then why the negativity around shifting strategies? Speaking purely in terms of my opinion, it’s due to the fact that Xbox is so communicative.
As I said at the start, one of the reasons I enjoy writing about Xbox is that the leadership team is so open. When you compare Xbox leadership’s approach to how they communicate about their plans versus PlayStation and Nintendo, it’s night and day. Nintendo keeps fans on a strictly business relationship. Depending on your perspective, that can be good or bad, but it does remove a certain amount of speculation from the community.
And while PlayStation shares overviews of their strategy with investors from time to time, they are certainly not out in front of their fans like Xbox is. And, funnily enough, the last PlayStation deep dive of their strategy provided by SIE President and CEO, Jim Ryan, included plans to account for all the aspects discussed above.
One of the aspects I’ve appreciated about Xbox since it entered the industry in 2001 was the brand’s focus on pushing technology forward. From broadband internet to Xbox Live, online multiplayer, Achievements, a digital store-front, and more, they’ve pushed the console industry forward in a number of ways. Sure, they don’t always land successfully, but that’s to be expected.
Over the last few years, they’ve continued in that vein. A focus on Game Pass, cross-play and cross-progression, xCloud, cloud saves and data sharing across all devices, and more. That focus has created a gaming environment in the Xbox ecosystem that I truly enjoy and engage with on a daily basis. But with evolution in the industry comes change in strategy. And change isn’t always seen or felt to be positive.
It’s fair to say that some see Xbox’s evolving strategy to be counter to the focus on making Xbox the best place to play. And, in turn, this will devalue the Xbox console and even the ecosystem to a degree. There may even be some truth to that, but it’s the degrees that matter in that equation. From the top down, change is inevitable and required. And, at the end of the day, as it is always, it’s about the bottom line. And these companies will do what they have to in that vein. Again, Spencer is very clear on this:
We’re a business. I’ve said over and over. I don’t get any luxury of not having to run a profitable growing business inside of Microsoft. And we are that today. But just across the industry — you mentioned it, and in sitting here at GDC, 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. 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.
In the end, I believe the reason the evolving strategies discussed by Xbox leadership are debated so heavily is that their leadership is as open as they are. PlayStation, Nintendo, and publishers alike all have the same data and are having the same conversations. Xbox is just more transparent about it. And while I, and many others, appreciate it, it also means that it becomes a much larger narrative across the gaming community.
No matter where you stand on any of the ways that the gaming industry is changing, I hope we can continue to have respectful, meaningful conversations about it. And, at the end of the day, I hope we all continue to remember why we fell in love with this industry in the first place: the games. It’s the best medium in the world.
This is a bad take. The reason gamers are mad isn’t because of open communication. This all leaked well before Xbox communicated it and people were so mad they had to rush a special podcast.
The reason they are mad is Xbox is shipping previous console exclusives on their main competitors console. PlayStation isn’t doing that. Nintendo isn’t doing that. And it doesn’t seem like that’s happening anytime in the near future either.
Most of what leaked was incorrect, overblown, and/or pure speculation. That’s the point of the entire article…
Very well written article, Ains. I think if you are angling for a job at Xbox then you should be in good shape. If you humor me I would like to respond to some of the topics you covered, starting with Nintendo.
Nintendo is the inconvenient truth for the industry. When regulators tried to block the ABK merger Xbox and its fans were quick to say, “Look at Nintendo! They don’t need Call of Duty to compete!”. Meanwhile, the FTC was arguing that Nintendo was in its own bubble, not in direct competition with Sony and Microsoft. Well, which is it?
Nintendo is the perfect example of how you can build your platform around exclusive content. They also have shown on multiple occasions how to make a comeback with a killer app.
PlayStation has always had great exclusives too. However, early on it was in large part do to popular third party franchises being exclusive. Over the years the number of big third party PlayStation exclusives has dwindled but Sony still offers a good combination of first and third party games to differentiate their box for the core gaming audience.
That core audience is the piece of the puzzle I feel you are overlooking, Ains. Those early adopters vet your console and give it momentum. Exclusives matter to this group even if the mainstream will only ever play CoD, FIFA, Fortnite and Roblox. If you don’t convince the enthusiasts you aren’t going to make the big bucks on mainstream titles and MTX. You respond to a similar argument but without the context. I think that core audience is very important for this conversation. Which brings us to Xbox and why it’s constantly surrounded in negativity.
Xbox’s problem is it consistently fails to excite that core audience. They also routinely disappoint the few diehards they have. For the last handful of years since Phil took over he has sold the idea that they were going to compete. “I want to win!” I feel like I remember him saying on the couch at E3 during one of his annual sit downs with Giant Bomb.
To be fair, they did try to compete. The problem is it just didn’t work. Cross-Play, Game Pass, Series S and Cloud Gaming was their big push and it didn’t pan out. Now they have to change tactics, because none of their growth strategies panned out and they have burned through a ridiculous sum of money on Daddy’s credit card. So I get when their core audience is frustrated. If only they would have realized the power of software instead of doing everything but focus on games for the last 10 years.
When they picked up Ninja Theory, Obsidian and Double Fine at the tail end of the Xbox One generation I thought they finally figured it out. Halo Infinite could be their Breath of the Wild moment at launch and they would have new talented studios on board to fill in the gaps in their lineup. Nope. They didn’t get the right people in the right places to make it happen. They never seem to be able to react and anticipate. Probably because it’s Microsoft.
I will close with this, exclusives matter! What do you think the top shows are on Netflix or Disney+ in terms of watch time? The blockbuster original content, or some popular kids show that gets watched on repeat? Data doesn’t tell the whole story. I know Microsoft is a very data driven company which is probably their biggest weakness when it comes to gaming. They need more creatives in the room where decisions are being made. Anyways, I’ve rambled long enough.
Take care, Ains.
Evening Joe. So that’s a long comment – and I have to say on it but I’ll try to keep it brief (try lol)
First, I don’t appreciate the “angling for a job at Xbox” commentary. Nowhere in this article did I give my opinion on Xbox’s decisions. I didn’t say I agreed with them or thought they were the right move. I simply provided the industry data points that Phil (and others as I’ll keep saying – including PlayStation) are looking at.
The reason I do that in a lot of these articles is because I try (as best as I can) to stay away from speculation and acting like I KNOW what’s best. Because frankly, nobody does.
Your comment on Nintendo is fair and I would say that most agree. But as I often write, Nintendo is on an island in many ways. Xbox (nor PS for that matter) is going to replicate Nintendo. But again, make no mistake. If you look at Nintendo’s fiscal results and where they are planning (which you can find a video of as I covered it on the channel), they are looking at mobile and cloud more too.
PlayStation saw tremendous success in the PS4 era as we all know, and from a console sales perspective (the PS5, not PS VR2) the PS5 is selling very well. But guess what, their profits are down and they made the decision nearly two years ago to shift heavily away from the model of success they had in the PS4 era. Why? Because they see what the data is telling them.
In short, as I’ve tried to point out and publishers are saying out loud yet some gamers don’t want to listen for some reason, the INDUSTRY is changing. It doesn’t matter if you, me, or anyone agrees. It’s happening. And the companies will do what they have to do.
Lastly you say “Xbox tried to compete but it didn’t work.” Again, just saying these things doesn’t make them true. Cross-play absolutely worked and the days of PS fighting against Minecraft crossplay (7 years ago if you’re wondering) are long gone now. The top played games on all platforms are generally crossplay. Game Pass? It’s successful and profitable. It might not be growing at the rate they hoped, but it’s still profitable and a key part of their business. Cloud gaming? You want to say that “didn’t pan out” in 2024? That would be a very bold take. Lastly, even before ABK, Xbox’s revenue was continuing to increase YoY. I cover fiscal results on SG often.
Exclusives matter yes – but to a much smaller degree than twitter or some will have you believe. Again, there are years of industry data showing this, for both Xbox and PlayStation. Stephen Totilo talked about this recently and shared the internal metrics for retention based on exclusives for both Xbox and PS since 2015. They don’t do nearly what gamers on twitter believe they do for a platform.
Alright I’m done. More to come as always and thanks for reading Joe!
How is the market shrinking ? Switch Will BE the most sold console in history very soon and console market hás grown increvenue Faster than the PC market in the last Six years, the Numbers dont add up and you guys have to Seek better info, https://twitter.com/nib95_/status/1772847660841496822
You know the best part about this comment? If you search the entire article, the word “shrinking” is never used. Because I didn’t write that anywhere.
Let’s start there. Then I would suggest using the links I provided, to actual market analytical companies, versus a Twitter account. Enjoy.
Industry…. Not a particular console. The Industry itself is not growing in the console space. Same amount of players now as there was in the PS2 era.
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