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Best of 08: Phil Spencer

The head of Microsoft Game Studios on the Ensemble deal, the future of Lionhead and Rare, and digital distribution

Another one of 2008's big stories was Microsoft's decision to close down Ensemble Studios, the developer behind the hugely successful Age of Empires franchise. It followed the publisher's decision in 2007 to split with Bungie, and amid other moves it seemed to hang a question mark over the future of Lionhead and Rare as well.

But shortly after the Ensemble announcement spent some time with the head of Microsoft Game Studios, Phil Spencer, in his last interview before moving back to the US. He talked about the Ensemble decision, the future of other studios and the Xbox 360's first party line-up. Ensemble Studios - a big name in the industry thanks to the Age franchise - and in your email to staff you called the decision to close the studio as "the right thing for our business at this time". Explain why it's the right time for this.
Phil Spencer

First I'll start off by talking about the Age franchise, and I just want to reiterate that the franchise remains very important to us, something that is a pillar of our support of Windows. The first three iterations of the game sold millions and millions of units and got us a lot of customers, and that's great - the fans of that franchise and the online connection that we continue to have with those customers is an important part of running MGS - and something that we don't expect to drop.

Running a game publisher, especially a first party game publisher, is about exclusive franchises, and those franchises driving platform initiatives - in our case today both the Xbox 360 and Windows. Making sure that when you look at your franchises and build a plan for how those franchises will come to market, why they're going to matter when they come out, what are the things you're going to be talking about when you talk about the next release of a Gears game, or a Halo game, or an Age game, that you have big news or a big plan, or something that's really going to change the perception of your platform.

As we know, those kind of efforts - especially in today's videogame business - require resources. You need to have a lot of people behind your franchises that are really driving platform success. For us, today, it's important that we have those investments in those huge franchises that we're building - things like Fable, things like Banjo, Halo, Gears.

And we do have a plan for Age of Empires, and it is something we'll continue to push, it just didn't require that we had Ensemble Studios as an entity inside of MGS in Dallas, as full time internal employees, as a studio that would be the sole source of Age content going forward.

So we made a business decision to redeploy resources, and I think Shane said this in the press as well - this is a business decision, making sure that we have as many resources as we need behind the key franchises, that we have a long term plan for Age, and we redeploy people in the spaces that we need them.

It's not meant to show any lack of commitment to any of the franchises - I understand it's a difficult situation at Ensemble, it's never a decision that you take lightly. We've done this before with FASA, and rewinding a bit we had a studio in Salt Lake at one point, and there's always a little bit of a transition, but it's done with a long term play in mind, about how you want to grow the importance of the MGS franchises. You also mentioned the notion of "scalable ventures" - is that something you can clarify?
Phil Spencer

There wasn't anything specific there, and I'll use Halo as a public example of this working when we announce things. When you look at that franchise now, you have the first-person shooter franchise with Halo 3, millions of people play that online, we continue to feed out map content, and other stuff to support that game.

Obviously we have future plans to support that which are unannounced, but we're going to do something with Halo.

Halo Wars, another part of that franchise's future, we've talked about Peter Jackson's work on Halo... franchises today, especially first party franchises, are multi-faceted, but even third party franchises are big ventures because of the investment required. You need to make sure you have a lot of people behind the different parts of the franchise development that are required for success.

So when we talk about that specific term, you look at something like Fable, Halo, maybe some of the stuff we're doing around Forza or at Rare - that's work behind big franchises, multiple facings. It just requires people in close proximity to one another to really pull that off. So with the Age franchise, there's a strong echo of Halo, in that it's something you retain the rights to - you just don't need to own the company that's working on it?
Phil Spencer

Well, there's more than one team building Halo games right now. There are more than two or three teams building Halo things right now. Some of them we will own, some of them we won't. It's never been, for me, about who you own or don't own - it's about working with the best creative talent in the industry.

It's one of the important reasons we're here in Europe - the history that Europe has in creating some of the best franchises in videogame history is clear, and us creating a publishing presence here is to further work with the likes of Dave Jones, Peter Molyneux, Sarah and David up at Bizarre, Remedy - the teams that we're either working with today or have worked with in the past.

It's important that we continue to work on those relationships - but it doesn't mean you have to acquire them all. Some of them you will, like Lionhead. Some of them, like Epic, you'll just continue to maintain an external relationship. But isn't the danger that if you don't own a studio, you can't guarantee that titles will be platform-exclusive.
Phil Spencer

You're in the industry, so you'll get this - Gears of War is about Cliff Bleszinski and Tim Sweeney, and that team's passion for building Gears. It's not about us owning a brand called Gears of War - and I'm not downplaying the importance of that brand - but it's about having passionate creators working on those franchises, so that when the games come out they actually matter, not because of the name on the box, but because of the content that's on the disc.

The thing that really changes a player's perception about your console - and Gears 2 is one of the best gaming experiences I've ever had, by the way - is a fabulous game. And that's not because of the ownership situation of the company or the IP, it's because of the relationship we have with Epic, and that push to build great games together.

Sometimes those relationships are like the ones with Lionhead or Rare, where we own them, and sometimes it's an external relationship. And sometimes that relationship changes, like the one with Ensemble. We have a plan to work with Ensemble's creative leadership moving forward as an external company. I'm committed to that plan. We committed to that with Bungie, and we continue to work with Bungie today.

This is about that relationship with the creative talent. You can't own creative people - they work with you. If you own the franchises without key creative leaders behind them, you don't own much.

People will compare Sony with Microsoft and wonder why you're coming at it from a different direction?
Phil Spencer

Well, I love this conversation. Let's start from the beginning of both consoles - PlayStation 3 and Xbox 360 - which first party has had more success on their own platform? We have Gears, Halo, Forza, we're continuing to push existing IP while bringing new IP to market. I'll line up against Sony's first party any day.

Now the news, when you're talking about something like Ensemble, that's us building that franchise pipeline that you've seen come to market for the last three Holidays. I remember last E3, sitting there, people looking at our line-up and saying that they get we had a very strong line-up - Mass Effect and everything that's coming - but what about next Holiday?

Then I was sitting at this E3 and I go through Too Human, Viva Pinata, Banjo, Fable, Lips, Gears of War, Scene It - that's all before Holiday - and then Halo Wars. And the press are saying exactly the same, that they get it's an incredibly strong Holiday relative to the competition, saying we'll win this year in terms of content...but what about next Holiday?

And I'm confident for next Holiday as well, that we're going to stand up at the next E3, or at the right time, and we'll show a line-up that will continue to win. We talk about our games when we understand what they are. I'm not going to put a billboard up on stage and say, "Boy, I hope you buy this game when it comes out and when I know what it is..."

We talk about games when we know what they are, when we can guarantee the quality to the customers, and we'll say when they're going to come out - I think the customers want that. But lining us up against Sony first party - I love that comparison. Review score average, exclusive hits to-date, you pick the metric and we can talk about it. WildTangent's Alex St John told that he thought the "ramping down" of first party was a natural by-product of this part in the console lifecycle - is that something you'd agree with?
Phil Spencer

We're as invested now in first party as we've ever been, so there is no natural divesting of first party studios in order to shrink some cost involved in being in the console business. We continue to spend in first party, moves like Ensemble do not actually reduce the headcount in MGS - it just redeploys the headcount.

It doesn't mean that all the people in Dallas are going to be moving somewhere else, when we talk about the number of people working on games, inside of MGS that's a number that remains very strong.

So this isn't a natural downsizing of us in the middle of the console. In fact, when we look at our standing, and Don Mattrick standing on stage and saying that we'll outsell PS3, at the success that we're having in Europe with the leadership team that we've built here, the unit numbers of our platform continue to sell, and the franchises we're continuing to build here... you could argue now is the perfect time to invest in first party for the future, because we can look out at the end of the lifecycle, whenever that might be, and see a huge installed base to sell into.

So no - I understand what Alex is saying, but this isn't part of us trying to shrink our first party effort. In fact, we're not shrinking our first party effort. It's simply redeploying people behind different endeavours. Halo Wars will be a big title for you next year - isn't the timing of the Ensemble announcement a bit strange? Wouldn't a better time have been after the game had shipped?
Phil Spencer

I was reading some of the community posts on this, and there were two sides to the question. To be very honest with you, this was a decision - as much as this will seem flippant as a publisher to a developer - it was a decision around the employees of Ensemble.

This decision is difficult, obviously. It's a studio that we've worked with for quite a while. I didn't feel right, knowing what our plan was, to not talk to our employees about it. To somehow keep our eyes closed, or ask them to keep their eyes closed, they're going to work incredibly hard over the next three or four months to finish that game - and we all know what the closing of a game is like - and to do that with some false premise or relationship between them and us, I didn't think that was right.

From a certainty in terms of date, would it have been better to say everything was great, and then the day after it ships to reveal it? Yeah, you could play it that way, but I wasn't going to do that. These are people I respect, it's a difficult conversation.

Does it add more risk to the production of the game? I think you'd be dumb to say that it doesn't. Obviously telling people what your plan is at this point... we've worked with the studio leadership and the employees to make sure there's a plan in place, to show why it's important both to us and them why it's important that we finish the game, and finish it the way that it needs to be done.

These games that take three years to develop, the last four-to-six months are important, but a lot of the quality that's in this game was created when we set out with the plan to build Halo Wars.

So we need to close well, but this decision on the timing - I'd say it was trying to be fair to people that we worked with and respect. Do people working on the project know yet what their individual futures are?
Phil Spencer

Some of that's private between us and the employees on exactly what will happen. On a general level though, do most people have a sense of what's going to happen to them?
Phil Spencer

I would say that the studio knows how this can play out. The reason I say "can" is because people are individuals, they can make their own decisions. We've tried, along with Ensemble's leadership - and I think we've been effective here - to say that this is a very important release for Microsoft, it's very important that people maintain motivation and they're not distracted. We've worked very hard to put a plan in place that we think is very fair and equitable for the employees there.

It's a relationship between us and them, but I feel good that overall we've got a situation in which we've done the right thing. People will have different opinions, but I feel that we've made choices for the right reasons. It doesn't mean those choices are easy, but it's the right motivation - and game quality was one of those motivations.

People looked at the game at E3, and maybe some thought that the strategy genre was done - but I think we've looked at how to move that to the 360 and I think people saw that. That promise to the consumer is also one of the promises we have, so we needed to balance that to make sure quality of the game and respect to the employees were both weighed in. I think we've done that. You mention that a plan is in place - we've heard that employees stand to lose some benefits if they decide to move on before the title ships. Is that true?
Phil Spencer

It's probably more detail than I'd want to get into - the relationship between an employer and employee is a personal, professional and private relationship. That's probably about as much of that as I can answer. Has the ship date of the project been delayed at all as a result of the decision to announce the closure early?
Phil Spencer

I feel very good about the commitments that we've made on the date of the game. There's a lot of hard work to be done on the final polish of the game, but I feel good about where we stand. Of the remaining studios in the MGS family, Lionhead and Rare have been keeping particularly busy - Fable 2, Viva Pinata, Xbox Live avatars, Banjo - are their futures safe?
Phil Spencer

You just listed the work that those studios are doing, incredibly important to MGS. For Rare, this will be their fifth game in the first three years of the Xbox 360 - that's crazy. Two launch games? What studio on the planet signs up for two launch games? That's just crazy.

So the productivity and effort in those two studios is just great to see, and the number of studio resources we have in the UK - this is our largest concentration of studio resources anywhere on the planet. The studios, and the franchises, remain a very important part of our success.

Fable 2 is Fable coming to the 360 - Peter's promises and dreams - it's going to be a big game, I think there's a lot of anticipation for that game. And I was playing Too Human with somebody last night, co-op, somebody who I didn't know, and he went on and on about the anticipation of Fable 2.

An important part about those studios, and the creation of the MGS organisation in Europe, is for our platforms to succeed here. You see us doing more with Lips, local content here in the market so that people have German songs, and UK songs, and so on. We understand that this is a market made up of markets, and we have a leadership team in place on the content side that can help us tailor the different content.

And not only game content - the movie announcements that we did at E3 demonstrate that the Xbox 360 is a global product with regional understanding and excellence. The game experiences that we're building need to map to that. Having development resources here [in the UK] is a very important part of that.

But we don't want to build games that will only sell in one market, so we'll get Lips, that obviously has some specific European markets that it will do exceedingly well in, but we're going to market it and talk about it as the global game that we think it is.

We picked a developer in Japan, of all places, to build a game that we think will be incredibly important for Europe... but it was about making sure that the talent was lined up with the game that we were trying to build.

If you look at the games they've built in the past, like Elite Beat Agents, they've a history of having that music-rhythm backbone to their games - that makes them a perfect partner for us here. And having our European teams helping interface, making sure that we're building the right game for the markets is very critical to our success.

And Rare, and Lionhead, and Remedy, and the other relationships that we have here are really important. What are your hopes for Fable 2's performance in Japan - do you think it can generate a console sales spike?
Phil Spencer

Absolutely - Fable 1 sold for us relatively well in Japan, and it's interesting to look at Rare and where they came from. Their heritage is obviously with Japanese publishers - and the Rare games sold well in Japan. We look at a game like Banjo and think that we can have success in Japan as well.

But it's a tough market for us, and we know that. The investments we made in Blue Dragon and Lost Odyssey were important not only for the sales success of those games, but also establishing that we're serious, and it's a long-term play.

I think some of the support you see in Japan now comes out of the investments that we make early on, that say we're really going to try and mean something. Along the same lines, our investment in Gears of War early on was also about trying to make sure that Unreal Engine 3 ran really well on 360. We knew if we signed up the game, it would make it easier for games like BioShock and other UE games to show up on our platform.

Japan is very similar - we went into Japan and wanted to make sure that our platform was supported with games that matter. RPGs are one of those kinds of games that really matter, and there's Ninja Gaiden, Devil May Cry, Resident Evil - games that weren't traditionally 360 franchises.

This is all part of an investment in content - there's not always a one-to-one correlation with how that investment pays out. It's very smart to look at it and see that we're getting a lot of support from Square right now, when certain RPGs come out our console sells out in that market... well what about that?

It is a long fight - Fable, Banjo, these games are part of that as well, but we're signed up and we're going to keep our Army hats on to try and get it. The Games for Windows brand has been out for a couple of years now - how would you evaluate the impact it's had on the PC gaming market?
Phil Spencer

Well I think you have to start with the goals, when you kick off a programme like that. I think it's easy for people to look at it and say that it doesn't seem to hold the same weight as a brand like "360" does - but I might argue that on the Windows side that's not what the customer wants or needs.

We went in with some goals around, I'm going to say: "Cleaning up the retail experience" - making sure that customers knew what they were buying before they bought it, and helping the publishers reach their customers through things like Live for Windows. And there are other solutions out there - we were making sure we had a solution on our own, and you see developers signing up to that.

So given the goals that we've had, I feel very good about the success that we've had. I think it is a worthy criticism to push on us to say that we should be doing more, and I don't disagree with that. We will do more - it's important to us.

Some of this is re-trenching and making sure we don't just follow old patterns because we don't think about it hard enough to come up with new patterns. And some of that is part of what we're doing today.

But the number of people playing games on the Windows platform today is incredibly high - I think everybody understands yet. Digital distribution is a key pillar of the Xbox 360 strategy, but isn't great for retailers. Meanwhile, second-hand game sales is good for retailers, but bad for publishers. It's not a cause-and-effect scenario, but how do you see that playing out - are retailers feeling threatened by the direct relationship that publishers like yourselves have with the consumer?
Phil Spencer

I don't know if they're concerned. I think they see a healthy business right now for games, and expectation from all that I see from analysts - not that I pay too much attention to that - is that the industry will continue to grow.

If we all understand - you can see it in movies, you can see it in music - that the relationship between content creators and consumers will migrate and change, then I think there are roles for people to play in that relationship.

Assuming we're delivering great products to consumers, at price points that seem fair and equitable, I don't have concerns we're going to alienate - our plan is to include people in our plans going forward.

Xbox Live is an example of that, and retail has a healthy relationship selling points cards, selling Live Starter Kits, and other things that are created. And the game sales are strong I think because of the relationship between the content creator and the consumer - and that helps retail as much as anybody else.

Phil Spencer is head of Microsoft Game Studios. Interview by Phil Elliott. Originally published in three parts in September/October 2008.

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