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| Seven years after the introduction of its first console, Microsoft is waging a new war with Xbox 360 – against itself. Phil Spencer, the general manager of Microsoft Game Studios Europe, believes the war can still be won. |
In September 2005, Microsoft’s Xbox division reported it had lost a total of four billion dollars during its four years of involvement in the console race. For any other company that might have been the end of their involvement in the industry. For Microsoft, it was the necessary price to gain a foothold in the burgeoning videogame market and the prelude to, two months later, launching the Xbox 360. With that move, Microsoft forced the beginning of the current generation. The timing was always intended to give the 360 a head start on its competitors and had mixed results: on the one hand, consumers upgraded and the 360 certainly got its lead in early (to the tune of nearly ten million units), but on the other the allegedly rushed testing of the hardware resulted in the infamous ‘Red Ring of Death’ phenomenon, and the costliest warranty extension in videogame history. But more than two years since that launch, and now facing some stiff competition, is the 360 in the dominant position Microsoft claims – or does the console rule an empire built on quicksand? The 360 has several major achievements to its name: a software catalogue currently unmatched by its competitors, a peerless online service, and arguably the best traditional controller of those available. It has created a fiercely loyal community and worldwide sales stand at 18 million worldwide, with around seven million of those in North America. Returning to that $4 billion (£2 billion) ‘investment’ in entering the market, 2008 was always cited by Microsoft as the year in which it expected the Xbox division to begin turning a profit. Surprisingly, it’s ahead of schedule: the last two financial quarters have seen positive results. Of course, these periods included Halo 3 amid a raft of other high-profile exclusives, and do not include the $1 billion reserved for the 360’s new three-year warranty (of which more later), but they regardless represent a significant achievement for the 360. Over the period of July 1 to December 31 2007, the Xbox Entertainment and Device Division reported an income of $522 million (£263 million) from a total revenue of $5.53 billion (£2.8 billion). The division also incorporates PC games and accessories, phone operating systems and Zune, but Microsoft itself attributed the increase in revenue primarily to ‘increased Xbox 360 console sales, videogame sales led by Halo 3, Xbox Live revenues, and Xbox 360 accessory sales’. Wondering just how big or small a part of Microsoft the division is? That total revenue of $5.53 billion was part of a $30.3 billion (£15.2 billion) total revenue in the same period, so some rough-as-they-come beer mat sums would tell you it’s about 18.25 per cent – a proportion that, even allowing for the varied products contained in the division, puts to rest the sneery idea that Microsoft can simply afford to throw money at the brand. And sure enough, the 360 has hit Microsoft’s business targets: in particular, Bill Gates’ E3 2006 prediction that the console would sell 10,000,000 units by the end of 2006 was surpassed by nearly half a million. But think about the figures for a moment. If 1.5 million 360s were sold by the end of 2005, 10.4 million by the end of 2006, and 17.7 million by the end of 2007, then the Xbox 360 sold significantly fewer units in 2007 than it did in 2006. The bad news doesn’t stop there: 2007 saw its head start battered aside by the unstoppable Wii, with little chance of redress, and the PlayStation 3 reaching the 9.5 million unit mark worldwide. The only territory in which it outsold the PS3 was North America, and without the sales spike around Halo 3 things would have looked considerably worse. Software is where the real money lies, and the 360 boasts an attach rate of seven games per console, far in advance of Nintendo and Sony. It seems strange that this is the case. After all, with its obvious attributes and its late-2007 software lineup, why didn’t the Xbox 360 dominate the year, and the Christmas period in particular? Microsoft began 2007 with a huge unit lead, its biggest game properties due to arrive on the shelves, plus a significant marketing spend, and in the event managed to sell less hardware than the previous year.
Of course, hardware sales are only part of the story, and software is where the real money lies for platform holders and third parties: in this respect, the 360 is in rude health, boasting an attach rate of seven games per console, far in advance of Nintendo and Sony’s figures, as Phil Spencer, the general manager of Microsoft Game Studios Europe, is keen to point out: “If you’re a third party thinking about where your game might work, the 360 has got to be at the centre of your business case.” |
The 360’s software catalogue is deserving of such success, and for a certain section of the market is the most comprehensive available: exclusives such as BioShock, Blue Dragon, Crackdown, Dead Rising, Forza Motorsport 2, Gears Of War, Lost Odyssey, Mass Effect, Project Gotham Racing 4 and crossplatform titles such as Assassin’s Creed, Burnout Paradise, Call Of Duty 4, FIFA ’08, Need For Speed ProStreet and Pro Evolution Soccer 2008 cover a lot of bases. For players who specifically enjoy the established videogame genres, the Xbox 360 is currently the machine of choice.
There’s one more title to add, but it doesn’t seem to suit lists. It’s difficult to discuss the Xbox story in any sense without mentioning it: Halo. Its importance cannot be overstated: the first game was the biggest-selling Xbox title for four years in a row, then Halo 2 was released and became the bestselling Xbox game worldwide, redefining the online component of console games and dominating Xbox Live until the release of Gears Of War. In September 2007 Halo 3 was released and instantly became the 360 title with the highest worldwide sales, standing at over eight million copies, and was responsible for the only massmarket special edition of the 360, an unfortunate gold and green creation (which, weirdly, didn’t come with the game itself).
It’s an overwhelmingly important IP for Microsoft, far more so than any single title is for Sony – which is why Christmas 2008 will see both Halo Wars and Halo Chronicles released, and it will be no surprise to see the franchise’s momentum refueled on an annual basis until the inevitable Halo 4. The title’s success simply can’t be denied – and nor can the fact that it’s first and foremost a gamer’s game, built around infinitely nuanced controls and a Legendary difficulty setting, set up to be tweaked and played in variants, rewarding myopic devotion with superhuman levels of skill, and built to sustain a huge online community for years to come.
Many of those traits are shared by the breadth of the 360’s software catalogue: first person shooters, deep racing titles, third person action adventures, sports titles and old-school JRPGs. These are gamer’s games, traditional games, and, importantly, some of the greatest ever made.
But if you want success, a chance of a PlayStation 2 level of success and industry dominance, is that the right kind of portfolio to be pushing? The PS2’s line-up is an ongoing software success story, its sales still keeping pace with and regularly exceeding the current generation of machines, and the reason is that its range of third party titles accommodate any demand any gamer could make. It’s a lesson that hasn’t been lost on Spencer.
“If you look at the third party portfolio for the 360 now, and its success on a worldwide basis relative to the PS3, it’s obviously different to PS2 versus Xbox. You see those ‘breadth’ titles that third parties ship, be it the Lego series, the Pixar movie games, Guitar Hero or Rock Band, and they’re all coming to our console.”
In comparison to the original Xbox, it’s true that on paper the 360’s line-up has a wider appeal. But if the console’s portfolio is unfairly accused of being all about bald space marines and fast cars, there still remains an overwhelming dominance of traditional genres in the software catalogue, and a doubt over Microsoft’s ability to cater to the videogame massmarket. It’s noticeable how contrived the 360’s casual software can seem: Viva Piñata became the poster-child for Microsoft’s attempts to convince the industry of the console’s family appeal, and is still being touted over a year after release – surely indicative of a lack of depth in the area – while the ‘inspiration’ that Scene It took from Buzz! is obvious.
The promotion of a minigame collection themed around Viva Piñata for Christmas 2007 might seem to tell its own story. After mentioning Kameo, Viva Piñata and Scene It in this context, Spencer claims: “I don’t look at any one game as the lynchpin to the broadening or non-broadening of our portfolio” – but the problem is that even if individuals don’t, the 360’s software seems to reflect just such a thought.
This is the fundamental issue facing Microsoft: the likes of Ape Escape, Buzz!, Disaster Report, the EyeToy, God Of War, Guitar Hero, Killzone and SingStar did not sell to the same people, the ‘massmarket’, but smaller groups with specific tastes. The ‘casual gamer’ doesn’t exist – there is no homogenous group that can be targeted with one or two releases over a period of time. Viva Piñata and Scene It on their own are not the answer, and releasing blue and pink pads is a basic move. The big question about the future of the Xbox 360 is not how good its software is or will be – because in its niche, it is excellent – but whether Microsoft is happy with the audience it has attracted with that software, and if not, whether it needs to rethink its entire strategy to expand beyond that current audience.
We mean, of course, the Red Ring of Death, the focal point of fanboys and competitors. In short, the Xbox 360 is subject to hardware failure in numbers unprecedented in the modern videogame console industry, with many unofficial estimates placing the figure at 30-35 percent of the total shipped. Last year saw customer complaints reach fever pitch and an eventual involvement from the specialist media, with some outlets claiming hardware defect rates of 30 percent. Microsoft finally confronted these problems with the announcement of a three-year warranty for all 360 purchases, a climbdown that will cost the firm up to $1 billion (a sum which, incidentally, is not included in any of the Xbox division’s current accounts).
But with such a delayed response to such a widespread and ongoing problem, Microsoft tested even its most loyal fans’ patience. Remarkably, community loyalty to the 360 is such that even this seems to be considered as an unfortunate side effect of owning a 360, rather than a reason for abandoning the system.
Whether this will continue with the likes of a recent ‘Insider’ interview, which Microsoft refused to comment on, that claims to expose the cost-cutting and negligence that led to the hardware problems – and warns of the business practices that will keep the particularly unreliable Xenon motherboards in circulation – remains to be seen. It could yet prove an albatross around the neck of the 360’s future ambitions as an entertainment and multimedia device – a market where consumers will shortly be spoiled for choice and are less vitriolically loyal to brands tHan the videogaming public.
The 360’s role in this future technology is also curious: much more toe-dipping than full immersion. One of the few announcements made at CES 2008, for example, was that Microsoft and BT had partnered for the 360 to be used as part of BT Vision. This partnership seems unusual: BT is hardly one of the leading digital content providers, and its reach is exclusively British. It may be a test for the 360, perhaps of how many consumers who purchase a set-top box want a secondary capability for videogames.
And for multimedia in a wider sense, the 360 is not in a great position to take advantage of future developments: it has discontinued its HD-DVD drive in the wake of Blu-ray's victory, while the console’s inability to store the large amounts of data needed for a virtual library (without further expensive proprietary hard drives) is obvious. In terms of content outside of software, Microsoft also wants to keep everything controlled, and accessible only if it says so (a point made clear by Zune, if not currently by the Xbox 360). Thus, the Xbox 360 won’t play bog-standard MPEGs, or even allow you to transfer music from its hard drive to a PC, and has quirks designed to block very specific behaviors. In this context, DivX support seems an afterthought.
Sony’s decision to make the PS3’s architecture as open as it is, specifically with regard to its storage and media tools, looks to be a much more forward-thinking one than Microsoft’s choice: Sony is, after all, the company with a music and movies division. When the massmarket does move towards digital distribution, consumers will not want three-day film rentals, they will want to build a collection. The Xbox 360 simply cannot serve that function as it is.
But, in a way, that misses the point. For almost everything that is puzzling about the Xbox 360, there is one simple answer for it. In every sense, the Xbox 360 (and any successor) is first and foremost a corollary of Microsoft’s Windows business. And Windows is the most important part of the puzzle. The Xbox is a component of the Microsoft dream – a life in which business and pleasure both run on Microsoft hardware and software, and in every aspect there’s a cut of the profits. To quote Bill Gates, the aim is: “To get a workstation running our software onto every desk and eventually in every home.” It would be wrong to call the Xbox 360 a workstation – but it’s certainly serving that function of getting Microsoft software into the home.
Perhaps that’s too sensationalistic, too in line with the perceptions of Microsoft as a monopolistic behemoth ruling worldwide operations with an iron fist. But the company itself does little to counteract such ideas: Europe, for example, is a crucial market for Microsoft in at least two respects – a large amount of its established franchises come from European developers, and it is currently the largest market in the world for console sales.
It’s all the more baffling, therefore, that the European arm of Microsoft seems to have so little autonomy from big brother back home: in the course of preparing this article, we requested an interview with Microsoft’s executive director of game studios, Shane Kim, to give the company’s response to some of the points above. The situation dragged on for two weeks, a time for the interview was offered and then retracted, and with one teeth-skinning day to go before deadline we were told that Kim wasn’t available ‘at all’, leading to our interview with Spencer.
Ultimately, no senior figure at Microsoft was willing to come out fighting on behalf of the Xbox 360 console hardware itself, a situation that does not breed confidence in its vision. Despite that, the 360 still has a lot going for it. The software, the online service, and the support it has attracted from the development community all deserve praise. Christmas 2008 should see Alan Wake, Banjo-Threeie, Fable 2, Gears Of War 2, Halo Chronicles, Halo Wars and Too Human at the least – a lineup that is hardly anemic. And perhaps most importantly there is a perception that Microsoft is a real challenger to Sony this time around, an opponent that is not only worthy of respect but capable of taking a significant chunk of the PlayStation’s business while further establishing the Xbox brand.
But it seems doubtful that, while it retains the trademarks of Microsoft’s business strategy, Xbox can become the dominant force in the videogame industry: Microsoft’s size and financial investment established the Xbox as a viable player in the videogame market, but these corporate policies ultimately limit its capabilities, and will limit those of any successor, in comparison to the PS3. This won’t change. But now that consumers have a choice from a generation of systems that has become established, Microsoft might recall the words of its own Cortana when thinking about its system’s capabilities and accessibility: “They let me pick. Did I ever tell you that?”
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