01:15:50 · John Coogan, Ben Thompson, Jordi Hays
[01:15:50] S1: that's [01:15:50] S8: part of the story. Yeah. So Microsoft decides, okay, what we we're gonna actually try a new business model. It's true Xbox sort of selling a console Mhmm. Selling, you know, licensing it. We kinda do that, but we're actually moving to being a services company. The stock's doing much better now. You know, like, we have Azure, all the all these things. What we need to do and the way we compete with Sony is we need to have the exact opposite of the Sony strategy, and we need to lean into services, lean into subscriptions. We're gonna do Xbox Game Pass. Yeah. And the idea of Xbox Game Pass is instead of buying every individual game for $60, $70, $80 gaming pricing, by the way, really has stayed suppressed probably far longer than it should have been, particularly for the AAA games, but we already got to that with Rockstar. Mhmm. So they're they're they're like, you pay one price per month, and you get access to all the games and game pass. Well, of course, no publisher wants to partake in this. Mhmm. Because they make all their money upfront by selling games to their biggest fans. You you know, it's kinda like the movie model. You make a bunch of money upfront. And yet, in the long [01:16:59] S0: looking at, like, at at what happened to the music industry as an example of saying, like, yeah, it's cool to make your product more accessible. You get, you know, more listeners by bundling the streaming.
01:16:59 · Jordi Hays, Ben Thompson, Rodrigo Liang, John Coogan
[01:16:59] S0: looking at, like, at at what happened to the music industry as an example of saying, like, yeah, it's cool to make your product more accessible. You get, you know, more listeners by bundling the streaming. [01:17:10] S8: That was the bet. You had to make it up in volume. Right? And so this old this why the series s came about, there's the series x and the series s. Mhmm. The series s was a more underpowered but much cheaper model. I think it launched at $300 versus the x was, I think, $600 or maybe 500. And that was also a problem because you're kind of neutering the x because developers build to the lowest common denominator. That's that's sort the highest one. So that was one problem. But the idea was we're gonna expand the market. And they have these package deals where you get an s and you get Game Pass for a year. [01:17:42] S4: Mhmm. [01:17:43] S8: And it's this sort of thing. And we will make it up and the problem is no no independent developer is gonna go for that. Mhmm. So they had some of their own games, but they went out and started buying a bunch of developers. So they bought Bethesda, which included, I think, it at that point and and Xenimax. I I the Yeah. [01:18:02] S1: They bought Xenimax. It's like they have a bunch of, like, great idea like the Activision deal. Those but those developers just aren't releasing, like, incredible titles annually except for Activision, which does Well, have so release game.
01:18:02 · John Coogan, Ben Thompson, Jordi Hays, Rodrigo Liang
[01:18:02] S1: They bought Xenimax. It's like they have a bunch of, like, great idea like the Activision deal. Those but those developers just aren't releasing, like, incredible titles annually except for Activision, which does Well, have so release game. [01:18:15] S8: Exactly. And so the issue so the issue with buying these companies is their what you're paying for is you're paying for their existing business plus the premium. Mhmm. And their existing business was selling single copies of games Mhmm. To all platforms. [01:18:32] S0: Mhmm. [01:18:32] S8: And what they were saying is we're going to basically force all these studios to take a bath, to lose a ton of money by putting all their games on Game Pass. We'll still sell on PlayStation because we have to because that's a lot of money. It'd be massively economically destructive not to. Mhmm. But what we think is gonna happen is gamers are gonna realize I could be paying $70 a pop on PlayStation. [01:18:56] S4: Mhmm.
01:18:56 · Rodrigo Liang, Ben Thompson, John Coogan, Jordi Hays
[01:18:56] S4: Mhmm. [01:18:56] S8: Or I could go to Xbox and I could pay $20 a month, and I can get all these games, and that's it. What a better deal. And by the way, we'll get new gamers. People are gonna come in and and realize, wow. I can get all these games for $20 a month. None of that happened. All they did was cannibalize their existing business. They didn't expand the market for console gamers. All they did was have gamers who would have paid way more to play these games, pay way less to pay these games, and Microsoft ate it. Yeah. And they I think they, you know, the recent reporting was they expected to have 75,000,000 Game Pass subscribers by this year. They have, like, 30,000,000, and that number is actually decreasing. It's not going up. And so it's just been and so that that that's sort of the context of what's happened here. Yeah. Phil Spencer got retired, which if you retire at that level of a company, you're probably canned. Probably too late. The whole strategy of disaster. They brought in new leadership. [01:19:55] S1: Yep. [01:19:55] S8: And now there's sort of like a reset going on. They're they're laying off few thousand people. Yeah. They they say all games production are gonna continue, but there's a real sort of critical decision here. What do we do? Because we ended up getting stuck in the middle. Like and we're just this doesn't work. Mhmm. [01:20:17] S0: What, what did you read into their approach of laying off 1,600 people now and keeping a 1,600 person rift?
01:20:17 · Jordi Hays, Ben Thompson, John Coogan, Rodrigo Liang
[01:20:17] S0: What, what did you read into their approach of laying off 1,600 people now and keeping a 1,600 person rift? [01:20:26] S8: I mean, it's a terrible idea because, like, there for the rest of the year is terrible. [01:20:31] S0: I know, like, VC would tell you to, like, cut hard, cut deep. [01:20:36] S1: And then move forward with the team. If you're on the ship, we're going to Yeah. Valhalla together or something. [01:20:42] S8: I I do have some sympathy because the reality is I appreciated the note because they are in big trouble. And there's an there's an aspect of just stating it clearly. We're not sugarcoating it. And if they laid out how much trouble they were in and then only cut 1,600 people, then everyone kinda knows they're gonna be cutting more people. Right? So I think they're just in a bad spot. So, of course, it's not great. It's gonna destroy morale. It's gonna destroy everything for the next year because everyone's waiting to get fired. But there's a bit of they did, I think, tear the Band Aid off to the extent they could. And now there's just a now they can be very overt. They could go through and actually talk to employees about what are you working on? Why should you still be here? And, it's a reflection of the employment climate, but, like, people in general are more they're just not gonna bail. Microsoft, you know, they're gonna want to keep their job. And so they can probably, hopefully, fingers crossed, do better cuts by virtue of doing them in the open. [01:21:46] S4: Mhmm.
01:21:46 · Rodrigo Liang, Ben Thompson, John Coogan, Jordi Hays
[01:21:46] S4: Mhmm. [01:21:47] S8: But I don't know. I mean, I don't envy I don't envy Xbox's leadership at all. It's gonna be a very tough thing, but I I I can totally understand how they are where they are. [01:21:56] S1: Probability of a spinout. [01:21:58] S8: I mean, I think it I think it needs to happen. Like, I I but, you know, this is again, the regret is this was my take for years and years and years. I'm like, okay. Fine. Xbox Game Pass. That kind of seems kinda interesting. Let's go for it. It should've stuck to my guns. They're like, no. Stop. This is gonna be a disaster. I think, yeah, I don't I I I don't get it. I just don't I didn't see it before. The thing that got me to say, okay, let's give it a chance didn't work. [01:22:24] S1: Mhmm. [01:22:24] S8: I don't see it now. I mean, I think it does give me pause. They hired Matthew Ball who had Valens Retecery multiple Yeah. As their chief strategy officer, have a lot of respect for, you know, his takes. So I'm curious what he's thinking about. Yeah. This gets to the question before. Is there a bit where they just write off these acquisitions [01:22:43] S1: Mhmm. [01:22:44] S8: And say, actually, all this stuff's gonna be exclusive now. We're like Call of Duty, buy an Xbox. Wow. Like, basically giving into the FTC's worst fears, which, but they those fears didn't make sense at the time in the context, because it's by writing off [01:23:03] S0: What's funny what's funny is [01:23:04] S8: that we lost billions and billions of dollars.