At the DICE Summit, the New York Times' Seth Scheisel got a chance to quiz Microsoft Game Studios corporate VP Shane Kim one-on-one for a "20 Questions" session, and threw him some challenging questions about third-party development, innovating in the market, and the company's role in the PC market.
Scheisel asked Kim whether Microsoft ought to have acquired Blizzard when it had the chance -- was it the company's biggest missed opportunity? "We're always looking at what's going on -- unfortunately it didn't work out for us," Kim conceded.
"Where have all your developers gone?" Scheisel asked, rattling off the three B's: Bizarre, Bungie and BioWare. But Kim pointed out that Microsoft stresses situationally appropriate partnerships, not necessarily incorporations. "It is a very fluid industry," Kim replied. "We work with a lot of external development partners - Epic has been a tremendous partner for us. It's just the nature of the game."
Still, Kim noted, "We do have five great internal studios. I believe in having a great mix, and a great commitment to internal development as well... we can't control other publishers."
Scheisel persisted on the issue, pressing Kim on Bungie's declaration of independence late last year. "At the root of it, you had a group of fiercely talented creative individuals who really wanted to be free," Kim explained.
He elaborated, "People have speculated that we were stifling their creative freedom, but I can tell you there's no studio that had more freedom at Microsoft Game Studios than Bungie. I think, at the heart of it, they wanted to return to their independent roots. At the end of the day, you are talking about human beings here. My personal philosophy? You want to work with people who are happy to work with you."
Not appeased, Scheisel asked whether Microsoft as a corporation was facing a "broader issue" in retaining top talent. Kim admitted that some individuals might be turned off by the complexity and size of an organization like Microsoft.
"There are a lot of benefits, but also additional challenges that go along with that part of it," Kim said. "People may not want to be part of that... Peter Molyneux doesn't have to work with anybody else, and I think Peter would tell you -- not because I told him to tell you -- that he's happy to be part of Microsoft. [Now], he doesn't have to administer a large organization, and he can focus on creativity."
Questions of Focus
Pointing out the budget concentration on a title like Grand Theft Auto 4, Scheisel asked whether Microsoft is "more focused" on profitability.
"We're very proud of the results we've been able to generate," Kim said. "This fiscal year will be the most successful, financially, for Microsoft Game Studios. It doesn't end there. We still have a lot of objectives we want to achieve at the platform level as well as for Microsoft Game Studios.... I just reorganized our teams to focus on our senior leaders, so we can actually apply more focus and more investment."
"Is your job to shift Xbox 360s, or to run the studio?" Scheisel asked.
"It's both," Kim said candidly. "Microsoft Game Studios needs to take its mission as first party publisher very seriously. We hoisted the responsibility of driving the success of the console on our shoulders. Because of the cost of development, you're going to see fewer third-party exclusives... most of the platform-driving content has to come from first parties."
The IP Stable
In terms of those exclusives, Scheisel told Kim he doesn't think 2008-2009 are "as stacked" as previous years, to which Kim replied, "Oh, I think it's very stacked, but you just don't know about it!"
As far as titles that have been revealed, Kim said, "Fable 2 will be one of the biggest titles of the year, Halo Wars... Alan Wake is in the future... The other thing to remember is that over the course of the last four years, we've built a lot of franchises people really care about. That's been part of our mission... People don't look at them as just another sequel coming out. But we can do more."
Given that Halo is one such franchise, Scheisel asked what its future looks like. "That is our most valuable and important IP," Kim said. "We're looking forward to see how we can nurture and grow it. We have the collaboration with Peter Jackson... We need to make it more appealing to other people. Halo Wars is another example to introduce the world and the story to people who may not have played an FPS."
Kim highlighted the importance of maintaining a platform that's rewarding for third-party publishers. "The vast majority of software sales is going to come from third parties," Kim noted. "We don't have the dominant share on our own platform - that comes from third parties. And if you look at the results for great third-party platform titles, we're outselling other platforms 2:1, 3:1 and so on."
So are 30 to 50 million dollar exclusivity deals what's to be expected going forward? "I'm not involved in the third party group, so I cannot confirm or deny that figure," replied Kim. "I don't think you are going to see a lot of deals... GTA is very, very unique. We believe passionately that Xbox 360 and Xbox Live are the only place you can get the entire GTA4 experience." "you'll see us continue to work closely with [third parties] but whether we're doing deals of that magnitude and what form those deals take, who knows?"
Who's Winning The War?
Scheisel asked if Microsoft feels it's failed at its stated goal of being "number one," since by unit sales, the Wii holds that title handily. But Kim thinks it's too early to call -- and that unit sales are too simple a way to measure success.
"It's easier to focus on console unit sales," he continued. "But if you look at the consumer spending on the current [console] generation, Xbox 360 customers spend 45 percent of next gen spending."
Continuing to compare the Xbox 360 to the Wii, Scheisel asked if Microsoft "missed the boat on reshaping the market."
Kim conceded that there are some challenges to overcome: "When your flagship titles are Halo and Gears of War, most people naturally attribute a brand of mature-rated hardcore to the Xbox platform. I'm glad we have Halo and Gears of War, but it makes it harder to reach out to some people. We do have a lot to offer to people and we have to do a better job of letting people know. We're trying to get mass-market with Xbox 360, and the generation has a long way to go."
Scheisel reminded Kim of Microsoft's stated 5-year lifecycle -- noting we're now in year four. "I don't think we said that the generation is 5 years," Kim disagreed. "Our belief is that our system has a long lifespan -- it'll be very different than Xbox 1."
Xbox 360 does have somewhat of a lead over PlayStation in North America. But with the European market more inclined to embrace Sony's console, what's Kim's view?
"I don't think anybody should underestimate Sony, and we see that in Europe." Kim stated. "It's going to take a long time for us to build up the same level of brand equity."
Warring With Windows
Next Scheisel raised the struggling PC game market -- and Microsoft's struggle within it. But Kim says that Games For Windows, in addition to the launch of Xbox Live for Windows, "are all components of the company's strategy."
Why then, Scheisel pursued, are there no triple-A PC titles from Microsoft? And why are the games Vista-only? Laughing, Kim replied in a mock-robotic voice: "We love the Windows division of Microsoft. We did that willingly."
Kim elaborated, "I think a core competitive advantage of Microsoft is our outreach to developers. To find a market for MMOs, we might look at Asia versus the West. We're going to be careful because we don't have a track record in that space."
Both Sony and Nintendo offer portable consoles -- will Microsoft jump in to that space? "Never say never," Kim said. "Launching a portable device is like launching a Zune, launching another Xbox 360... we have a ways to go [to compete effectively in the music space]... Zune is not just about the device, it's about the service as well."
He continued, "We do believe that gaming is a core pillar of the Windows market. For Microsoft Game Studios, does that mean we'll do things that try to showcase Windows and the titles we ship on that platform? Sure... that is part of our responsibilities."
Audience Q & A
Next, the floor opened for audience questions and answers. What, asked one member, is Kim's view on Microsoft's role in the future of digital downloads? "If you want to draw a hard line [as to] when is the vast majority of game sales going to be digitally instead of at retail? I think that's a long time, personally." Nonetheless, though, Kim thinks they're off to a good start: "We've had many, many, many pieces of content downloaded off of Xbox Live."
Another audience member recalled that Bill Gates said 2007 would determine the console war -- and yet that war isn't over. At what point does Kim expect to see a victor set in stone?
"By no means does anyone at Microsoft think the race is over," replied Kim. "You have very powerful and formidable contenders in Nintendo and Sony ... to underestimate them and to count them out would be a foolish mistake."