AAA Publishers Are Stuck 'Milking' Franchises Created Over Decade Ago: Phil Spencer's Leaked Email

A leaked email from March 2020 by Microsoft Gaming CEO Phil Spencer sheds light on the challenges faced by AAA game publishers in the ever-evolving gaming industry.

In the email, revealed as part of a Federal Trade Commission (FTC) lawsuit, Spencer addressed Microsoft Corporation's MSFT CEO Satya Nadella, CFO Amy Hood, then-executive business VP Peggy Johnson, and head of marketing Chris Capossela.

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Spencer discussed the disruption caused by digital storefronts like Steam and subscription platforms like Xbox Game Pass, as reported by Kotaku.

He noted: "The AAA publishers did not find a way to leverage the moat that physical retail created in the digital realm in a way that had them continue their dominance of the game marketplace."

AAA publishers initially relied on large-scale production to maintain their dominance but struggled to create new intellectual property (IP). "The issue these publishers have run into is these same production scale/cost approach hurts their ability to create new IP. The hurdle rate on new IP at these high production levels have led to risk aversion by big publishers on new IP."

Spencer pointed out that the most successful franchises today, such as Fortnite and Minecraft, were created by independent studios with easy access to distribution. He emphasized the importance of adapting to new paradigms in the industry.

"Overall this, in my opinion, is a good thing for the industry but does put AAA publishers in a precarious spot moving forward. AAA publishers are milking their top franchises but struggling to refill their portfolio of hit franchises, most AAA publishers are riding the success of franchises created 10+ years ago," the executive diagnosed.

Microsoft's response to these challenges is Xbox Game Pass. "Our goal is to find a way to both grow our subscription (which is our new platform) and help the AAA publishers build towards a successful future," Spencer wrote.

In recent years, AAA publishers like Take-Two Interactive Software Inc TTWO, Ubisoft Entertainment SA UBSFF, and Electronic Arts Inc EA have collaborated with Game Pass, and Microsoft has made strategic acquisitions, including ZeniMax and potentially Activision Blizzard Inc ATVI.

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Image credits: Miguel Lagoa on Shutterstock and photo courtesy eVRydayVR on Flickr.