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Xbox One: "Our long term vision hasn't changed at all"

Xbox One: "Our long term vision hasn't changed at all"

Mon 23 Sep 2013 3:00pm GMT / 11:00am EDT / 8:00am PDT
PublishingDevelopment

Microsoft's Phil Harrison discusses why there will be no indie games at the Xbox One launch, digital price parity and the cost of next-gen development

It's been a turbulent three months for the Xbox business. The unveiling of a new games console was fumbled badly with unpopular announcements and assumptions about consumer behaviour - a situation that benefited rival Sony as much as it harmed Microsoft. Since then, the company has u-turned on its original digital vision, shelving always-on requirements, cutting back Kinect functionality and opening up to used games. And it was slow to talk about its support for independent publishing on Xbox One, only revealing detailed plans last month at Gamescom while rival Sony had spent months publicly shaking hands and kissing the babies of indie game development.

But those reveals already seem a long way off when the launch of two new home systems is only two months away. Microsoft now appears to have a more coherent message about the Xbox One and has gradually answered the awkward questions, and as the campaign to put the system at the forefront of consumer and developer minds hots up, the business is developing a stronger public presence.

GamesIndustry International sat down at Microsoft's London office last week with Phil Harrison, corporate vice president of the interactive entertainment business in Europe, for a wide-reaching interview to discuss the build up to the impending launch of Xbox One, the current state and cost of games development, Microsoft's vision of digital pricing and delivery, and the changes in publisher, developer and consumer relationships.

Q: We should catch up on the independent publishing plans. It's been four weeks since you first publicly revealed the indie publishing initiatives for Xbox One - what's been happening since then?

Phil Harrison: We've had an avalanche of interest from all corners of the globe. It's what we expected but it's great to see. Now we're working through applications and creating that dialogue with developers. As we said at the time, we have phase one where we give away development kits and loan them to the teams that inevitably will have to pass some kind of a qualification to justify a limited number of dev kits being given to them. That process is ongoing. Eventually our goal is that every retail Xbox One console becomes a dev kit. And then we open up to the widest possible audience.

"We haven't diluted our long term vision, which is all of the benefits of a connected ecosystem and what that means for all of the stakeholders - us, developer, publisher and player"

Q: How many applications have you had for the programme?

Phil Harrison: Within hours it was hundreds. I actually don't know the number now but I'm assuming it's in the thousands.

Q: How do you streamline that process. That's a lot of applications to go through and developers needs to know if they're in the queue, if they're rejected, whether they should come back in 6-12 months time...

Phil Harrison: The team with Chris Charla are the guys who have that enviable task of managing that process. That's the exact process Chris is going through now.

Q: You've announced your indie programme but to show it really works we're going to need to see the games, the way they are integrated into the Xbox One retail environment, how they are promoted and supported through digital channels. When are we going to see the first releases?

Phil Harrison: There's been a lot of debate about what is an independent developer? Is it Capy with two people, or is it Crytek with 200 people? I think it's both and it's everybody in between. There's been too much focus on the financial structure as to whether they qualify for being an indie. For me, it means they are independent of their own design decisions, they're independent in thought, they're independent in motivation and creative direction. The current structure of retailer and publisher and financial investor in a studio inevitably means there are a load of executive producers. Executive producers are a good thing, they add value, but they can also mean that certain kinds of games get built over and over again because they are more predictable in nature. They're more easy to forecast, easier to sell to a retailer and easier to pigeon hole.

"Executive producers are a good, thing they add value, but they can also mean that certain kinds of games get built over and over again"

Q: Bringing it back to the original question - when are we going to see the indie products released on Xbox One?

Phil Harrison: I don't think we're going to see things at launch. I don't think it's realistic to see a developer get the programme and build a game and get it into the market on November 22. It's reasonable to expect in early 2014 we'll start seeing the first games come through.

Q: From an infrastructure point of view I guess it's to be expected. A lot goes into launching a new console globally.

Phil Harrison: Under the radar, invisible to the consumer and hopefully invisible to the developer, there are a lot of tools on our side to ingest the content and stand the content up on our stores around the world. That requires a lot of investment in tools and technology. It's plumbing but it's important plumbing.

Q: When you first announced the Xbox One there was a lot of focus on the digital future, digital delivery, digital retail, sharing of content and online connectivity. And you took a lot of flak for that. Not all of that was justified. There's an acceptance that if you play MMOs you're connected to the internet, if you use Steam for your games there's a lot of connectivity issues there, DRM is accepted in some services more than others. When Microsoft announced similar elements for the Xbox One there was an instant revulsion that this was going to happen in console gaming. What was your reaction to that, considering a number of policies have been scaled back or changed entirely?

"I don't think it's realistic to see a developer get the indie programme and build a game and get it into the market on November 22"

Phil Harrison: Our long term vision hasn't changed at all. We haven't diluted our long term vision, which is all of the benefits of a connected ecosystem and what that means for all of the stakeholders - us, developer, publisher and crucially, the player. None of that has changed. What we recognised was when you put a disc slot in the front of a machine certain expectations come with that disc slot. We had to adapt some of our policies and it was best that we did those before we launched, which we've done. All of that can be handled in the vacuum of the pre-launch activity. And it allows the players to have a choice. They can consume the content through the medium they like the best and fits with their particular situation. I don't think there's a negative to that.

Q: Do you think you underestimated the reaction from the consumer? And I don't just mean Microsoft and the Xbox One, but the games business as a whole. Is the consumer reluctant to fully embrace the digital future? Because this is the way entertainment consumption is heading, regardless.

Phil Harrison: I don't think it was underestimated. The moment you put a disc slot in there are certain expectations and functionality that I'm used to as a consumer. I don't think it actually net-net changes anything.

This will sound like a random anecdote but I was sat buying a pair of shoes in the Nike store and while I was waiting there were two guys who worked there talking about their Xbox One preorders. It was amazing to me just how clear they were about their reasons for purchase, their motivations for purchase and what games they wanted to play. There was no discussion about DRM, there was no discussion about digital this or digital that. The passion was about the games, their friends on Xbox Live. The passion was about what the game is going to do for them and their enjoyment of the entertainment. That's what we've got to remain focused on.

Q: I'm sure once the launch is out of the way the pre-launch issues will be forgotten as the focus shifts to the games, the services and the experience.

"When you put a disc slot on a machine certain expectations come with that. We had to adapt some of our policies and it was best that we did those before we launched"

Phil Harrison: And that's where we feel very happy about the launch line-up we have and the launch window of games we'll be bringing to market. And the reaction from the specialist media and the people who have strong opinions of these things from both E3 and Gamescom. That lineup is very, very strong. And Titanfall is turning into the huge megahit that we expected it to be.

Q: Do you think games consoles can still innovate in the digital space? A lot of digital innovation over the past couple of years has come from mobile, tablets, app stores and digital services that have introduced new business models. Or will consoles always be playing catch up as they have been in the last half of this generation?

Phil Harrison: The Xbox Live Marketplace and the PSN marketplace were stood up before the App Store and iOS. The biggest screen in the house, having the most powerful CPU and GPU attached to it, is still going to be the best place for a lot of game types. Not all, we're seeing games across multiple screens which is great for the industry, but if you want the most sophisticated combination of CPU, GPU, input mechanism, biggest screen and best sound, it's going to be on console.

Ten years of Xbox Live has given us a pretty good understanding of what consumers like, what is important to them and where we can continue to innovate. Look at some of the things we're doing on Xbox One with the marketplace re-imagined, and with trending and recommendations built into the store. We're really pushing hard on this, we're not standing still by any means. Also the virality we're building into the platform that you won't see on competing stores.

If you look at our Upload service you'll see it's more than viral marketing. We're trying to complete the circle where people see friends rating games, they see an upload of the game and there's a button that says "buy me now". This is strongly related to the ID@Xbox programme too, where these viral tools will help independent developers connected with their audiences. Upload is a feature that accrues benefits to any developer or publisher, irrespective of type or size. It's going to be a big, big win for games discoverability.

"The biggest screen in the house, having the most powerful CPU and GPU attached to it, is still going to be the best place for a lot of game types"

One of the number one questions that any independent developer has to ask themselves, irrespective of platform, is what is our acquisition strategy? How do we connect our smart game idea with the audience? It's no longer about buying a couple of double page ads in the specialist press and getting a preview, review and tips over three months. It's a bit more sophisticated than that.

Q: When it comes to digital sales, one of the biggest complaints from consumers is that the price is too high. Digital products should be cheaper than boxed products - they cut out the retailer, the box-shifting, the physical manufacturing. Why aren't digital console games cheaper to buy?

Phil Harrison: You could take that point of view. But you could also take the point of view that the only way in which our industry can continue to grow is if the margin structure enriches game development. Meaning that as much as the consumer spend as possible accrues back to the creator. Striking a balance between those two extremes is going to be tricky. Particularly when you have this direct A-B comparison of Tesco selling a packaged version of the game and an online service selling the digital version of exactly the same bits and the pricing is easily comparable. What we're seeing is a trend where new business models that are going to exist only online are going to potentially be the ones that last the longest. Look at some of the free-to-play investments that we're making on Xbox 360 with World of Tanks and Warface. They won't be retailer experiences, they will be digital experiences, you won't have that direct A-B comparison.

Q: When you say as much of that consumer spend has to come back to the creators as possible, are you suggesting that games are costing more to make? Will they be more expensive to make on next-generation consoles?

"The only way in which our industry can continue to grow is if the margin structure enriches game development"

Phil Harrison: The biggest production value games continue to be very expensive to build. The data points aren't so clear but what is interesting to me is what we call Gen 8 - Xbox One - is not ten times the price of Gen 7. Even though the format is about ten times more powerful, that doesn't accrue to ten times the development costs. We saw a huge jump between Gen 5 and Gen 6, and Gen 6 and Gen 7. That was logarithmic exponential increases in cost. It seems to be tailoring out. Partly because of better middleware and tools and one artist being able to create more content from their workstation with efficiencies in the tool chain. And partly because games can now have an initial release and a series of downstream post-release expansions which are more closely linked to audience size.

So you don't have such a huge amount of investment upfront. It's not about the total investment because some games will be about hundreds and hundreds of millions of cumulative investment. The real question is what is my peak negative cash flow before I get my first dollar of revenue back? How much have I sunk in the ground before I get to my first point of revenue? The first point of revenue is going to get earlier in the cycle, and that's good.

Q: Another concern from the consumer is whether the Xbox One is an entertainment device or a games device. I know your answer is it's both, but how do you balance that marketing message, particularly at launch? You've been criticised for focusing on entertainment and sport rather than games, for example.

Phil Harrison: The short answer is we built the platform to accommodate both. The longer answer is the technology choices and the architectural choices we made in the operating system allow you to seamlessly flip between the two in a very elegant way. On Xbox 360, to load a game, unload a game, load an app, unload an app - it takes time. And is therefore very difficult to support both behaviours or both states at the same time. It was laborious. What we did on Xbox One was to build an operating system that will allow you to seamlessly switch between those two. You have both running at the same time by snapping one to the side of the screen and have these two coexist. But you can also have instant - one or two frames of time - to switch between the two. That increases the utility of the machine and increases the breadth of enjoyment that you would get from the console.

Q: How do cloud services factor into all of this and how does that change not just the games experience but the hardware itself - now you're not so focused on what's physically inside the box?

Phil Harrison: We will see the cloud come into play this year with Forza Motorsport 5 and the Drivatar features, we'll see it in dedicated servers for Call of Duty, we'll see it a little bit later in Titanfall and Kinect Sports Rivals using persistence in the cloud to really deepen the games experience. Some people will say that's just dedicated servers and there's nothing particularly unique about that. But it's the way in which we're providing the services to developers to make them really easy to access. The way in which we're creating that ubiquitous global coverage so that quality of experience for the player is very high and in a scalable way.

Our experience with the cummulative knowledge in the Azure part of the business is second to none. We're leveraging all of that power. That's one of the things that really impressed me about Microsoft was that these Azure investments have been going on for some time and they are multiple billions of dollars investment behind the cloud. This is not some future promise, it's a real business now.

"What we're seeing is a trend where new business models that are going to exist only online are going to potentially be the ones that last the longest"

Xbox One and Xbox 360 are high performance examples of our Azure business but Office 365 and other parts of the business have multiple billions of investment entrusted to our cloud. Microsoft is just going through a reorganisation to align these investments more tightly.

Q: What was your reaction to the Nokia acquisition, and how that might influence the Xbox business in the future?

Phil Harrison: Forgive me for not going into too much detail as it's not possible for me to talk about the Nokia relationship until the deal closes, which won't be for some months. To answer you question in a slightly different way we recently reorganised our studios into a new business unit inside of Microsoft Devices and Studios. It's our hardware investment in Xbox, in Surface, phone and some other hardware investment and tightly aligning them with the showcase content experiences that are built around the world by the studios. That's a very logical pairing inside one organisation with one vision.

Q: It was only 5 or 6 years ago that a lot of smaller teams and studio were being bought up and pulled in-house by publishers and bigger studios. But in a digital future where there are multiple publishing opportunities, has that changed your relationship with indies and devs? Is there such a need to acquire studios anymore?

Phil Harrison: There will always be opportunities for outright acquisition of a studio because you want to keep something unique or exclusive to your platform. Or you want to acquire the capability or the technology. I do think you're right, these indie programmes, not just ours but others in the industry, have the benefit of increasing the access points to the industry. And I'm not taking a particular platform view but an industry view. That's exciting because it gives an on-ramp to working in our space. When I started the on-ramp was the Commodore 64, you turned it on and you had a flashing cursor and off you went. That on-ramp is not so easy now because of the platform complexity. All of the various initiatives that are going on, the best thing that will ever happen to our industry is getting more talent into it.

15 Comments

Popular Comment
"Why aren't digital console games cheaper to buy"?
This.
Nobody explains, even when asked, so please journalists, keep bloody asking.

Posted:11 months ago

#1

Paul Shirley
Programmers

175 147 0.8
Popular Comment
Claiming the outcry about excessive online DRM is purely related to physical product shows they haven't changed position at all, just said what had to be said to make the immediate problem go away, without really meaning it. Still no real acceptance that unnecessary restrictions are unwelcome in principle, not just because they couldn't invent a tenuous and invalid justification. If I don't use online features it doesn't matter how I obtained the copy, whether downloaded or by shoving a disk in the drive.

Anyway, finally Azure has a major client...

Posted:11 months ago

#2

Craig Bamford
Writer/Consultant

40 54 1.4
"The biggest screen in the house, having the most powerful CPU and GPU attached to it"

Hearing this from MICROSOFT of all companies does not fill me with hope for their long-overdue support for PC gaming.

(Though considering the video capabilities of the typical laptop, and especially of Macs, he might well have a point.)

Posted:11 months ago

#3

Richard Browne
EVP Gaming and Interactive

97 113 1.2
"There was no discussion about DRM, there was no discussion about digital this or digital that. The passion was about the games, their friends on Xbox Live. The passion was about what the game is going to do for them and their enjoyment of the entertainment. That's what we've got to remain focused on."

Which Phil, kinda makes me think that Microsoft's knee-jerk reaction to Sony pulling a fast one was a bit premature.

Posted:11 months ago

#4

Jeff Kleist
Writer, Marketing, Licensing

305 171 0.6
@barry

Easy

Digital is still, generously less than 25% of console revenue! and other markets have shown a pretty hard wall at around 30% of people willing to pay full price! or something close to it for something they can't touch. Similarly, you're going to see a lot of pushback after early adopters on the $20 XBLA game. $15 is really the magic number where people see it like a movie ticket.

Yes I know about Enthusiasts, we're talking the other 80% here. PC gamers in the US almost exclusively fall into that category, hence it's near death at retail

In addition, and most importantly, Microsoft and Sony need to sell hardware, controllers, point cards to people who don't have, or don't want to use their credit cards. And by undermining the games that bring people into their stores on a regular basis, how do you think they'll feel about your product and promoting or even carrying it then? You can't download a console.

Posted:11 months ago

#5

Tameem Antoniades
Creative Director & Co-founder

196 164 0.8
@barry Ask that massive angry elephant in the room called RITA and you'll get your answer

Posted:11 months ago

#6

Andrew Goodchild
Studying development

1,235 396 0.3
It's all fair and well saying that, "the only way in which our industry can continue to grow is if the margin structure enriches game development. Meaning that as much as the consumer spend as possible accrues back to the creator", but there is no reason digital games can not be cheaper than they are now whilst still returning more revenue per copy than a retail version. And it's not just them not being cheaper, they are more expensive, especially on Xbox.

Posted:11 months ago

#7

Paul Shirley
Programmers

175 147 0.8
@Richard: "The passion was about the games, their friends on Xbox Live"

...the same reasons I've heard gamers use to explain why they're sticking with their 360 for a while. When they aren't discussing moving to PC where the digital bonus is more fairly shared with users ;)

Posted:11 months ago

#8

Jeremy Eden
Co-Founder

4 2 0.5
@Jeff

Modern Warfare 3 still costs $60 on Xbox Live, yet it's $40 on PSN, $30 new/$10 used at Gamestop. How do you explain that?

In any case it's hard to believe that Gamestop has any significant leverage at all considering MS can sell consoles at Walmart, Target, Best Buy, Kmart, Sears, Amazon, etc. I actually did buy my Xbox One digitally from the Microsoft store.

Posted:11 months ago

#9

Tim Ogul
Illustrator

335 462 1.4
Nobody explains, even when asked, so please journalists, keep bloody asking.
Exactly. This is where a lot of games reporting is lacking, no "redirect." If they give the standard marketing BS answer, you ask them a second time, then a third, and so on until they give a human response.

BTW, I know "those two guys from the Nike store." They really do love everything about the XBox experience. They also have jobs, and families, and all the other things that actually hu-mans have.

Posted:11 months ago

#10

Paul Jace
Merchandiser

900 1,330 1.5
@Jeremy
Modern Warfare 3 still costs $60 on Xbox Live, yet it's $40 on PSN, $30 new/$10 used at Gamestop. How do you explain that?
Theres really no good reason for it but the one I've heard from Microsoft reps thru out this gen had something to do with them not wanting to upset their retail partners(Walmart, Best Buy, etc). You can still find games on demand for $30 or less, especially during sales but this gen the overwhelming majority of games on demand releases seemed to stay at full retail for far too long and hopefully thats something that Microsoft fixes next gen.
Our long term vision hasn't changed at all
Should we be worried about that? Because the original vision kind of sucked.

Posted:11 months ago

#11

Jeff Kleist
Writer, Marketing, Licensing

305 171 0.6
Make no mistake, GameStop has huge leverage, but that's not really the issue here. It's pissing off brick and mortar in general. To elaborate further on what Paul said, there's a big difference between the console customer and th PC customer who buys games digitally. The people buying full games on demand are a lot more about convienience, and they often have more money than time or sense. They're the same people dropping $30 on a Slingbox app when they can log into. A website and play their video for free. So yes, you're going to see a lot more parity this fen between retail and digital, because retail is not sticking catalog games the way they used to, so production runs will be shorter

We shouldn't be worried about their long term vision at all. Their vision was fine, just explained vey poorly. There just needed to be a choice between leaving the disc in the drive and the check. The X1 ecosystem was actually the most liberal we've seen from anyone. Allowing selling and trading and lending, something Steam is rushing to copy I. Might add.

Posted:11 months ago

#12

Christopher Garratty
Trainee Solicitor

77 83 1.1
While I'm not privvy to any hard figures, with regard to digital pricing, I don't get the "Digital games should cost half as much because there's no box." argument. GTA cost a reported what? ~$170million was it? Of that what percentage was COGS for retail? (Hint: Probably not much).

The reason that digital stays higher than retail is a) Because retail is a more competitive environment. You want a PS3 / Xbox disc you can go to Play, Game, Amazon, Tesco, Asda, etc etc etc. You want a digital version for PS3 or Xbox you go to PSN or XBL respectively, that's your lot. and b) Because it takes up space storing old physical games, which means it costs money to keep them around so you are better to drop prices and get rid quicker. The storage of a master of a digital game is trivial in comparison so they can sit there ticking over at a slow rate of sale getting the same profit margin without additional cost.

Personally I like the convenience of digital, I'm willing to pay for that convenience. Nothing to do with how much sense I have, it's a perfectly well reasoned choice. Luckily PS+ has been dropping lots of great games on me for free lately so I haven't had to buy much recently, but I did pick up Killzone: Mercenary for my Vita on digital (love that game).

Posted:11 months ago

#13
Chris, competition lowers prices , not raises then. Thats a fundamental rule of capitalism and free markets. Second, digital could and should be half because it eliminates, the physical box and its cost, shipping cost, retailers margins, wholesaler margins, which all totaled does indeed constitute 40% or more of the retail price.

Edited 1 times. Last edit by Todd Weidner on 27th September 2013 2:38pm

Posted:11 months ago

#14

Sean Warren
Inspector

34 0 0.0
Strangely, it seems journalistic integrity can only go so far before it tends to be marginalized by its readers as complaining... well, at least from the evidence I gather on the net.
People only want sunshine and rainbows when they are happy and economically relevant.
Life is weird, I guess, or maybe its that people are not really 100% sane?
That said, I feel like the ones that do keep asking, just don't get invited to the party, and the golden boys that play ball, get all the funds.
But at that, who really needs a journalist to enlighten them on the environment when all the real challenge is to get a consumer to set down their apathy for a moment and actually take a look themselves to form an opinion, rather than regurgitating a warm and fuzzy bowl of marketing soup.
But then, again, what do I know?
No doubt that is exactly the thing the industry fears the most, for people to imagine a world w/o us, one in which they are perfectly fine or forbid, better off.
/shrug
It's ok though marketing guys and gals, I know we need you. If not for you we would be getting shelled in 5th world countries.

Posted:10 months ago

#15

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