Xbox Boss Phil Spencer Talks About Microsoft’s Mixed-Reality Future

Take the short view and Microsoft’s annual E3 showcase was a classic power play. The company unveiled its long-anticipated Xbox One X, a kind of console supercomputer capable of rendering native 4K visuals at higher, stabler frame rates than Sony’s own boutique PS4 Pro.

But consider the longer view, as Xbox honcho Phil Spencer must, and what it means to play games becomes a much stranger jumble of iterative concepts, a spiraling helix of creative and commerce driven forces rapidly converging on the dissolution of the borderlands between what we define as real and imagined.

TIME spoke with Spencer about the company’s current and future plans, including backward compatibility (the company announced Xbox original games coming soon to all Xbox One devices), the criticality of Xbox Live (its online games service) and finally the timescale for general consumer adoption of mixed reality products. Here’s what he told us.

Xbox One S and Xbox One X are the ‘definitive’ platform for Xbox 360 and original Xbox games

“Over half our players have played a backward compatible game,” says Spencer. “We’ve seen things like when [Call of Duty] Black Ops 2 was released as a backward compatible game, it hit top 10 NPD sales, and this is a game that’s five years old. It’s not true of all games of course. I’m not saying every backward compatible game gets played.”

“What I would say, is that on Xbox One S and on Xbox One X, we are applying the performance capability of the hardware to the older games. So without the developer having to touch anything, we’re finding that those games on either Xbox One S or Xbox One X, run at a better frame rate. And frankly due to both TVs today, better black levels and other things, you’re getting a higher fidelity scene.”

“Certain developers then are going back and touching some things. We did that with Phantom Dust and Voodoo Vince. But also the native games will play better. This becomes the definitive platform for those 360 games. They just play better. And we found that with the original Xbox games the same thing is true. We wrote the emulator in such a way that it takes advantage of the new capabilities of the hardware. So if the older game was having frame rate issues or other things, it will actually run better on today’s console.”

‘It’s important that art media lives with us’

“The other thing that’s important to me on backward compatibility isn’t [Sony global sales chief] Jim Ryan’s comment on how things look. And I’ve said this before but it’s what I believe, I look at video games as an art form,” says Spencer. “I’ll go back and I’ll watch Gone with the Wind, Citizen Kane, I’ll read The Lord of the Rings, I’ll listen to early Rolling Stones or Zeppelin albums. I think it’s important that art media lives with us, and we learn from it, and I think games are the same. Not every game, just like not every album, is a perfect work of art. But the fact that these games are still playable and are foundational to a lot of what we play today I think is a good thing for us to keep close as an industry and to learn from.”

“Things like Tetris. Should people be able to play Tetris? Absolutely. These was something kind of magical about what that was, and people still play that game. Minecraft was first launched in 2009 and here we are eight years later and it’s bigger than it’s ever been. I don’t think it’s a good thing when games become unplayable for technical reasons. It doesn’t mean everybody should go back and play every game, but I want those games to be accessible. And it’s great that through Xbox One S and Xbox One X and our backward compatibility these consoles are turning out to be the best place to play these things.”

“A good friend of mine Ed Fries [former Microsoft vice president of game publishing] who used to run Xbox is doing this with arcades. These old arcade consoles, obviously when they break they break, and how do you go back and play Robotron? How do you go back and play those games? And he’s buying consoles and putting them back together. You mentioned Criterion before, and I think movies are perfect. I mean, colorization of movies I don’t necessarily think is preservation, because that’s changing them. But if you’ve got 16-by-9, if you can clean up the color so people can see things, I think those are great additions, so I’m a big believer in it.”

Minecraft should always optionally look like Minecraft

“I was a big part of the push to go and buy Minecraft,” says Spencer. “And as a father, when I think about the early interest in kids for technology, and STEM, and we’ve added coding capability to Minecraft, I think the creation capability — now we’re adding collaborative sharing through cross-play across all the different platforms — I think it’s a good mix of competition and cooperation. I’m a big fan of the Lego company and the stuff they’ve been able to build, and I see that as the closest analogy. For 40 years Legos have been around, and they’re as relevant today as when they began.”

“We’re the curators of Minecraft, and the community owns Minecraft, so our job is to curate it in a thoughtful and deliberate way. The education stuff is important, I love that we’re able to show the Super Duper Graphics Pack and the 4K work I thought looked fantastic. But for a lot of people they’re going to want Minecraft the way Minecraft has always looked, and we made sure Minecraft should stay looking the way it is for the people that want that.”

‘Xbox Live is the most critical asset we have’

“I’ve been at Microsoft for 29 years, I’ve seen the growth in this company, and I know that Microsoft looks at opportunities that are scalable and important,” says Spencer. “Console is part of the opportunity in gaming that we see in Xbox. It is also not the whole opportunity. There’s a billion gamers on the planet, over $100 billion in the business. You have people playing on mobile, on PC, on console, virtual reality. Mixed reality is still small in terms of engagement but there are new opportunities. And gaming is critically important to the company because of the engagement. Gamers there are voraciously playing content. They’re early adopters of new technology, which I think is a really interesting thing for Microsoft to have in our back pocket, as we think about going to new places, the fact that Xbox can help and Minecraft can help.”

“So when I think about our strengths in gaming, today the Xbox brand is iconic with console gaming. We are also Windows, as Microsoft, so we’ve placed a big focus on Windows gaming and that’s a large addressable market that we haven’t really played in that we’re expanding in. I see Xbox Live from a platform perspective as the most critical asset we have. Xbox Live is on iOS, it’s on Android, we talked about cross-play with Switch, and it’s obviously on PC and Xbox.”

‘The best console gamers are the best gamers across every device’

“When we think about the console space, it’s not the largest segment in gaming by far, but it is a critical customer segment that’s really important, and they love their games,” says Spencer. “And the best console gamers are the best gamers across every device, which not everybody sees, but we see it in the data. So if you’re a great console gamer, you’re probably playing a lot of PC games, you’re probably playing a lot of games on your mobile device, you’re just a gamer and you want to play on every device.”

‘We are going to sell way more S’s than we will X’s next year’

“The reason Xbox One X was important to us is that we know for that most discerning customer, they want the highest fidelity experience they can get. We are going to sell way more S’s than we will X’s next year. Price point will dictate that. But it doesn’t mean in terms of hours of play, game purchases, the kind of viral network that a person has with their friends and their streaming community…this is a critical customer for us to retain and grow. But nobody should think that of the billion gamers on the planet, that most of those people are going to buy an Xbox One X. That’s not the goal and has never been the goal. We’ve always said it’s a premium console.”

“Xbox One S in the console space will be our value product. It’s great, it’s got Blu-Ray, 4K upscale, it’s got HDR. We’ve got millions of people who come into Xbox Live via Android, they don’t own any of our devices and they come in. We’ve got a lot of people who come in through Windows, millions of people. It’s why on a quarterly basis now Microsoft talks about Xbox Live MAU [monthly active users] as our gaming metric. We don’t talk about console sales. Obviously consoles are part of driving MAU. But our monthly active user base on our network is the strategic asset that we’re trying to grow across all devices, whether it’s mixed reality, your iPhone or someone playing on an Xbox.”

The timescale on consumer mixed reality is 5 to 10 years

“I think we’re 5 to 10 years away from a true untethered device that’s at a consumer price point that has the fidelity of experience and the kind of ease of use that you need to get to scale,” says Spencer. “You can look at the cellphone transition from the Gordon Gekko I’m holding a shoebox on the side of my head in Wall Street, to what you have in your hand now. If you actually look at the timeline of that, it’s years. People think it happened overnight but it didn’t.”

“I love that we did HoloLens, not because I think everybody should go buy a $3,000 HoloLens. It wasn’t made for everybody, we’ve said that, it’s a developer kit. Now we’re doing kind of the other end with Windows Mixed Reality and $299 with OEM partners. But even then, with all these cables hanging off the back of your head, especially in a family room environment, that’s hard.”

“I love the work that Sony’s doing in this space, we’ve been great collaborators working and sharing. We’ve had them up to see the HoloLens stuff, and they’ve been giving us demos. I think about HTC and Oculus. The community is way more cooperative than competitive, because we all realize we’re at the starting line, when the finish line you can’t even see. I think to get to real scale here, we’re in that 5 to 10 year horizon to get to untethered, things that happen that I don’t feel like I have a helmet on. But we have to go through the transitions. Nobody can fast forward, because we’re going to learn both from a creative ‘What do you put on the screen?’ as well as from hardware innovations in battery and other things that will be important. Console maybe has a role to play, but the engagement we’ve seen on the Windows side has been fantastic, and I think it’s been the best accelerant for us.”

‘I’m a big believer in a metaverse future’

“Working at a company like Microsoft with Harry Shum [Executive Vice President of Artificial Intelligence & Research at Microsoft] and his A.I. organization, you know, it’s not a complete anomaly that Cortana [Microsoft’s intelligent personal assistant] is called Cortana, a character from Halo,” says Spencer. “Gaming audiences are early adopters of new technologies, whether it’s physics or rendering, A.I. in games or 3D, gaming has always been an early consumer of these technologies because gamers want these things. We’re going to continue to be a player there.”

“I work a lot with [Microsoft technical fellow] Alex Kipman and Harry Shum in thinking about how gaming in this space comes together. I’m a big believer in a metaverse future, where the volumetric world mixed with something like Xbox Live with A.I. components around you, avatars and some of them real world, that’s what we’re really talking about. When we talk about that 5 year future, I think that is the space that we have to land, where everything I interact with from creatures to people to the objects around me, the world blends between real and physical and virtual, and the characters and A.I. capability do the same.”

“Our longer term incubations that are literally happening right now are all in this space of ‘What does Xbox Live next look like? What does this kind of metaverse or mixed-reality construct feel like? And what does it means when these things come together?’ Ready Player One is a kind of cheesy version of that.” [Spencer headlined Microsoft’s E3 showcase wearing a black teeshirt with the image of an Xbox gamepad captioned ‘Player (1)’.]

“But in our future roadmap, I think multiple years out, it’s a big area of investment for us. And I love that game creators as well as game players can play such an important role here. But it’s the same with desk-less workers or a worker who’s out in the field. [Microsoft corporate vice president and former Kinect creative director] Kudo Tsunoda is doing a lot of work there. It’s something Microsoft should be involved in. It’s at the same scale as Azure [Microsoft’s cloud computing platform] and everything else, like machine learning, that we have going on. And it’s absolutely why I wore the shirt I wore onstage.”