MARCH 30, 2015 • With the onset of springtime, DFC Intelligence wanted to get an up-to-date perspective on Microsoft Corp.’s Xbox One. A lot has changed since the console was launched in late 2013 with the Xbox One achieving a strong measure of sales success during the holidays, especially in the United States. There is also greater integration with PCs on the horizon with Windows 10. To help us better assess where the Xbox One system is today, and Microsoft’s plans for the future, DFC did an interview with Mike Nichols, corporate vice president of Xbox Marketing.
DFC: Over the holidays in the U.S. Microsoft had huge success with a $349 Xbox One bundle that included a game (Assassin’s Creed Unity) but did NOT include a Kinect. This accounted for a significant majority of sales. The Sunset Overdrive and Call of Duty: Advanced Warfare bundles sold out quickly. Is $349 the magic price point and does it require having bundled software to compel consumers to buy?
Mike: We launched the original Xbox One bundle including Kinect starting at $499 and we saw more adoption than we had with Xbox 360 at the same point in the generation. Then in June 2014 we offered fans the option to buy Xbox One at a lower starting price point and saw a very positive response. We later launched a strong set of games for the holiday, along with limited time price promotions and bundles, and fans in the U.S. and several other markets made Xbox One the top-selling console over the holiday. With all of these efforts we are working to provide fans the option to buy the right Xbox One SKU for them, and to provide them superior gaming value.
DFC: Despite exclusive bundles for consumers in Europe, Asia and Latin America, it does seem Microsoft is focused primarily on North America for Xbox One. Is that a correct assessment? Can you talk about pricing and bundles in Europe and other markets?
Mike: Xbox has historically been strong in North America and we’re happy to see that continue with Xbox One. But Xbox One is a product for all our fans and we have seen strong results in markets globally. The decisions to provide different Xbox One SKUs to choose from, and to bundle high-quality games at key times, have been designed to appeal to all our fans around the world. Of course, specific promotional and pricing strategies do differ by market based on unique dynamics.
DFC: The Kinect was originally a major integral feature of the Xbox One. With the large majority of Xbox One systems being sold without Kinect, how does that impact Microsoft’s strategy? Does this mean the Xbox One becomes a system targeted more towards the core gamer? What does it mean for Kinect-centric products like the Just Dance franchise?
Mike: Kinect is an important differentiator for Xbox One, just as it was for Xbox 360. By providing the option to buy with or without Kinect, we open Xbox up for adoption from a broader range of fans. And of course, Kinect is available for Xbox One customers to buy at any point later if they couldn’t afford to own it up front.
DFC: Microsoft’s strategy with the Xbox One was one console for everything digital entertainment in the living room, meaning both games and media. What stats can Xbox share about breakdown of revenues from gaming vs. media? How does 2014 compare to 2013?
Mike: We do not share revenue breakout for gaming vs. media on Xbox One. However, we can tell you that we are seeing strong demand for games on the Xbox One platform with Xbox One selling more games throughout November and December in the U.S. than any other current-generation platform, according to NPD Group. We saw a great response to our games lineup last year, with Xbox-exclusive titles receiving eight Game of the Year Awards and 67 nominations from the media.
Additionally, last year, we launched several new entertainment apps on Xbox One in 2014 such as HBO GO, Showtime Anytime, Pandora, ReddX, GoPro and Twitch broadcasting to build on the growing list of popular entertainment experiences that are open to anyone, with or without an Xbox Live Gold membership. In fact, in 2014, users logged nearly 8 billion hours globally in apps across Xbox 360 and Xbox One, a 50 percent increase from time spent in 2013.
DFC: Games as a spectator sport have gained a great deal of traction on the PC thanks to eSports and Twitch broadcasting. With Windows 10 Microsoft is even adding a Game DVR for recording gameplay. How do you see this playing out on consoles like the Xbox One? How big is Twitch on Xbox One? Is this a revenue generator for the Xbox business? What plans for Twitch and streaming can Microsoft share?
Mike: We’ve seen a great response to Twitch on Xbox One and we’re happy to offer the best broadcasting and spectating experience available. Since launch, the Xbox One community has watched over 23.3 million hours of Twitch broadcasts, and partner data tells us that from August 2014 to December 11, 2014, more than 433,557 unique broadcasters used Twitch on Xbox One.
DFC: The original Halo blew open the Shooter category on console and having the best video game shooters was what the Xbox 360 was known for. Many see the shooter category declining somewhat in importance. Does Microsoft see it that way and what role do you think will shooters play in driving Xbox One sales and usage?
Mike: Xbox has a long tradition of delivering high-quality, award-winning shooters, and we’re excited to see the genre continue to thrive on our platform. Our mission is to deliver the best, most diverse lineup of games, and we’ll continue to invest in a multitude of different genres, including shooters. Games like Halo: The Master Chief Collection, Titanfall, Call of Duty: Advanced Warfare, Far Cry 4 and Destiny were all critically and commercially successful last year, as were brand-new types of shooters like Insomniac Games’ critically-acclaimed new IP, Sunset Overdrive. Looking ahead, games like Halo 5: Guardians, and Battlefield Hardline will continue to engage gamers on Xbox One, and we’re also making long-term investments in exclusive franchises like Gears of War, which we formally acquired from Epic Games last year. In sum, the future of shooters on Xbox is bright and we’re excited to share more about our plans in the coming months.
DFC: It is becoming harder to get and maintain third-party exclusives. For example, Titanfall, a major Xbox One exclusive looks like it will come to PlayStation. What role will exclusives play in driving sales in the months ahead? How does the Xbox One fare with exclusives going forward?
Mike: Exclusive games content will continue to be an important part of our business. We’re committed to making sure the Xbox platform is the best place to play games and will continue to seek out opportunities to bring the best games and content. With titles like Halo 5: Guardians, Forza Motorsport 6, Quantum Break and Rise of the Tomb Raider among others launching exclusively on Xbox in 2015 we’re very excited about the role that exclusive games will play for Xbox One. They have historically driven system adoption, and we look to see that this year too.
DFC: Game console systems have become incredibly complex. It used to be a kid as young as five could plug in a console, insert the game and play with no help from mom or dad. Now they are incredibly complex sometimes requiring the level of tinkering normally associated with PC gaming. DFC feels strongly that Microsoft, Sony and even Nintendo all face this issue. Does this not limit the audience for Xbox One and consoles in general? How does this work with the original “one console” strategy that had a mass-market appeal beyond gamers?
Mike: Our goal is to make Xbox One simple and easy to use as a gaming system. Of course, there are other capabilities in the system that people like such as video streaming and live TV, but the core of the system is gaming and we’re working each and every month to ensure that we listen and deliver added simplicity and power on an ongoing basis.
DFC: Digital distribution still seems to have major issues on consoles. Poor downloading speeds and limited storage space in the range of only 500 GB seem to be major roadblocks. There also are infrastructure issues and the potential effects of net neutrality regulation. What metrics can Xbox share about digital sales of AAA (retail) games? How can we get a sense of the penetration of digital AAA games?
Mike: We are proud to give gamers a variety of ways to purchase and experience their games. We do not break out digital or retail games sales data, however. I can tell you we are seeing strong demand for games on the Xbox One platform with Xbox One selling more games throughout both November and December in the U.S. than any other current-generation platform, according to the NPD Group.
DFC: With PlayStation Now, Sony has a major focus on game streaming. With the Windows 10 announcement, Xbox One owners will be able to Stream their gameplay to Windows 10 PCs. Will this only be enabled for PCs in the same physical location as the console?
Mike: With the Xbox app on Windows 10, we are enabling the ability to stream many of your Xbox One games to your Windows 10 PC or tablet. The Xbox app will allow you to establish a connection between your Windows 10 PC and any Xbox One in your home. You can then go into the Xbox app and simply click on the Xbox One game you want to play, choose “Stream from Xbox One” and you will immediately start playing through your home network in your home.
DFC: Will Windows 10 support Xbox One controllers?
Mike: Wireless Xbox One controllers will work with Windows 10 PCs and tablets, and Surface. We’ll deliver a wireless adapter for Windows devices later this year that will let you use current Xbox One controllers and future devices wirelessly on your PC.
DFC: Are there any plans for Xbox 360 streaming to Windows 10?
Mike: We announced game streaming from Xbox One to Windows 10 is enabled for Windows 10 PCs and tablets. We have nothing further to announce right now.
DFC: What about cloud streaming of Xbox games to PCs or televisions?
Mike: We announced game streaming from Xbox One to Windows 10 is enabled for Windows 10 PCs and tablets and is capable on Wi-Fi and wired network connections in your home. We have nothing further to announce at this time.
DFC: During the recent Windows 10 announcement, we saw Fable Legends demonstrated on the PC and the demo featured a co-op session between a PC player and an Xbox One gamer in the same session. What are Microsoft’s plans for the selection of games can we expect to be cross-playable between Xbox One and Windows 10? Fable Legends is a Microsoft published RPG game but what about third-party and more competition oriented games like Call of Duty and Halo?
Mike: Along with Fable Legends, #IDARB, Super Dungeon Bros. and Siege Craft Commander will offer multiplayer between Xbox One and Windows 10 devices. In addition, Minecraft, Shovel Knight, Pinball FX, Unreal Tournament, and Gigantic are being developed for Windows 10.
DFC: What does the Minecraft acquisition say about your Xbox One strategy moving forward? How will you build out the Minecraft franchise specifically, and what other complementary content will be inspired?
Mike: Minecraft fits within our focus to grow our top franchises, diversify our portfolio of games and reach new gamers across multiple platforms. We love Minecraft and saw an opportunity to nurture, grow and make the game more accessible to more people. By partnering with Mojang, Microsoft will help to ensure the longevity of Minecraft and help take the franchise to the next level.
DFC: Independently developed downloadable content seems to be gaining traction with console owners. How are you adapting your Xbox One business model to address this trend: both toward consumers and developers?
Mike: In August 2013, we announced the Independent Developers @ Xbox (ID@Xbox), a program that enables qualified game developers to build, publish and make their games available digitally on Xbox One. We’re really excited about the content ID@Xbox game developers are creating for Xbox One and are actively working with developers around the world to bring their games to life. We’ve received positive feedback from the community with hundreds of studios and thousands of developers creating games for Xbox One, such as Strike Suit Zero, Nutjitsu, Super Time Force and Worms Battleground.
DFC: How big a sales draw was the special-edition differently colored consoles such as Sunset Overdrive during the holidays? 
What do you think is the demand for white or other alternative colors and how best can you address that demand in the future?
Mike: During the holidays, we saw a great response to our special edition bundle offerings as well as our limited-time price promotions. We are always on the look out for opportunities to offer more choice and flexibility to our customer, like the limited-time bundle offerings. We’ll continue to explore bundles in the future but we have nothing else to announce at this time.
–Jeremy Miller
