Phil Spencer blames capitalism for games industry's problems: 'I don't understand.' [the] "The luxury of not having to run a profitable, growing business."

After much wrangling with regulators, Microsoft recently spent $69 billion to acquire Activision Blizzard, after which it almost immediately cut 1,900 jobs in its gaming business. Not great news for anyone, unless you own MSFT shares. In an interview with ribbed On the driving forces behind layoffs at Microsoft and across the industry, Xbox CEO Phil Spencer pointed the finger at capitalism in general.

The problem, according to Spencer, is the “lack of growth” in the video game industry as a whole. “When you have an industry that's expected to be smaller next year in terms of players and dollars, and you have a lot of publicly traded companies operating in the industry that have to show growth to their investors — why would someone own another company? Equity Share,” Spencer said. If someone does not grow? “The side of the business that is examined next is the cost side.” “Because if you can’t grow the revenue side, the cost side is going to be challenged.”

If you can't grow by making more money, in other words, you can “grow” — in terms of earnings, stock price, EBITDA, and all those other metrics that Wall Street cares about — by spending less. The obvious question is, why bring on all these new people if you can't pay them? Of course, Microsoft could pay these people, but it doesn't want to, because that's true, growth.

(Microsoft, for example, generated revenue of $211 billion in its 2023 fiscal year, and more $88 billion in operating income.)

“I don't understand [the] “The luxury of not having to run a profitable growing business inside Microsoft,” Spencer said. “But just across the industry…sitting here at GDC, I think about my friends in the industry who have been displaced and lost their jobs and how I don't want this industry to be a place where people can't, with confidence, build their careers. That's why I continue to focus on: how Is this industry returning to growth?

“For us as Xbox or any of the teams out there, it's actually the result of an industry that's not growing. It can grow and it will grow again. But as you can see this time now the ramifications have a human impact. And we all have to think about that and think about that.”

There's a definite 'don't hate the player' aspect to all of this, but he's not wrong – if anything, Spencer is being too honest. This is how it works: capitalism in capital letters, If this shark stops swimming, it dies. Sure, the constant growth formula isn't great for sustainability, and sometimes it can lead to disaster, but none of that matters in places where big-money decisions are being made. Until that changes, nothing else is likely to happen, short of a complete collapse of the industry, anyway.

Assuming we can avoid this particular outcome (or at least avoid it for a long time), the continued drive for growth may eventually push Microsoft into some unexpected and potentially interesting places. In the same interview with Polygon, Spencer said that the old model of subsidizing the cost of console hardware in order to make money selling games just wasn't viable anymore, which got him thinking about other ways to feed the console — including bringing in other digital storefronts. Like the Epic Games Store and Itch.io on Xbox.