Microsoft’s Phil Spencer on the importance of Halo 5 to the fate of the Xbox One

Microsoft has sold more than 60 million Halo games since 2001. But sales of the Xbox One game console have a long way to go before Microsoft captures every single one of those fans on its newest platform. That’s why Phil Spencer, the head of Xbox, sees Halo 5: Guardians, which debuts on October 27 as the biggest exclusive to date on the Xbox One, as critical to the future of the platform.

We interviewed Spencer after previewing Halo 5 at a Microsoft event in San Francisco. He hopes that the newest tale of Master Chief and agent Locke will enthrall fans and that multiplayer advances such as Warzone, a massive combat experience, and the esports-like Arena will make Halo 5 feel fresh to fans.

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We also had a chance to ask him about the importance of indies, the HoloLens augmented reality opportunity, the launch of the Xbox One console in China, and the growth of esports on Xbox One. In all of his answers, Spencer’s passion for gamers and his job came through. He’s a gamer, all right. But he also knows that Microsoft has to make money in its game business or it won’t be around for the long term.

Here’s an edited transcript of our interview. And here’s our interview with Halo 5 executive producer Josh Holmes and our preview of the game.

GamesBeat: Halo 5: Guardians looks like it’s turning out well. We’ll see in just a bit. As you were learning about where this is going, the direction the team was moving in, what were your own thoughts about where Halo needed to go?

Phil Spencer: Halo 4 was the formation of 343, in my mind. It gave them an opportunity as a studio to ship their own product and learn about one another and galvanize as a team. They learned through that. They did a good job with the single-player campaign. For most people, the campaign in Halo 4 is thought of as a good part of the franchise. Multiplayer, they did a nice job, but even they said that the retention numbers, the stickiness of that experience, the innovation in that experience—It didn’t meet the goals they had.

I loved, when they started on the Halo 5 journey, that multiplayer is so strong. Multiplayer is core to what Halo has always been about. It’s one of those rare franchises where you get a lot of people who just play the single-player and also a lot of people who just play the multiplayer. Many franchises, it’s all one or the other. Adding four-player co-op in the single-player campaign was a cool addition, and Warzone on the multiplayer size really creates massive scale and mixes player versus player and player versus environment. I thought that was the right focus for the team.

As a platform for us, with Xbox Live being so critical to what we’re about, investing in the right areas that dovetail into the platform focus and service focus we have—I always want our first party games to matter. They should have some reason they’re on our platform, something they’re pushing us to do that we need to do better on a platform level. The relationship between a studio and the platform team, as they’re talking and sitting next to each other building the experience, makes the canvas better for all creators.

GamesBeat: I thought it would be tricky to pull people back into a story they thought was over in some ways. It’s reinventing the story of Master Chief a bit.

Spencer: They’ve added Locke as a character. The lore of Halo is deep and broad. Obviously you see that in the books and their success, and the TV stuff we’ve done. It’s a franchise Bungie created that has a lot of places you can go and investigate, whether it’s how Spartans are created, the different kinds of Spartans, the Forerunners, the Covenant. The team can take the story a lot of places. The story in Halo 5 is a good one, and it’ll be interesting to see people play through it and get their reaction.

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GamesBeat: For the platform, what do you think it can do? You have to do a Halo game for the Xbox One. Do you still see opportunity to grow the audience or grab audience from your competitors?

Spencer: This fall is interesting to us. We have millions of people still playing on their 360 and it’s great that they’re doing that, but when you think about reasons a 360 customer might move—If you grew up on Xbox, Halo is clearly going to be one of those things. It was and is part of the identity of the platform from a game perspective.

The addition of backward compatibility gives you another reason. Your 360 catalog moves forward. You have a Forza game. You have Call of Duty: Black Ops coming. If you think about that 360 customer playing their 360 every day, the games that have been staples for them—We don’t plan very directly when a game has to get done. You have to let a game mature. Otherwise you end up with something half-done and nobody succeeds there. You only feel good on the day you ship, and then it’s all downhill. But it’s created a nice opportunity for us this fall. We have Halo 5 coming, backward compatibility, Gears coming out, Forza coming out. It’s a culmination of many things. It can be an opportunity for us to move the 360 base to Xbox One. That’s our biggest opportunity this fall.

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GamesBeat: The PlayStation 4 is still outselling the Xbox One. Is it enough of a difference to make you worry, still? Is it frustrating to consider that you almost have more exclusives and you still face that gap?

Spencer: To some it might seem like I should judge our success based on how we do against Sony. Honestly, I don’t. They’re having great success with PS4. They built a nice product in the console. They’re seeing the results of that. For us, we’re selling more Xbox Ones than we did 360s. The thing I’m focused on more than anything is that our usage on Live continues to grow. We have more gamers playing games on our platform.

I’m incredibly proud of the games lineup we have. Even when I look at the NPD results from last month—We had three first-party games in the top 10 with Rare Replay, Gears, and Minecraft. I don’t think we’ve ever had that. The team is executing and delivering very well. We’re seeing the sales results from that in our console. The fact that Sony is having great success at the same time doesn’t depress me.

Gaming is in a healthy spot. You have to earn your customers, but we seem to be doing that. We have a ton of opportunity in front of us. We launched Windows 10 at the end of July, beginning of August, and we’ve seen very good uptake from the game experiences we have in there. We have a lot more opportunity as we bring more games into that experience as well. I’m not frustrated by it. I’m only frustrated in that there’s not more time for us to go do more things faster. It takes time to get good things done.

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GamesBeat: Esports has taken off. It seems like a big part of this game. Is it an important feature for Xbox One at this point? Is it something that could keep consoles thriving in an age where games are everywhere?

Spencer: The relationship between consoles and esports is a bit symbiotic. esports needs a fixed platform. In the PC space they do this in different ways, whether it’s DOTA or League championships or whatever. On consoles, whether it’s shooters or going down to Evo and watching people play fighting games, the consistency of the experience across devices is critical for professional players. The rig is no longer a factor.

We have the capabilities, through the millions of people playing on Xbox Live every night, to connect that esports environment to the home. You and I, if we wanted to pretend we were playing in the NBA, people would laugh at us if we did that down at the playground. But we have the capability here to play the same game, with the same controller, on the same multiplayer service and device, and get the same experience a professional Halo player has.

As we think about the connection between a home customer on Live, all the way up to an arena that has tens of thousands of people watching a multi-million-dollar championship, we’re in a unique position as an industry to bridge the professional and the amateur and bring them together more than you see in a lot of sports categories. We haven’t realized that yet. I love what they’re doing with Arena in Halo. I love the world championships they’re doing to build that connection.

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I was up seeing the Gears team in the last couple of days. They’re looking at the Killer Instinct team. They’ve had great success down at Evo. It’s an important component for games and Live.

GamesBeat: How do you stave off any sort of day-one or week-one server challenges?

Spencer: With Master Chief, we didn’t hit the bar we wanted to hit. There’s no team in our organization that has more focus on stability of multiplayer than 343. They have the experience of Master Chief now. When I look at the games we’ve shipped so far this year, Rare Replay didn’t have a ton of multiplayer games, but looking at the way Gears shipped, the way Forza 6 just shipped, I have confidence that the teams have learned from last year and the years before.

There are always going to be things we learn when we launch and we have millions of people coming on in a single day. But it’s been an intense focus for the team.

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GamesBeat: What’s the latest on gaming with HoloLens? Do you think it’s better for players in some ways than PlayStation VR?

Spencer: It’s different. VR, all around, is a completely immersive, blank you out from the real world environment. For some experiences that are trying to map that 100 percent immersion, VR will be the better solution for many years.

For the augmented reality, mixed reality scenarios HoloLens is focusing on—The Minecraft demo we have is a great example of something that allows you to stay connected to the world you’re in, but also experience something in a 3D space right in front of you. VR is ahead, if you think about the technology. In some ways it’s an easier problem space than mixed reality, where you’re trying to place virtual objects in the real world. You’ll see some VR advances earlier in gaming than we will with HoloLens. But in the end they can both be great gaming platforms.

GamesBeat: Where do you think your report card is as far as indies on Xbox One?

Spencer: I’m proud of the work we’ve done and Chris Charla has done in the last year-plus with indies. Looking at the lineup we have, we have thousands of teams out there building games. Looking at the lineup ahead, the partnerships, the feedback I get from indies—They all know my email address. I get quite a bit of feedback. We’re always learning and trying to get better. I’d probably give us a B right now. There’s always more that we can do.

The biggest focus has to be on giving indies the opportunity to be financially successful. Maybe that seems too capitalist or something, but we’re seeing a lot of great indie games get out there, get shipped. Exposure and success is going to be the catalyst for that to continue. It’s not just the creation, doing a deal to get some level of exclusivity. That’s all short-term stuff. In the long run you have to find a way for that category, both from a budget standpoint and maybe even a genre standpoint, to get the financial success they need to continue.

There’s more work for us to do there. There’s more work for me. Right now I’m playing Lovers in a Dangerous Spacetime. You should go play it if you haven’t. Giving me the ability, on Xbox Live, to be an advocate for that game—We haven’t built out enough of that capability. I can stream. I can give it five stars. But there are more capabilities to let the virality and social contact that you see in places like Facebook and Twitter to have that matter more in our Xbox Live space. Amazon does a nice job of that on their website, but they sell such an eclectic collection of things. We can do a better job because we know people play games on live. We can give them the ability to advocate for games they like.

GamesBeat: No one in consoles has been bragging about how well they’ve sold in China so far. I take that as not such a great sign of progress. What’s your measure of success there? What will show that you’re making progress in China?

Spencer: I look at how many people are playing our games. Andy said something yesterday or today on this topic. He talked about the complexities in getting games approved. That’s been an issue. He’s right. But that’s not our biggest blocker.

Console, for the broader Chinese gaming community, is still relatively new. I looked at our booth at China Joy, looked at Sony’s both. There was a lot of excitement and a lot of people. But it’s just a long burn for us there. I said on stage that it’s slow, but we’re committed. The gaming community is incredibly large there and incredibly voracious in its appetite.

Some of it is genre choices and style choices that we need to learn about, what the expectation is there. I want to sell more consoles in China, no doubt. This is clearly a space where, when I look at us and Sony, for us to go head to head in China—Early on people tried to point at that. The market’s big enough for both of us right now. It’s really about how we make consoles in general work in China, before it becomes anything like PlayStation versus Xbox.

We have Halo there now. We’ve seen good response to Halo. We’d like to get Minecraft there. We’ll stay at it. But it’s new consoles, getting content approved, knowing when it’ll be approved—We have to get to a point where games ship globally, day and date. That’ll be a big win. When people talk about the complexities in getting approval, that’s a big issue.

GamesBeat: I’m reading Robbie Bach’s book.

Spencer: I haven’t read it yet! How is it?

GamesBeat: I’m about halfway through. The first half is dedicated to the Xbox side, as opposed to his political work. There’s one fact that jumped out, where he said that the original Xbox lost maybe $5 billion to $7 billion, depending on how you do the accounting.

Spencer: That’s a big investment.

GamesBeat: They got a lot of leeway to experiment.

Spencer: For me, the profit thing—The most important thing there is, I think you should buy an Xbox One. I’ll tell you that right off. If you haven’t bought one I think you should buy one. When I say that, I want to know, as the head of the platform, that Microsoft is long on supporting that platform.

Microsoft is a publicly traded company. We need to be running a business. For me, the business aspect of Xbox One, clearly it’s the scorecard that Wall Street looks at companies with. But at the same time, as someone making a commitment to the people who buy our consoles and our games, I know that if I’m not running a viable business in the long run, I won’t be here.

On the profitability and the financial success, that’s what drives me. I love this product. I love what the brand means. I love what it can become. In order for us to realize what we want to realize, the financials have to work. This is why at certain times, when people will push on, “Hey, should Xbox console games go to PC? Why are you guys focusing on Windows?”—People have to step back and see that the more games we sell, the more people who are buying games on Xbox Live, the better the business is and the more we can invest in it. For Xbox fans, it creates more opportunity.

You see the lineup of games we have right now and say it’s the best lineup we’ve ever had. That’s because you get into a stronger financial position and you’re able to invest more and see the benefit of that investment. If selling games on Windows and Xbox means we get to invest more and build more, that’s a great thing for people who care about the Xbox brand.

GamesBeat: There’s one touching part where he included his whole resignation letter after the first Xbox shipped, [in] the middle of the year. He felt like there were too many things that needed fixing, and he couldn’t see a way out of it by handling it all himself.

Spencer: He’s a very good friend, somebody I see fairly often, and a great person. Family life is important to him, I know. The success of the company and the product was clearly central to who he was. I know there are frustrating times. It’s a big job. There’s a lot of moving parts and things to manage. I can understand the anxiety.

GamesBeat: How do you get the energy to keep going?

Spencer: I love this job. I think it’s maybe something I was born to do. I’ve played games forever. I love the artform. I love what it means. I love what it can become. I see this game, I’m looking at the screens, and the thing I see is the last three years of working with 343 to make that happen.

From an internal viewpoint, that environment—You’ve been in a game studio before. It’s an infectious environment. They get to put their product out and stand up and be proud of what they’ve done. You earn your customer with everything you do. That value the gamer, respect the game mentality our teams are driven by—If I ever get down on the job I just go to a fan event or go to a studio like I did this week and I come out really energized.