Microsoft's Xbox chief: Project Scarlett likely isn't the last console

Streaming services are all the rage, but don't go thinking that means we'll see fewer devices, says Phil Spencer, head of Xbox.

Ian Sherr Former Editor at Large / News
Ian Sherr (he/him/his) grew up in the San Francisco Bay Area, so he's always had a connection to the tech world. At CNET, he wrote about Apple, Microsoft, VR, video games and internet troubles. Aside from writing, he tinkers with tech at home, is a longtime fencer -- the kind with swords -- and began woodworking during the pandemic.
Ian Sherr
6 min read
Phil Spencer, head of Microsoft's Xbox business, on stage at E3 2019.

Phil Spencer, head of Microsoft's Xbox business, on stage at E3 2019. 

James Martin/CNET

Microsoft's next Xbox, code-named Project Scarlett, is coming next year. But the company's already releasing key parts of it now, and it says the reception has been big.

In the past couple months, Microsoft's been beefing up its subscription offerings. In April, it announced a new Xbox Games Pass Ultimate for $15 per month, combining its $10 monthly Xbox Games Pass and $60 per year Xbox Live Gold social network. Then, in May, it announced the Xbox Games Pass for PCs, offering a new catalog of 100 games for $10 per month as well. On Sunday, Microsoft announced that Xbox Game Pass Ultimate would combine all three services for $15 per month.

Watch this: Microsoft announces Project Scarlett

"We haven't always done things from the perspective of what do we have that can be additive to what the community has today," Phil Spencer, Microsoft's head of Xbox, said in an interview as the Electronic Entertainment Expo, or E3, kicked off in Los Angeles. "It is about listening to the customers."

So far, the response from customers has been positive, he said. Microsoft counted a record day for signups on Sunday, he added, and that's even with parts of the service still in their testing phases.

Spencer confirmed an earlier report that the upcoming new Xbox would include a disc drive. "What we know is physical media for many people is still where their library is," he said. "We're obviously leaning into the compatibility across all of our generations in a big way."

Below are edited excerpts from a conversation with Spencer as the E3 show started.

Q: Is this the last console?
Spencer: Honestly, I don't know. I've been around long enough to know that there have been multiple "this is the last generation." That's not a new meme that comes out.

When I look, even in a world of streaming and xCloud, and let's say streaming of any other form of media that's out there -- music, video -- the number of compute devices around us hasn't gone down, it's gone up.


Microsoft shows off a few experiments at E3. 

James Martin/CNET

I mean, you're sitting here with a laptop and a tablet, typing on one, recording on another, and a phone and a voice recorder. So I think this idea that as we become connected, the number of devices around us goes down isn't the truth that I see in my world today.

So when we introduce streaming for us, which I think is the natural kind of thing to ask in this generation, "Hey, is this the last one?" I think what I see is streaming is going to enable this high-quality content to hit more screens around you. And I actually don't think that's going to lead to fewer screens around you.

Different people will say different things on this, but the truth of the matter is that the best way for you to play a high-fidelity video game for years is going to be with a local device.

You've suggested there are a lot of games being made by Xbox Game Studios. How many would you say are in the works?
Right now we have thousands of games in development for Xbox. And a vast majority of those are third-party partners. Just do the math; we have 15 studios.

And those teams have known about our roadmap for almost a year. So, you know, if you're a team that's building a game, and you're looking at 2020, or you're close to that, you're going to think about knowing that your early adopter of new hardware is usually a good gaming customer.

So I'm not announcing the third-party games that are out there in development. But I think you should expect that any game that you see that has kind of a late 2020, early 2021 date on it -- they've already been disclosed by Sony , they've already been disclosed by us. And I think you should expect that they're thinking hard about what this means for the roadmap.

We're having great adoption and support from third parties already. They like the specs that we've picked, the fact that we're more balanced between CPU and GPU in the box than we've ever been. It gives them some real creative opportunities around the feel of the game. And they were instrumental in us getting to this point. We go out early with our ideas, they came back with their feedback, we go back and forth in this kind of this iterative process, getting to a spec that we like.

I think about the possibility of confusion. There's strong branding between the Xbox 360 and the Xbox One,  and there was strong branding between the original Xbox and the Xbox 360. Both you and Sony have made it clear there's going to be a lot of cross compatibility, and it'll be much more fluid. So how do you make sure the experience feels good?
One of the things that I think is also part of what we're doing here at E3 , is being transparent with the customer about what's coming and when.

I think the most important thing for us is to be descriptive in what we are designing Scarlett to do and let people make informed decisions as much as they can. Now, we didn't give the price for Scarlett, so you could say, "Hey, you're not giving full disclosure on everything." And frankly, on price, there's still stuff we work through.

Just so you know for clarity here: If somebody bought an Xbox One at launch, and they're an engaged customer that's still playing games, subscribing to Game Pass, or buying games, or whatever they're doing, I actually never really need that customer to go buy a new piece of hardware. The business is around software and services growth. That is the profitable part of the business; selling the hardware is not the profitable part of the business.

Microsoft shows off Xbox trailers, hardware, services at E3

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So if I can keep a happy and engaged customer on a console that they love, and they feel like they still have access to the games that they want to go play, and that there's a steady flow of those games, the difference between 1080p's and 4kp's and whatever is not something that they care about. That's actually great for our business.

So this is a little bit why we've backed away from the race on how many we can sell, or announce the sales of as many consoles as possible. Not that that's immaterial; I'm not at all trying to say that. But the real root of the business is how many customers are engaged in your service. How engaged are they? And can you keep that number growing?

So is this experience going to be like with the Xbox One X , where I could buy the game and it doesn't matter what device I'm running on?
Think of it like PC. Today, if you own a PC, a large number of PCs can play that game.

You've got some people that have a [high end] Titan X video card, and then you've got other people that have a [lower end] integrated Intel , right? And are they having the exact same experience? They're not.

The nice thing is the media can conform, and game devs have figured this out over the years because they ship on PC. And even game devs that are only console are focusing on multiple consoles that are in the market. So the games engines and kind of the middleware and asset creation pipelines understand that there are multiple kinds of design specs. And Unreal and Unity have become very good at that.

What are the lessons you've learned from the previous console launches that you're going to apply to this?
It's really listen. It is about listening to the customer.

This is a little bit inside baseball: There's one seat that happens to be an esports gaming seat that we leave blank at our leadership table. No one sits in that seat, and it is the seat of the customer at our leadership table. And it's kind of a symbolic thing.

But we think about what does our customer want.

But to ensure that that voice is included in the decisions that we're making is definitely a lesson that we learned through Xbox One. And I think it we're not perfect by any stretch, but it definitely permeates a lot of the decisions that we're making today.