Used game sales are "a problem," but second-hand downloadable market not ruled out as Microsoft's Phil Spencer addresses next-gen rumors, says subscription plans for hardware purchases "should be here to stay."

The next generation of Xbox may have been absent from the 2012 Electronic Entertainment Expo, but at least Microsoft Game Studios head Phil Spencer was on hand to explain why. In a mid-show interview with GameSpot, the executive answered questions covering a variety of topics facing the company's gaming business, including the next-generation no-show.


Spencer expects the Xbox 360 to loom large for years to come.
Beyond addressing the gorilla on the show floor, Spencer addressed rumors that the next generation of consoles could thwart second-hand game sales. Spencer stopped short of denying the rumors, saying only that it's important consumers have a variety of price windows for the games they want to play. He added that used games are "a problem" because the content creators don't get a cut of those sales, and said that a second-hand market digital goods is important for players, and something Microsoft should try to work into its system.

Spencer also talked about the company's current promotion to sell the Xbox 360 for $99 with a two-year gold subscription plan, and whether that might be the hardware business model of the future. Other topics touched on included possible gamer apathy to the SmartGlass app, the app's potential to replace a standard controller, imposing Kinect connectivity on first-party games, and complaints about the redesigned dashboard.

Why haven't we heard anything about the next generation of Xbox?

Well, with Xbox 360, we're doing really well, we're the No. 1 console globally. As you saw at the briefing, huge brands are showing up on our box, not only games, but you're reaching things like Nike, you see Sesame Street coming, you see large entertainment brands like ESPN with their full suite, a lot of that is because of the scale that Xbox has reached, in terms of the number of households we're in, the number of Live customers we have, the subscriber base that we have.

"I think there are many years ahead of us for 360."
Entertainment at the largest end is about scale, and when you have the number of consoles we have out there, this is a great time for content creators. We look at this and we say, "What a perfect time to be delivering more and more and more diverse content on the platform." I think it's a strength for the industry that you have platforms so strong.

With the shift from Xbox to 360, original Xbox hardware was discontinued months before the 360 came out. Can we expect to see overlap in the life spans this time around?

I think there are many years ahead of us for 360. I thought [Microsoft senior vice preident Yusuf Mehdi] did a nice job on stage of showing our richest functionality, like Bing search, and we'll be localizing that work to make sure it reaches the globe.

Now with price points you guys just expanded to the $99 Xbox program. Is this model something we can expect to see right off the bat in the next generation, or is it a later-in-the-lifespan approach?

If you look at the way we launched this program--and I would still say it's a program that we're evaluating--we specifically launched in Microsoft stores, wanted to watch how that built. And we announced Best Buy and some GameStop engagements. We're learning, it's not something we've done before, and the consumer reception has been strong. I think the model makes sense, if you think about other devices that people own, cell phones and other things. So I think the model feels true to us, but you haven't found that in the gaming space before, in the console space. So we're still looking at it, but I'd say early indications are it's something that should be here to stay.

Last year at E3 we were told that all Microsoft first-party games would have Kinect features built into them. Have you backed off that mandate?

Well I kind of said two things; I've said, I don't want to unnaturally push Kinect into games where I don't think it makes sense, or we haven't found the right creative outlet for what Kinect is. I've also said I do think Kinect will show up in all games, and I still believe that, absolutely. And if you look at what happened at our E3 briefing, I thought it was interesting that you had a series of games that had Kinect showing up through voice.

You think about how it showed up in Splinter Cell, Madden, or FIFA, and you also had very specific Kinect games like Wreckateer and Fable: The Journey that were built from the ground up with Kinect. And they just all mixed together on stage. It's less of a specific Kinect story and more just about all the features that are available for the 360. I still believe that voice, identity, depth, gesture, those are tools that all game developers will find useful.


Spencer addresses the crowd at Microsoft's E3 2012 media briefing.
With your show there was a lot of emphasis on things like Kinect training, multimedia services, and non-games offerings. Do you think Microsoft's E3 presence is targeted toward the mainstream audience or the core gaming audience?

You separate those two things, I'm not sure they're separate. I guess I would call myself a core gamer, but I'm not a core gamer 24 hours a day. I don't have a controller in my hand all the time. I think people through their day whether they're playing games on the phone while they're waiting for the bus, they're sitting at work and it's lunch and they want to play something on their PC, or they go home at night and they want to watch a movie or play Halo or Call of Duty or Assassin's Creed or something, our job is entertaining everybody.

I think it's less about a specific segment, or trying to characterize or classify people as one thing or another. We stand up at E3 and we want to say that we want to bring all the entertainment that people want to the Xbox in a unique way. It's nice to be able to focus, now that we're sitting in such a nice space with our console--young, old, male, female--we can really think about experiences that cover the gamut. I thought our core-gaming focus at our briefing was strong. I mean, I looked at the franchises, I won't just pick the first-party franchises. I thought Splinter Cell looked great. I thought Call of Duty looked great. Tomb Raider was there. Resident Evil was there. The support we get from the third-parties around core franchises is strong.

Judging from what you've seen at this year's show, what do you think the big trends in the industry, beyond Microsoft, are going to be for the next year?

It's a good question. I see a couple things happening. I'm going to pick Assassin's Creed for a second because I think it looks exceptional, and the production value that you see in your high-end games--whether it's Halo, Call of Duty, Assassin's Creed or something like that--it's just incredible. And the number of people that these studios are applying to the franchises, the graphic fidelity, the sound… These are world-class creative properties that people are putting out.

At the same time, something that struck me, I don't know if you've been over to see the war gaming booth, wargaming.net, but it's the World of Tanks team, and it's interesting at E3, you have this at-scale free-to-play game with a booth on the floor, I've been coming to E3 for many years, and you see different business models showing up, you see different teams, it's not a team that even existed, I think that team is in the hundreds, number of people that work on that franchise, so you see these emerging business models and new creative things popping up and having critical success.

I was meeting with my friends at Rovio earlier today, and where they've been able to take their work. E3's been a good place and it seems to be transforming into less about, just three companies building dedicated hardware, and more about all entertainment, which I think is a great thing. It is the Entertainment Expo after all.

A number of users have been upset with the redesigned dashboard, the presence of ads, and finding navigation to be harder, have you heard those concerns, and if so how are you addressing them?

Well, the nice thing about [Xbox] Live is we have a two-way connection with all of our customers and they can give us feedback through the web forums or aliases or through great publications like your own. We're always taking feedback. You make changes and you learn, you follow the output. As a software company, one of the things we've been able to do on the Xbox is in a way reinvent the box two or three times this lifecycle by changing the way it works, we think making it better, but you can always make it better and better. You can always continue to perfect, and we will. Our software roots are strong, and people should expect you'll see constant updates to the operating system and the dash for Xbox 360. We appreciate the feedback. We want it to continue to come.

We have found a lot of users that find a look and feel that's consistent--Windows 8 hasn't launched yet, but you'll see that Metro look showing up on multiple devices--helps people not feel like they have to learn a separate UI for every screen they see, and I think that will pay dividends down the road.

During the press conference, Trey Parker and Matt Stone poked fun at bits of the Xbox experience on connected devices.

While you're in your refrigerator, was that one, while you're driving or something? I thought they were good.

That got one of the bigger rounds of applause from the audience. Is this connectivity and SmartGlass something that you think people are clamoring for right now?

Well, it might be unique to me, I don't think it is, I happen to have 16- and 13-year-old daughters, two daughters, and when we're watching TV together, which is less often than it used to be, the number of screens they have around them while they're doing anything, frankly, in their life… I looked last week and my 13 year old had sent 6,000 texts last month, I mean, how do you do that? But they are active on multiple screens by nature. It is not forced. It's not something because their dad works at Microsoft, it's just who they are. I think what we've done with SmartGlass has actually reached that consumer in the space they already exist. And we're not trying to move them into a place that seems unnatural for them. Having multiple active screens whether it's a laptop or a slate or a phone, whether it's a Microsoft device or a non-Microsoft device, we think there's a definitely younger generation growing up, that is just the way they consume content.

And you can see that if you look at a show like Glee and its rich web presence, or, Game of Thrones isn't really for kids, but you see a lot of shows today that have a pretty rich web presence. SmartGlass allows us to connect these things seamlessly, not simply to mirror the same screen, but to give additional information or functionality, and stay in-sync so when one screen changes they all kind of recognize the change, basically turns any TV you have into a smart TV.

Do you think people that aren't as comfortable with multiple screens are going to feel like they're missing out on the complete experience if they don't have that sort of SmartGlass information?

Our idea is not to drive a requirement that somebody has a second screen…We're not gonna force you to go to the slate, if somebody says I just want to keep going. HBO Go's not something that we do, but I think it's an interesting place to look at how they're doing Game of Thrones, giving you additional information. If you want to go full screen and just watch the show you can go do that. I think what you're actually finding is people will re-watch a second time to just consume the story, and the second time they go through they and dive in the information and I think this kind of technology makes those kinds of scenarios very possible.

"I think the trading of goods and digital goods in that kind of functionality is stuff that is important, and we should work to try to always make that part of the ecosystem."
And eventually could it be just like a controller basically, tilt-sensitive, touch-screen?

Absolutely. That's what you see with the web browser, so the web browser, that functionality there, basically when you go to the web browser you get a touch interface that puts the pointer on the TV screen allowing you to drag and drop and click.

We've heard rumors about the next generation of consoles potentially locking used games, is Microsoft considering this?

We understand that games at multiple price points are important to consumers. I don't think it's really about used games per se, when I as somebody who lives near GameStop and sees what happens there, I think what you find are consumers that want to be able to enter and play games, if they want to buy it day one they know what the price is, and they actually see price windowing that happens and it happens in a way right now that doesn't include the original content creators, which I think is a problem, frankly. Maybe it's because I run studios.

But the people that built Call of Duty or they built Gears of War or they built Halo, I think they should have a way of participating in all the windows of the product that they built. Today that's not possible. But from the consumer standpoint, I think consumers want to be able to enter and play games at multiple price points as well, and I think that's an important part of our ecosystem and should remain an important part of our ecosystem.

But not necessarily be able to pass that off to someone after the fact?

I think the trading of goods and digital goods in that kind of functionality is stuff that is important, and we should work to try to always make that part of the ecosystem. And Live doesn't really support that today. I can't sell you my XBLA game. And that's not really a policy point on our parts, it's just prioritizing the work that we have. But we're less focused on that specific used games and what that means and just thinking about content, the complete ecosystem and content, and prices and making sure that people can play at the prices they want to play.