Dozens of documents were released last week in a court battle between the FTC and Microsoft, revealing behind-the-scenes secrets that are both amusing and embarrassing. Among them was Xbox boss Phil Spencer's brutal but candid analysis of the current state of big game publishers like Activision and EA. In these analyses, Phil said these publishers are struggling to gain a foothold in an industry that doesn't need them as much as it once did.
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Before the age of Steam, games were mostly sold in physical form, so actual shelf space was crucial to developers. Equally important is publicity. These are the primary responsibilities of publishers and are the best way to grow game sales. Large publishers were able to use their scale to ensure that their games would be released and have high-profile promotions, something that independent and smaller developers simply couldn't do at the time.
However, in the era of digital distribution, both players and developers no longer need to buy and sell games through physical channels. The promotion of games is becoming more and more simple, and even E3, the largest game exhibition and sales event, has faded out of people's sight. This leaves large publishers relying on their other strengths: developing big-budget AAA titles that smaller companies can't afford.
"Few companies can afford the $200 million that Activision or Take-Two spend to launch a game like Call of Duty or Red Dead Redemption," Spencer wrote. "Most of these triple-A publishers use this scale of production to keep their top IPs as top-selling games every year."
But Spencer said this approach also poses problems. He believes the "floor return" on these large-scale productions is so high that it hinders these companies' willingness to take risks and try new things. He said: "You can see more and more triple-A publishers using rental IP to try to offset risk (EA's Star Wars, Sony's Spider-Man, Ubisoft's Avatar, etc.). The same situation is playing out in Hollywood, (streaming platform) Netflix creates more new IP than any movie studio."
Spencer concludes that this has ultimately led to a stagnant industry: "Triple-A publishers are milking their top IPs but are having trouble replenishing their popular IPs - most AAA publishers are still riding the success of IPs created more than 10 years ago."
Spencer's email was an attempt to re-emphasize his view that subscription services like Xbox Game Pass will provide a lifeline to large publishers as their positions are eroded. He noted that EA and Ubisoft are both trying to create competing subscription services of their own, but said "they haven't moved quickly or boldly enough to scale" and lack a platform like the Xbox console to drive them. Spencer said in the email that he's not trying to use GamePass to eliminate large publishers, but rather to help them "move toward a successful future" by giving them access to a larger user base.