1: I talk to you about my own sort of fear of kids playing too much at a friend. I try to think of it like he's it's like a

8: painting. Yeah like show it. Ask him to show it to you. Like the same way you would treat a painting. I want to see what you

13: mean. Yes that's right. So make it a family. Do you have kids. I have two daughters. Do they play. Yeah. They're older now but

21: they. Not a lot because I'm growing up. I think it was always the thing that dad did.

36: He's in charge of one of the top gaming consoles in the world. Microsoft X Box. A 16 billion dollar business. Home to

44: Minecraft. Halo. Sonic and perhaps soon. Call of Duty. If a 70 billion dollar deal to buy Activision goes through the

55: executive behind that deal is Phil Spencer. And if he has his way he hopes the gaming industry will level up in the next 20

62: years and be less a battle between rival consoles and more home to platforms that reach every potential gamer on the planet.

70: Joining me on this edition of Bloomberg Studio 1.0 Microsoft Gaming CEO Phil Spencer.

79: So we're going to start by going in the way back machine a little bit. I did some research. You worked at a computer mart

87: in Vancouver Washington where you were selling and playing a lot of computer games in the 80s. Yeah I'm thinking like stranger

96: things. Stranger things resonates with me. Yeah definitely. Growing up my inner geek Tim is there. I'm gonna need some

103: photographic evidence of this. What were your most played games in the 80s.

109: So it's funny. When I started growing up playing video games most of it was go into the arcades. Now most people don't

115: remember these days of like going to a store where you'd put quarters in play. Robot Tron was one of my favorites in their

121: case. I would go play that and then probably more in the 70s. In the 80s. I remember my dad bringing a video game the Atari 2600

130: with the cartridges home and I was kind of the beginning of it and I just kept playing and it's still with me. You started out

138: at Microsoft as an intern in 1988. How would you compare Microsoft's history on games under Bill Gates vs. Steve Ballmer

146: versus Satya Nadella. Yeah I think like many things at Microsoft back in the 80s we

154: started in video games as much out of kind of defensive. We were worried that other companies might be putting the whole P.C. in

162: place and the avenue to get there was through video games and game consoles. So we say okay we're going to go start our own

168: game console because if anybody is going to build a computer for the home we wanted it to be Microsoft. I think through Steve's

173: years it was more about growing the business and how do we bring kind of business leadership into this group of ragtag people who

180: were out there just having fun building video games as part of X Box. I think with Satya when I first took this job and I got

187: this job as head of X Box about two months after Satya Nadella became the CEO of Microsoft. Well I when I just started there

195: were activist investors targeting the company. Yes. Stock hadn't been doing well. They were targeting X Box. Absolutely. Yeah. At

202: the time absolutely right. That there was a question of why are we in

206: video games. In fact one of his first questions to me was because he had come from the cloud part of the business. Being

212: in the cloud was he didn't actually understand why we're in video games not as a negative just as literally the wires. Why

219: is Microsoft this at the time what one trillion dollar market cap company. Why are we in the videogame business. And he he

224: challenged us like let's go figure out why we're in the videogame space and see if it makes sense. And if it does let's

231: be all in. And if it doesn't we'd make other decisions early in that journey is when this game which I know you know about is

239: Minecraft and the opportunity to acquire Minecraft came about like months after this moment. So I might have it catered to

245: that as Minecraft. And it really caused us as a team to think about OK if you're going to go spend two and a half billion

252: dollars on this blocky Java based game how does this fit into the mission of this company. Let's talk

258: about that strategy. Was the idea to tie gaming to the cloud. Was that the clincher. If you think about a game like Minecraft

264: or fortnight or roadblocks these are games that play on iPads. They play on X boxes PlayStation pieces. That games were going

272: from per device to per user. And Cloud would be an enabler for that. But we didn't start with how do we fit cloud into video

279: games. We were just kind of watching the trends of creators and where they were building and saw this transformation of games

287: being ubiquitous. How does this all as you see it connect to Microsoft's future. The cool thing I see going on now and it

295: does fit with the investments Microsoft making in Azure and other places is today the world. Anybody is a creator and video

302: games are going through that same transformation where if I rewind to my childhood and playing video games I walked into

309: like an egghead software and there was a line of boxes. We might go create the best game in the world but there was no way for us

315: to get it in front of an actual person who might want to go play because we couldn't get shelf space. All these things today we

321: see gamers on our creators on our platform from all over the globe who can create a game that can literally reach billions of

330: people through our distribution capability to a player. A game is a game and you can deliver that game through the cloud to

337: anybody who has a device that's capable of reaching the Internet. I hear you're still an avid gamer. How often do you

344: play games. Like how many hours. I go to bed early. So I go to bed at 10 in Seattle at

600: . People who play with me online

350: they tease me about how militant I am at

600: . I'm out. I probably play 15 hours a week. As I understand it you do your

360: own deals. You don't necessarily need permission from Snapchat to do a deal. Is that true. No there's

367: there's definitely. It depends on the amount of the money in the deal. But when we think about some of our bigger deals we go to

373: the board. And so Satya Nadella Amy Hood the CFO have been incredibly supportive as X Box one of the biggest consumer

381: businesses in the company. We're a brand that makes Microsoft relevant to a whole generation that probably doesn't think about

388: a lot of other Microsoft products in their day to day life. Activision specifically is facing a lot of challenges here.

397: There have been lawsuits there have been employee walkouts. How much did that concern you when your thinking about this deal.

410: Well you're in the process of a potentially monster deal 70 billion dollar acquisition of Activision. Talk to us about how

418: this deal came together when we were thinking about on that idea of what are we capable

425: of doing today. And where do we need to go. The biggest gaming platform on the planet is mobile phones.

434: One and a half billion people play on mobile phones. And I guess regretfully as Microsoft it's not a place we have a native

441: platform as gaming. Coming from console and P.C. we don't have a lot of creative capability that has Bill hit mobile games. One

450: thing about the videogame space is if you've been around maybe too long you know most of the creators out there. So you kind of

458: know teams that could be a good fit in terms of what we were trying to do. But we really started the discussions internally

465: at least on Activision Blizzard around the capability they had on mobile and then P.C. with Blizzard. Those are the two things

472: that were really driving our interest. Big tech is under a lot of regulatory scrutiny. Big tech deals are under scrutiny.

479: What's the status of the deal. What have your conversations with regulators been like. You know I kind of come at this that big

486: deals should be scrutinized. I think that's the role of regulators why they're in place. I feel good about the progress

493: that we've been making asking good hard questions about OK what is our intent. What does this mean. If you play it out over five

502: years is this constricting the market. I feel good about it. Microsoft had its time in the antitrust spotlight. Now the

508: spotlight's on Google and Metta and Apple and Amazon. How is it that Microsoft has skirted the spotlight. Your competitors might

518: say it's unfair. Well I think your point about us having grown through that time

526: I might call that the adolescent years for us as we were kind of learning. I think is an important consideration that we did

532: learn a lot as a company through that time and what it meant. And I think that sticks with us today. You've been a really big

539: advocate across that platform play and this idea that gamers should be allowed to play whatever games they want on whatever

545: platform they want. Why is that so important to you. Maybe you happen in your household to buy an X box and I buy a PlayStation

552: and our kids want to play together and they can't because we bought the wrong piece of plastic to plug into our television.

558: It just seems that these artificial constraints that the industry might put up for near-term kind of business dynamics in

566: the long run if you take a business that is at 3 billion people growing to 4 billion people over the next decade and saying how

573: do we continue to grow this business reducing friction for our customers have as an industry has to be at the top. So how far

580: does this go. Does this mean that Activision gave that call of duty. You'll be able to play on any platform in perpetuity. I

586: don't know what that means. And forever like when you think about how long and it's not for any kind of nefarious business

591: reason it's just like what are we even platforms mean 10 years ago. Like I think the definition of some of these things might

596: change over time but our expectation is we want more people to play. So I know you're working with Sony on some things for the

604: benefit of gamers. Can you talk to us about that a little bit. We have a pretty big publishing footprint on PlayStation as well

611: as Nintendo which means we have good relationships with those platforms because we're there a big part of our business and

617: we're a big part of their business. I think our long term ambition of where we see this industry growing is also shared. I

624: think the area where if things get stuck a little bit it's in the kind of near or mid-term competition. If somebody walks into

632: a store and they have one five hundred dollar bill they're either gonna walk out with a switch which is what most people

639: buy or they're going to walk out with a PlayStation 5 or they're going to walk out with an X box or maybe somebody go buy a

644: gaming windows P.C.. But in that world of somebody who's got to make a decision for one platform over another in the beginning

652: that is where I think we get stuck in some of the kind of near-term competition. I don't think that's bad. It's just the

658: dynamic of each of us pushing each other to build the best product for our customers. Now while you've been working to make

664: the gaming industry more collaborative the gaming industry has historically been tough for women for diverse voices. When you

672: look back on GamerGate do you think you did enough. I can always look back at any

677: incident for me and think about things that in hindsight I should have done more. I should have done better. I'm proud of

682: how our team evolves how our leadership team evolves out there societal issues around us. The gaming industry is not kind of

689: immune to those people. In my position. Sitting here is kind of old white guy as head of gaming platforms not in a more the norm

696: than I should be. And I talk about three billion people who play video games. And if you say your cousin your audience is 3

702: billion people then the demographic is the planet's demographic. I want our team to reflect the customer that we aspire to earn.

710: I know that our teams ship their culture with every product they ship. Well Activision specifically is facing a lot of challenges

718: here. There have been lawsuits. There have been employee walkouts. There have been accusations of sexual harassment

724: sexual assault. How much did that concern you when you're thinking about this deal. We had access to data from the company

731: before we we announced the acquisition to see what the actual numbers were in terms of reports.

738: We definitely as a team signed up to say just like we're on our own journey with X Box that we're going to expand that journey

744: if this deal closes. It's a lot of people and a lot of people that will feel very dedicated to and committed to to building a

750: great workplace environment for them. That's true of any of our studios. Right. But it's obviously a conversation that you're

755: going to have. You think about the board of Microsoft and when they're thinking about the deal and they're typing into their

761: search engine Activision what are the headlines that they're coming back. And there were questions that we had. We've learned

767: from this. We will continue to learn and we're committed to that. That journey not only for the betterment of our teams but

773: our customers the creators on our platform. We think it's critical to our business success that we make progress here. Is

779: Bobby Kodak going to stay on. Yeah I'm not in a position to make comments about. Their leadership team were in the regulatory

788: phase and how that will close. Like when the deal closes. Then we have say in how they're managed and how it goes. But until

795: that point them I'm not really in a position to say. There have been very specific allegations of Bobby being aware of things

804: that happened and not reporting it to the board. What has he communicated to you about what he knew what he didn't know. The

811: discussions we've had were about the teams where they're at. Can they make the progress they need to make. Because the closing is

821: a long process. Are they putting in the work that they need to put in to.

828: Move along their journey and I believe they're committed to that. When I look at the work that they're doing now there's

835: always more that can be done. Activision has divisions that are unionizing and I know Microsoft has said they'll recognize that.

841: Yes unions. What does that look like. I've never run an organization that has unions of the sort. But what I can say in

848: working through this is we recognize. Workers needs to feel safe and heard and and compensated.

860: Fairly in order to do great work. So we thought it was important to make a public statement on that front. For workers that are

866: there that are making decisions about their employment and how they want to know what that relationship looks like to

872: understand what it would mean if Microsoft was able to close the deal. When I think about. The environment on any of our teams I

879: build from the perspective of people a building a workplace where people feel like they can do their best work in a

885: sustainable way and they could see this as a long term career for themselves. So if X Box employees decided to unionize with

891: Microsoft's support that we knew we made the public statement that it was it wasn't that it would have a broader impact than

898: just the impact. What would potentially happen on the close of Activision Blizzard.

905: My view on on metaverse is gamers have been in the metaverse for 30 years.

922: So let's talk about some of the broader trends you and I talked a lot during the pandemic gameplay surge. Yeah during the

928: pandemic we were all stuck at home. Has that changed. It has changed. We've seen game play ours come down a bit which I will

936: say I think is a good thing. People should get outside. People should moderate. Long term growth trajectory for the business is

943: incredibly durable and strong. You have adults now that have grown up playing like myself and it's become a more normal part

948: of how people entertain and how family spend time. As the economy has has tightened for consumers as gas prices are

957: higher. People are worried about what what their home economic situation looks like. We're seeing game play. Ours kind of stay

965: strong. I think from a value perspective gaming is a good value for people at a time of kind of economic constriction. People

972: bought Minecraft. They can continue to go play Minecraft. What about supply chain. What challenges are you still seeing. Are

978: all the consoles that you want to have made in time for the holiday is going to be here. I still think demand will outstrip

984: supply for us this holiday. We'll see. When we get into 2023 you'll start to see more. That supply is is catching up with

992: demand and maybe actually see one in the store. When you walk and what's the future of the console. I mean our console is

997: going to be around in 10 years. If even Microsoft is you're sort of deemphasizing. You know I equate in my head gaming on console

1005: the gaming on a television. But absolutely people are playing on more screens. And I think for us as a platform if we don't adopt

1010: that as part of our strategy we're kind of pushing against what our consumer what our customers are asking for. We talked a bit

1016: about kids earlier. And you know as a mom I'm always slightly terrified that my kids are playing too much. Videogames are

1021: ruining their brains. They're gonna be exposed to all this bad stuff. I know it's on the positive side. You're very pro game

1029: for kids. And I wonder I wonder how do you support that as a parent. You know what's best for your kid first. Like I'm not

1037: going to say what's best for any individual's kids. What we can say and the research backs this up that gaming can be a great on

1045: ramp for kids into STEM education as they think about. Well how are these games Bill. I also think the community power of gaming

1053: is something that doesn't get talked about enough. Last night I was playing escape room on X Box with one of my friends. And

1061: while the conversation might start about how are we going to escape from this room then we're talking about his daughter

1067: who's looking at colleges and we just talk about life like people will when they're in the same place. And I think that

1073: ability for gaming whether it's with kids or adults to bring people from different backgrounds different geographies

1079: different socioeconomic different religion different genders together in shared experiences is pretty unique out there. And I

1088: think building those connections that video games can enable. Maybe this is too altruistic. But there aren't enough of those

1095: things in the world today. Which brings me to the metaverse. No obvious Sobchak came on my show. I hope that this is the next

1102: big thing that happens off the mobile Internet. Facebook changed its name to Metta. Some gamers don't even want this whole

1109: metaverse thing. My view on on metaverse is gamers have been in the metaverse for 30 years. When you're playing games if you're

1117: playing a World of Warcraft game you're playing in roadblocks you're playing in a racing game where everybody's in a shared

1125: world. These 3D shared worlds that gamers have been playing in for years and years I think what we've found is there's more

1132: connection. As I was talking about before because we have shared purpose it's not at all surprising to me that gamers might look

1139: at metaverse and think well I don't really get it because we've already I already have an avatar of myself and I can already go

1146: into a shared world and I can already sit there and have voice conversations with people anywhere. But I do think the skills

1153: that we have as game designers and game creators make a ton of sense in a lot of enterprise experiences. And this is why Satya

1161: gets excited about it. What about crypto play to earn is all the rage right now. Plato earned specifically is something I'm

1168: cautious about. It creates a worker force out of players for certain players to kind of monetize now. To be fair for us in

1178: the game in the game industry this has existed for years and years. There have been gold farmers of people who literally just

1184: spend their time doing some menial task in a game to accrue some currency that then they could sell to some other rich player and

1191: for real money so that that person doesn't have to spend their time. But now you find games that are starting to build that

1197: into the economy of the game itself. We made some comments in Minecraft about how we view and FTSE in this space because we

1204: saw people doing things that we thought were exploitive in our product. We said we don't want that. I think sometimes it's it's

1209: hammer looking for a nail when these technologies come up. But the actual human use or player use in our case of these

1215: technologies. I think there could be some interesting things. So let's talk about your priorities. Looking forward you're in the

1221: middle of trying to do this really big deal. Are we going to see you keep doing deals. Are you still on the lookout for new

1229: studios or geographic locations where you want to build out Microsoft's gaming presence. Definitely. On the second part geo

1238: geographic expansion is critically. But we've hired our first people in Nigeria. Now as part of our team we have teams in

1245: India. Teams in South America. When I talk about 3 billion gamers I'll just use Africa for a second like one point two

1252: billion people on the continent. Average age is what 20 or 21. I think it's very very likely that the next big hit games that

1259: we're going to see are not from the traditional locations not from the traditional people. I think that's fantastic. So

1265: geographic expansion is critical. Cloud is important to that as we put our data centers in places. And we can not only

1271: distribute the games but allow creators to use our cloud development platforms to build games without having to have the

1278: local hardware right there in their house or in their office to go build. I think that is important. So we're gonna do a little

1283: rapid fire. OK. What video games are you playing now. Cult of the Lamb. Most important meeting you've ever played a

1290: game and you're trying to get me in trouble. But I've just played a game

1295: in a meeting with such. It's easier on teams calls because they can't see your screen.

1300: You're not with B. I have played games. Satires caught me playing games

1304: before. And yeah I'd say a SWAT team meeting. I plead the fifth. What's your favorite thing to do when you're

1312: not gaming. Of all things snowbird with my family. You have a lot of gaming fans. Who do you fan over. Know one of the things

1320: I love to go do is find a game I've never heard of and go spend time with it and then talk to the creators about I think

1328: creating something. Putting it out there is such a brave thing to do. If you could see any band in their prime. Who would it

1336: be. Wow. So I'm a punk rock fan so I'd probably go back and say like the Ramones best piece of

1347: advice for your 20s when I think about least my career and that's the only lens I have. There have been a number of times

1353: when others have made bets on me that I probably didn't think I was ready for including the job. I mean now and to listen to the

1360: others around you when they are making a bet on you when they're pulling you to go do things at least for me who was probably

1366: reticent maybe a little imposter syndrome kicking in on was I really ready for something. But understand that others around

1373: you when they're encouraging you that they're probably doing it for good reason. How do you balance work life and play. My

1382: little 15 minute commute back and forth is my transition zone of I'm now at work. I'm now at home. I don't have a home office

1390: because when I'm home I'm not a. Work like it's just always been my my thing is that segmentation with my family and what I do it

1398: doesn't mean I've never responded to a male when I'm at home. But I I'm very regimented that way. When Covid happened it

1404: didn't work and it didn't work. Emotionally it didn't work output wise like motivation. And I was pretty transparent about

1412: that with the people around me and how I had to change things. Does that mean you want everyone else to come back to the office

1418: now. People have to work in the way that works for them. What is the gaming industry look like in five years and what does it

1423: look like in 20 years. We're going to see video games really gain their space in telling stories that really change people's

1432: perspective on others lived experience. And I think that's a pretty cool thing. All right. Thank you. Thank you for joining

1439: us.