Microsoft Gaming CEO Phil Spencer

Emily Chang interviews Microsoft Gaming CEO Phil Spencer in the latest Studio 1.0

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Episode Transcript

Speaker 1 (00:00):
I talked to you about my own sort of fear

(00:01):
of kids playing too much a friend, so I try
to think of it like he's it's like a painting.
Like show it, ask him to show it to you,
like the same way you would treat a painting. I
want to see what you mean. That's so make it
a family. Do you have kids? Have two daughters? Do
they play? Yeah, they're older now, but they not a
lot because like growing up, I think it was always

(00:23):
the thing that dad did. Hi, everyone, and welcome to
this edition of Bloomberg Studio. One point out, I'm Emily Chang.
He's in charge of one of the top gaming consoles
in the world, Microsoft Xbox, a sixteen billion dollar business
home to Minecraft, Halo, and perhaps soon call of Duty
if a seventy billion dollar deal to buy Act Division

(00:45):
goes through. The executive behind that deal is Phil Spencer,
and if he has his way, he hopes the gaming
industry will level up in the next twenty years and
be less a battle between rival consoles and more a
home to platforms that reach every potential gamer on the planet.
Joining me on this edition of Bloomberg Studio. At one
point out, Microsoft Gaming CEO Phil Spencer. So we're gonna

(01:18):
start by going in the way back machine a little bit.
UH did some research. You worked at a computer mart
in Vancouver, Washington, where you were selling and playing a
lot of computer games in the eighties. I'm thinking like
Stranger Things, Stranger Things resonates with my definitely growing up,

(01:39):
my inner geekdom is there. I'm going to need some
photographic evidence of this. What were your most played games
in the eighties. So it's funny when I started growing
up playing video games, most of it was going to
the arcades. Now, most people won't remember these days of
like going to a store where you put quarters in play.
Robotron was one of my favorites in the arcades. I

(02:00):
would go play that, and then probably more in the
seventies and the eighties. I remember my dad bringing a
video game, The Atar with the cartridges home, and that
was kind of the beginning of it, and I just
kept playing and it's still with me. You started out
at Microsoft as an intern in how would you compare

(02:20):
Microsoft's history on games under Bill Gates versus Steve Baber
versus such an ADELA. Yeah, I think, like many things
at Microsoft back in the eighties, We started in video
games as much out of out kind of a defensive.
We were worried that other companies might be putting the
home PC in place, and the avenue to get there

(02:42):
was through video games and game consoles. So we say, okay,
we're gonna go start our own game console because if
anybody is going to build a computer for the home,
we wanted it to be Microsoft. I think through Steve's years,
it was more about growing the business and how do
we bring kind of business leadership into this group of
rag tech people who are out there just having fun
building video games as part of Xbox. I think with

(03:02):
Satia when I first took this job and I got
this job as head of Xbox about two months after
Satia Nadella became the CEO of Microsoft. Well, and when
Sata started, there were activist investors targeting the company. The
stock hadn't been doing well. They were targeting Xbox. Absolutely yeah,
at the time, absolutely right that there was a question

(03:24):
but why are we in video games? In fact, one
of his first questions to me was because he had
come from the cloud part of the business being and
then cloud was he didn't actually understand why we're in
video games, not as a negative, just as literally, why
are why is Microsoft this at the time, what one
trillion dollar market cup company? Why are we in the
video game business? And he he challenged us, like, let's
go figure out why we're in the video game space

(03:46):
and see if it makes sense, and if it does,
let's be all in, and if it doesn't, we'd make
other decisions. Early in that journey is when this game,
which I know you know about, is Minecraft, and the
opportunity to acquire Minecraft came about like months after this moment,
So I might have a kid or two that pay Minecraft, yes,
And it really caused us as a team to think about, Okay,

(04:08):
if you're gonna go spend two and a half billion
dollars on this blocky Java base game, how does this
fit into the mission of this company? Let's talk about
that strategy? Was the idea to tie gaming to the cloud?
Was that the clincher. If you think about a game
like Minecraft or Fortnite or Roadblocks, these are games that
play on iPads, they play on xboxes, PlayStations, PCs, that

(04:29):
games were going from per device to per user and
cloud would be an enabler for that. But we didn't
start with how do we fit cloud into video games?
We were just kind of watching the trends of creators
and where they were building, and saw this transformation of
games being ubiquitous. How does this all as you see
it connect to Microsoft's future? The cool thing I see

(04:51):
going on now and it does fit with the investments
Microsoft's making an Azure in other places. Is today the
world anybody's a creator and video games are going through
that same transformation. Where if I rewind to my childhood
and playing video games, I walked into like an Egghead
software and there was a line of boxes. We might
go create the best game in the world, but there

(05:12):
was no way for us to get it in front
of an actual person who might want to go play,
because we couldn't get shelf space. All these things. Today,
we see gamers on our creators on our platform from
all over the globe who can create a game that
can literally reach billions of people through our distribution capability.
To a player, a game is a game, and you

(05:33):
can deliver that game through the cloud to anybody who
has a device that's capable of reaching the Internet. I
hear you're still an avid gamer. How often do you
play games like how many hours I go to bed early,
so I gotta bet at ten at Seattle at ten o'clock.
People who play with me online they tease me about
how militant I am at ten o'clock. I'm out. I
probably play fifteen hours a week. As I understand that

(05:57):
you do your own deals, you don't necessarily we need
permission from Sacha to do a deal. Is that true? Now,
there's there's definitely it depends on the amount of the
money in the deal. But when we think about some
of our bigger deals, we go to the board. Um
and so Satiadella, Amy Hood the CFO have been incredibly
supportive as Xbox were one of the biggest consumer businesses

(06:20):
in the company. Were a brand that makes Microsoft relevant
to a whole generation that probably doesn't think about a
lot of other Microsoft products in their day to day life. Well,
you're in the process of a potentially monster deal, seventy
billion dollar acquisition of Activision. Talk to us about how
this deal came together when we were thinking about on

(06:41):
that idea of what are we capable of doing today
and where do we need to go? The biggest gaming
platform on the planet is mobile phones UH one and
a half billion people play on mobile phones, and I
guess regretfully as Microsoft, it's not a place where we
have a native platform as gaming, coming from console and PC,

(07:02):
we don't have a lot of creative capability that has
built hit mobile games. One thing about the video game
space is if you've been around, maybe too long, you
know most of the creators out there, so you kind
of know teams that could be a good fit in
terms of what we were trying to do. But we
really started the discussions internally, at least on Activision Blizzard

(07:25):
around the capability they had on mobile and then PC
with Blizzard. Those are the two things that we're really
driving our interest. Big tech is under a lot of
regulatory scrutiny. Big tech deals are under scrutiny. What's the
status of the deal? What have your conversations with regulators been? Like,
you know, I kind of come at this that big
deals should be scrutinized, right. I think that's the role

(07:48):
of regulators, why they're in place. I feel good about
the progress that we've been making, asking good, hard questions
about Okay, what is our intent? What does this mean
if you play it out over five years? Is this
constricting a market. I feel good about it. Microsoft had
its time in the antitrust spotlight. Now the spotlights on
Google and Meta and Apple and Amazon. How is it

(08:12):
that Microsoft has skirted the spotlight. Your competitors might say
it's unfair. Well, I think your point about us having
grown through that time, I might call that the adolescent
ears for us, as we were kind of learning. I
think it's an important consideration that we did learn a
lot as a company through that time and what it meant,

(08:34):
and I think that sticks with us today. You've been
a really big advocate of cross platform play and this
idea that gamers should be allowed to play whatever games
they want on whatever platform they want. Why is that
so important to you? Maybe you happen in your household
to buy an Xbox, and I buy a PlayStation, and
our kids want to play together and they can't because
we bought the wrong piece of plastic to plug into

(08:55):
our television. It just seems that these artificial constraints that
the industry we might put up for near term kind
of business dynamics. In the long run, if you take
a business that is at three billion people growing to
four billion people over the next decade, and saying how
do we continue to grow this business reducing friction for
our customers? As an industry has to be at the top.

(09:18):
So how far does this go? Does this mean that
activision games that Call of Duty you'll be able to
play on any platform and perpetuity. I don't know what
that means and forever, Like when you think about how long,
And it's not for any kind of nefarious business reason.
It's just like, what do we even platforms mean ten
years ago? Like, I think the definition of some of
these things might change over time, but our expectation is
we want more people to play. So I know you're

(09:40):
working with Sony on some things for the benefit of gamers,
Can you talk to us about that a little bit.
We have a pretty big publishing footprint on PlayStation as
well as Nintendo, which means we have good relationships with
those platforms because we're they're a big part of our
business and we're a big part of their business. I
think our long term ambition of where we see this
industry growing is also shared. I think the area where

(10:04):
things get stuck a little bit, it's in the kind
of nearer mid term competition. If somebody walks into a
store and they have one bill. They're either going to
walk out with a switch, which is what most people buy,
or they're gonna walk out with a PlayStation five, or
they're gonna walk out with an Xbox, or maybe somebody
will go buy gaming a Windows PC. But in that

(10:25):
world of somebody's got to make a decision for one
platform over another in the beginning, UM, that is where
I think we we get stuck in some of the
kind of near term competition. I don't think that's bad.
It's just the dynamic of each of us pushing each other,
um to build the best product for our customers. Now,
while you've been working to make the gaming industry more collaborative,
the gaming industry has historically been tough for women, for

(10:48):
diverse voices. When you look back on gamer Gate, do
you think you did enough. I can always look back
at any incident for me and think about things that
in hindsight, I should have done more, I should have
done better. I'm proud of how our team evolves, how
our leadership team evolves. Now their societal issues around us.
The gaming industry is not kind of immune to those
people in my position sitting there as kind of old

(11:10):
white guy as head of gaming platforms, not in I'm
more the norm than I should be. And I talk
about three billion people who play video games, and if
you say your your audience is three billion people, then
the demographic is the planet's demographic. I want our team
to reflect the customer that we aspire to earn. I
know that our teams ship their culture with every product

(11:32):
that they shipped. Well. Activision specifically is facing a lot
of challenges here. There have been lawsuits, there have been
employee walkouts, there have been accusations of sexual harassment, sexual assault.
How much did that concern you when you're thinking about
this deal. We had access to data from the company
before we announced the acquisition to see what the actual

(11:53):
numbers were in terms of reports. Um, we definitely as
a team signed up to say, just like we're on
our own journe with Xbox, that we're going to expand
that journey if this deal closes. It's a lot of
people and a lot of people that will feel very
dedicated to and committed to building a great workplace environment
for them. That's true of any of our studios, right.
But it's obviously a conversation that you're going to have

(12:15):
you think about the board of Microsoft and when they're
thinking about the deal and they're typing into their search
engine activision, what are the headlines that they're coming back
And there were questions that we had. We've learned from this,
we will continue to learn um and we're committed to
that that journey not only for the betterment of our teams,
but our customers, the creators on our platform. We think
it's critical to our business success that we make progress here.

(12:37):
Is Bobby Kodak going to stay on? Yeah, I'm not
in a position to make comments about their leadership team
were in the regulatory phase and and how that will close,
Like when the deal closes, then we have say and
how they're managed and how it goes. But until that point,
I'm not really in position to say. There have been
very specific allegations of Bobby being aware of things that

(13:02):
happened and not reporting it to the board. What has
he communicated to you about what he knew, what he
didn't know. The discussions we've had were about the teams
where they're at. Can they make the progress they need
to make because the closing is a long process. Are
they putting in the work that they need to put

(13:24):
in two move along their journey, and I believe they're
committed to that. When I look at the work that
they're doing now, there's always more that can be done.
Activision has divisions that are unionizing, and I know Microsoft
has said they'll recognize those unions. What does that look like.
I've never run an organization that has unions in it, so,

(13:46):
but what I can say and working through this, is
we recognize workers needs to feel safe and heard and
and compensated fairly in order to do great work. So
we thought it was important to make a public statement
on that front for workers that are there that are
making decisions about their employment and how they want to

(14:08):
know what that relationship looks like to understand what it
would mean if Microsoft was able to close the deal.
When I think about the environment on any of our teams,
I build from a perspective of people of building a
workplace where people feel like they can do their best
work in a sustainable way and they could see this
as a long term career for themselves. So if Xbox
employees decided to unionize with Microsoft support that we knew.

(14:31):
We made the public statement that it was It wasn't
that it would have a broader impact than just the
impact at what would potentially happen on the close of
Activision Blizzard. So let's talk about some of the broader trends.
You and I talked a lot during the pandemic gameplay surge.
During the pandemic, we were all stuck at home. Has
that changed? It has changed. We've seen gameplay hours come

(14:53):
down a bit, which I will say I think is
a good thing. People should get outside, people should moderate.
Long term growth trajector for the business is incredibly durable
and strong. You have adults now that have grown up
playing like myself, and it's become a more normal part
of of how people entertain and how families spend time.
As the economy has has tightened for consumers, as gas

(15:15):
prices are higher, people are worried about what what their
home economic situation looks like. We're seeing gameplay hours kind
of stay strong because I think from a value perspective,
gaming is a good value for people at a time
of kind of economic constriction. People bought Minecraft, they can
continue to go play Minecraft. What about supply chain? What
challenges are you still seeing? Are all the consoles that

(15:37):
you want to have made in time for the holiday
is going to be here. I still think demand will
outstrip supply for us this holiday. We'll see when we
get into three you'll start to see more that supply
is catching up with demand and maybe actually see one
in the store when you walk in. And what's the
future of the console? I mean, our console is going
to be around in ten years if even Microsoft is

(15:59):
your sort of d emphasizing. Yeah, I equate in my
head gaming on console to gaming on a television. But
absolutely people are playing on more screens. And I think
for us as a platform, if we don't adopt that
as part of our strategy, we're kind of pushing against
what our consumer, what our customers are asking for. We
talked a bit about kids earlier, and you know, as
a mom, I'm always slightly terrified that my kids are
playing too much video games are ruining their brains. They're

(16:21):
gonna be exposed to all this bad stuff. You're very
pro game for kids, and I'm wondering, I wonder, how
do you support that as a parent. You know what's
best for your kid first, Like, I'm not going to
say what's best for any individuals kids. What we can
say and The research backs this up that gaming can

(16:43):
be a great on ramp for kids into STEM education
as they think about, well, how are these games built.
I also think the community power of gaming is something
that doesn't get talked about enough. Last night, I was
playing Escape Room on Xbox with one of my friends,
and while the conversation might start about how are we
going to escape from this room, then we're talking about

(17:05):
his daughter, who's looking at colleges, and we just talk
about life like people will when they're in the same place.
And that ability for gaming, whether it's with kids or adults,
to bring people from different backgrounds, different geographies, different socio
economic different religion, different genders together and shared experiences is
pretty unique out there, and I think building those connections

(17:28):
that video games can enable. Maybe this is too altruistic,
but there aren't enough of those things in the world today,
which brings me to the metaverse. You know, obviously Sacha
came on my show. I hope that this is the
next big thing that happens off to the mobile internet.
Facebook changed its name to Meta. Some gamers don't even
want this whole metaverse thing. My view on on meta

(17:52):
versus gamers have been in the metaverse for thirty years.
When you're playing games, if you're playing a World of
Warcraft game, you're playing in rollblocks, you're playing in a
racing game where everybody is in a shared world. These
three D shared worlds that gamers have been playing in
for years and years. I think what we've found is
there's more connection, as I was talking about before, because

(18:13):
we have shared purpose. It's not at all surprising to
me that gamers might look at metaverse and think, well,
I don't really get it, because we've we've already I
already have an avatar of myself, and I can already
go into a shared world, and I can already sit
there and have voice conversations with people anywhere. But I
do think the skills that we have as game designers

(18:33):
and game creators make a ton of sense and a
lot of enterprise experiences. And this is why Sati gets
excited about it. What about crypto Play to earn is
all the rage right now? Play to earn specifically is
something I'm cautious about. Um it creates a worker force
out of players for certain players to kind of monetize

(18:55):
now to be fair for us in the game. In
the game industry. This has existed for years. Years. There
have been gold farmers of people who literally just spend
their time doing some menial task in a game to
accrue some currency that then they could sell to some
other rich player and for real money so that that
person doesn't have to spend their time. But now you
find games that are starting to build that into the

(19:16):
economy of the game itself. We made some comments and
Minecraft about how we view n f T s in
this space, because we saw people doing things that we
thought were exploited in our product, and we said we
don't want that. I think sometimes it's it's hammer looking
for a nail when these technologies come up. But the
actual human use or player use in our case of
these technologies, UM, I think there could be some interesting things.

(19:37):
So let's talk about your priorities looking forward. You know
you're in the middle of trying to do this really
big deal. Are we going to see you keep doing deals?
Are you still on the lookout for new studios or
new geographic locations where you want to build out Microsoft's
gaming presence. Definitely. On the second part, geographic expansion is

(19:59):
critically im We've hired our first people in Nigeria. Now
as part of our team, we have teams in India,
teams in South America. You know, again, when I talk
about three billion gamers, I'll just use Africa for a second.
Like one point two billion people in the continent. Average
age is what twenty or twenty one. I think it's
very very likely that the next big hit games that
we're going to see are not from the traditional locations,

(20:21):
not from the traditional people, and I think that's fantastic.
So geographic expansion is critical. Cloud is important to that
as we put our data centers in places and we
can not only distribute the games, but allow creators to
use our cloud development platforms to build games without having
to have the local hardware right there in their house
or in their office to go build. I think that
is important. So we're gonna do a little rapid fire. Okay,

(20:43):
what video games are you playing now? Cult of the Lamb,
most important meeting you've ever played a game in? You're
trying to give me in trouble but games. Have you
ever just played a game in a meeting? With Sacha?
It's easier on teams calls because they can't see your screen.
You're not here with people I have played games. Satia
has caught me playing games before, and yeah, i'd say

(21:06):
a Satia meeting, I plead the fifth. What's your favorite
thing to do when you're not gaming? Of all things snowboard?
With my family, you have a lot of gaming fans.
Who do you fan over? One of the things I'd
love to go do is find a game I've never
heard of and go spend time with it and then
talk to the creators about it. I think creating something

(21:29):
putting it out there is such a brave thing to do.
If you could see any band in their prime, who
would it be? Wow? So I'm a punk rock fan,
um so I'd probably go back and say, like the
Ramons best piece of advice for your twenties. When I
think about at least my career, and that's the only

(21:49):
lens I have. There have been a number of times
when others have made bets on me that I probably
didn't think I was ready for, including the job I'm
in now. And to listen to the others around you
when they are making a bet on you, when they're
pulling you to go do things, at least for me,
who I was probably reticent, maybe a little imposter syndrome
kicking in on Was I really ready for something? But

(22:11):
understand that others around you when they're encouraging you, that
they're probably doing it for good reason. How do you
balance work life and play? My little fifteen minute commute
back and forth is my transition zone of I'm now
at work, I'm now at home. I don't even have
a home office because when I'm home, I'm not at work.
Like it's just always been my My thing. Is that

(22:34):
segmentation with my family and what I do. It doesn't
mean I've never responded to a mail when I'm at home,
but I I'm very regimented that way. When COVID happened,
it didn't work, and it didn't work emotionally, it didn't
work output wise like motivation, And I was pretty transparent
about that with the people around me and how I
had to change things. Does that mean you want everyone

(22:55):
else to come back back to the office now? People
have to work in the way that works for them.
What is the gaming industry look like in five years
and what does it look like in twenty years. We're
going to see video games really gain their space in
telling stories that really change people's perspective on others lived experience,
and I think that's a pretty cool thing, all right.

(23:16):
Thank you, Philip, you for joining us bloom Brook Studio
at one point. I was produced by Lauren Ellis and
edited by Matthew Soto, Joe Medina, and Megan Olsen. I'm

(23:38):
Emily Chang, your host an executive producer. Thanks for listening.