Nobody was more surprised by Xbox's fall from grace than Microsoft.
In its first eight years, the Xbox 360 established the company as a powerhouse in the games industry, and one of the best options for streaming apps like Netflix, Hulu, and Pandora. As entertainment trended away from physical media and cable subscriptions, the Xbox 360 felt like a test run for Microsoft's plan to one day control the living room.
With each opulent press conference announcing a new product, Microsoft seemed more confident. When it launched the Kinect motion controller in 2010, Wired called the event "the most lavish product launch" in video game history — complete with Cirque du Soleil performers, an animatronic elephant, and an Xbox orb large enough to crush the front row. By the time the company announced the Xbox 360's successor — Xbox One — three years later, the company was riding a tsunami of success.
In theory, the Xbox One was an improvement on everything fans loved about the Xbox 360: a more powerful Kinect, new hardware that merged the console with your cable box, and lots of talk about the cloud. Microsoft only forgot one thing: the games. During the hour-long kick-off presentation, six minutes were allotted to new game announcements.
Fans felt betrayed and poured their fury into forums and game blogs; critics dubbed the event a disaster.
Leadership tried to pivot, using subsequent press events to announce the return of beloved franchises like Halo and Killer Instinct. But the messaging remained muddied and unfocused, requiring constant backpedaling. Because of the Kinect hardware, the Xbox One cost $100 more than its closest competition, Sony's PlayStation 4. When Microsoft finally debuted the system on November 22nd, 2013, it landed with a thud. It's been trailing PlayStation ever since.
Microsoft hasn't abandoned Xbox, though. If anything, it seems to be doubling down by investing hundreds of millions of dollars, and adopting an audacious strategy to turn hundreds of millions of Windows users into Xbox customers. But first, Microsoft has one priority: win gamers back, at all costs.
Shannon Loftis, general manager of Microsoft Studios
"This year really felt like I came home," says Shannon Loftis. As general manager of Microsoft Studios, Loftis is in charge of producing the next crop of Microsoft video games.
Employees talk about Loftis the way soldiers brag about a takes-no-shit commander
We're sitting in a break area on the third floor of Xbox's headquarters in Redmond, Washington. A life-sized Halo statue, guns ready, stands in the lobby beneath us. It's mid-morning and quiet: a couple dozen employees pass by, but all you hear is the mechanical clack of the coffee machines and the dull pop of a virtual grenade detonating in a testing room a few doors down.
In an industry dominated by men wearing ratty graphic tees and sneakers, Loftis is chic and professional. She embodies confidence. Xbox employees talk about Loftis the way soldiers brag about a takes-no-shit commander. She has a reputation for being fierce and protective, demanding a threshold of quality and timeliness, but shielding studios from forces that threaten to impugn creativity.
A 22-year Microsoft veteran, Loftis has seen the company through good and bad, multiple times through. She was there in the late 1990s when Microsoft used games to entice home computer owners to Windows. In the early 2000s, she produced games for the original Xbox, and was involved in that console's efforts to connect console gamers via the internet for the first time. She oversaw European game development for Xbox 360, including beloved brands like Crackdown and Fable. And when Microsoft began work on the Kinect motion controller, Loftis headed an internal studio that produced a batch of games and core tech. Most recently, Loftis served as general manager of Xbox Entertainment Studios, a defunct group assembled around the Xbox One launch to produce documentaries, films, and television shows around gaming franchises.
Today, Loftis, like Microsoft at large, is refocusing on producing games — a large part of her job is finding the developers to create Microsoft's next big franchises.
Not every game made by Microsoft is made by Microsoft. Instead of producing games entirely in-house (see Nintendo's Super Mario Bros.) or banking on third-party providers (like Activision's Call of Duty), Microsoft often relies on what some have come to call "second-party" partnerships — deep collaborations between console makers and outside studios. It's a win-win relationship: Microsoft Studios taps ready-made, talented teams of developers, and developers get financing, marketing, and support from Microsoft's internal team of producers and engineers.
Both parties walk away with big credits under their belt and bags of cash
The approach has proved remarkably successful: Dance Central; State of Decay; and Gears of War, one of Xbox's biggest franchises, began as second-party games. Both parties walk away with big credits under their belt and bags of cash in their bank accounts.
To revive Xbox, Microsoft needs to land the next big franchise. To do that, the company must persuade game developers — with all of their talent and experience — to collaborate with them. And to do that, outside developers and potential second-party partners must believe in Microsoft.
That's why Loftis' first action as general manager of Microsoft Studios was so crucial: she immediately consolidated the small groups that made up the organization into a single entity, streamlining workflow.
"I see our primary role really as being the proof point," Loftis says. "We prove to gamers why it's worth playing on the Microsoft platforms. We prove to game developers why it's worth [making games for our platform]."
Collaborating with Microsoft Studios needed to be faster, easier, and better. The company's future depended on it.
A screenshot from Quantum Break
Microsoft is betting big on three properties for 2016: ReCore, Crackdown 3, and Quantum Break. All three began under previous leadership and company battle plans; none has felt the changes of the last few years more acutely than Quantum Break.
A third-person shooter, Quantum Break puts players in the snazzy dress shoes of Jack Joyce, one of two people given unique time-warping abilities during an experiment gone sideways at a fictional, MIT-like university. As time collapses around him, Joyce must use his powers to stop the malevolent Paul Serene, a man who can see into the future.
The story lives in a high-brow, low-brow greyzone, somewhere between the films of Christopher Nolan and Roland Emmerich. Judging from teasers, it could break in either direction, but there's no denying the sheer awesomeness of every raw gameplay demonstration. In a demo screened last year, a humongous boat crashes into a bridge, and time stops as the hero leaps across pieces of debris to safety.
Gameplay from Quantum Break's demonstration at Gamescom 2015
But behind the scenes, Quantum Break has had a bumpy road.
One of the two new games announced at the Xbox One reveal in 2013, Quantum Break was initially a poster child for Microsoft's push to make the Xbox a multimedia convergence point. Streaming television and playing games wouldn't just happen in separate, discrete apps. In games like Quantum Break, they'd blend together. In Quantum Break, the third-person shooter would be intercut with a live-action video from the villain's point of view.
That means the team behind Quantum Break had to learn the ins and outs of TV production with help of teams in Los Angeles and Redmond, thousands of miles from the developer's office in Espoo, Finland.
Quantum Break includes a television show — four episodes, 20 minutes long
Then in 2014, Microsoft shifted gears. Microsoft Entertainment Studios was shuttered, and the Kinect was no longer automatically bundled with Xbox One. Quantum Break creative director Sam Lake compares the iterative process of the console's development to that of making a game.
"Step by step," Lake says, "certain things that had been more important [for Xbox One] became less important, where others turned out bigger than in the original plan." He says at times Microsoft's adjustments affected the "kind of important and strategic benefits of certain features in the game."
Quantum Break still includes a television show — four episodes, 20 minutes long, complemented by some shorter cut scenes — but much of its marketing has emphasized its place in the shooter genre. Players will even have the option to skip the TV episodes altogether.
Lake sounds happy with where the project ultimately landed: at its core, it's always been a traditional third-person shooter. "First and foremost, it's this big, story-driven, cinematic action game," says Lake. "It is a core game, in many ways. With some trial and error and experiments along the way. I think that's where Xbox One [as a console] has landed, too — where games matter."
The evening before I meet Loftis, I sat down in a windowless meeting room with Chris Novak, Xbox's design architect. He has two decks for me: a PowerPoint presentation and an actual, physical deck of cards. This, Novak tells me, is the presentation an outside developer gets when Microsoft is considering a partnership for a new game.
Novak is implacable in age, sporting a pressed T-shirt, a leather jacket, and gelled hair. He could be 20 or 50: he has the energy of a teenager with the tenacity of someone who works in an industry where million-dollar projects go belly-up in a month.
"When we have a company meeting, it takes up a stadium."
Novak cues up PowerPoint. "The goal [of this presentation]," Novak explains, "is to get the developer to really understand what we can bring to bear, to help them make the game they've always wanted to do."
The meeting is equal parts sales pitch and bonding exercise. Novak emphasizes Microsoft's sheer scale — "when we have a company meeting, it takes up a stadium" — and stresses that partners get to lean on a 100,000-person-strong tech and entertainment company with competitive knowledge and access to everything from dark fiber networks, to office complexes full of servers, to an extensive user research division that pushes through tens of thousands of people each year. "We are a huge company," he tells prospective developers, "think about how to wield us."
Novak then fans the deck of 100 cards across the table.
Written on each card is a cheeky headline followed by a short blurb. A lot of the cards seem like obvious ideas — "Gameplay – Gameplay is King" — while others point to merchandising campaigns and cross-media productions. A handful of cards are labeled "Showcase" — these represent the most expensive and expansive gambles, the pie-in-the-sky plans Xbox wants to emphasize with its new generation of games and hardware.
Novak asks me for a game idea, and I blurt a series of unrelated words: a massively multiplayer zombie-bunny adventure — like Destiny but cuter.
Unfazed, Novak immediately lifts a card labeled Cloud Computing.
"We have this thing called Azure," Novak says. "It's billions of dollars invested in data centers all around the planet." Novak is off, explaining how cloud computing can enable the zombie-bunny adventure game to rethink the traditional MMO. How would the game look if it had a shelf life of one year, five years, a decade? What is it we really want to do? What is our big ambition?
"Zombie Bunnies is going to solve cancer."
Somehow, we start discussing cancer.
"Our vision is that this solves cancer," says Novak. "Zombie Bunnies is going to solve cancer. Okay great, how can we do that? We need the cloud architecture to not only enable matchmaking in the MMO, but also to do the DNA supercomputing crunching in the background."
Novak doesn't actually believe Xbox or any of its games will solve cancer. What he's really after is the core purpose of a game — any game. Novak wants to know why you want to make a game, and how Xbox can help.
"In my experience," says Novak, "there's a card in here for every team."
On occasion, Microsoft Studios goes directly to a developer with a card in mind.
For instance, Novak says, "we wanted to take billions of dollars of risk in order to make [cloud gaming] happen. But we needed a dance partner to kick those things off at the game level. We were effectively waiting for that person to show up."
That person eventually showed up, and his name was Dave Jones. He is the creative director at Reagent Games, the lead studio developing Crackdown 3.
A screenshot from Crackdown 3
Crackdown 3 is flabbergasting to watch. Players come together to fight crime as well as destroy an entire futuristic city piece by piece, from the newsstands to the skyscrapers. Architecture splits into thousands of brittle pieces, and entire skylines fall in catastrophic domino effect.
But what looks like an explosion-fest from the outside, is, against all odds, an investment in Microsoft's global cloud computing ambitions — for real.
Crackdown 3 is an investment in global cloud computing — for real
Dave Jones is a godfather of the now ubiquitous open-world genre. In 1988, he founded DMA Design — the developer of the first Grand Theft Auto. In 2007, he took the genre online with the original Crackdown. Jones has also co-founded numerous video game developers and tech companies. His latest startup, Cloudgine, intends to improve the responsiveness of cloud computing. If it works, video game developers won't have to rely on customers to buy the latest expensive hardware — instead more and more computing will happen on far away servers.
An early demonstration of the tech shows two identical skyscrapers bursting into pieces: one, running on traditional hardware, slows and stutters until it becomes a glorified slide show. The other, taking advantage of additional cloud computing, runs smoothly as chunks of building break and scatter across the screen.
Because Crackdown 3 doubles as a research and development opportunity, Microsoft is able and willing to toss in its support. When Jones' team needs to better understand cloud infrastructure, Microsoft provides access to data centers. When the Cloudgine team has questions about cloud infrastructure, Microsoft's experts give answers. If Crackdown 3 sets a precedent, Jones tells me, it could revolutionize the entire industry.
And both Xbox One and Microsoft, with years of experience already under its belt, would be positioned to benefit immediately. "Frankly," says Novak, "we are changing the way that [Microsoft cloud computing platform] Azure's functionality works because of his game."
A screenshot from State of Decay
Not every game that comes through Microsoft is a multi-million-dollar gamble spanning multiple studios across the globe, nor is every game expected to reach the masses. At least not at first.
"I actually love this notion of finding seed IPs," says Loftis, "and helping game creators realize their very first vision. The more we can engage with that developer, the more releases we can put into the marketplace, the more likely that it might become one of these franchises."
Loftis points to State of Decay.
Initially released as a downloadable title for Xbox 360 in 2013, the open-world zombie game sold over 250,000 copies in its first 48 hours, and broke the million mark within its first year. The game didn't always run reliably, and bubbled over with bugs. But its core mechanic — the player embodied many survivors, all of whom could die permanently — was fresh to the genre.
"It was very much an experiment," says Loftis. In 2014, Microsoft Studios signed a multi-year, multi-game contract with the studio behind State of Decay, Undead Labs. Loftis would not comment, but rumors around the project describe a substantially larger, more ambitious, and presumably more expensive production for a massively multiplayer online game.
The "seed" model encourages creativity while minimizing financial risk — similar to piloting a TV show before ordering a full series. Downloadable games have no cross-country shipping fees, no disc manufacturing, and no partnerships with any brick-and-mortar storefronts. Thousands of developers have left their jobs at thousand-person studios to make smaller, more personal projects, giving Microsoft a bounty of talent to partner with.
Concept art for ReCore
ReCore is the youngest of Microsoft's big titles for 2016, announced just this summer. If Quantum Break represents Xbox One's early ambitions, and Crackdown points toward the future, ReCore fits snugly within the company's current "games above all else" ethos.
Little is known about the project developed by Armature Studios, an Austin-based developer formed by the heads of the Metroid reboot for Nintendo, and Comcept Inc., an Osaka- and Tokyo-based developer founded by Keiji Inafune (Mega Man, Onimusha, Dead Rising).
Pressed for details, Armature co-founder and game director Mark Pacini humors me:
"ReCore, at its heart, harks back to a different era in gaming."
"ReCore, at its heart, harks back to a different era in gaming," Pacini says, "and trying to put a new spin on it, based on games that myself and Inafune-san have done in the past that aren't really being done anymore." He name-drops games like Metroid and Zelda as possible inspirations.
When Pacini first met with Microsoft to discuss collaboration, he was skeptical. He'd been disappointed by the Xbox One's reveal, particularly the emphasis on film and television, and was unsure he had interest in the console. Big publishers, he explains, also have a stigma of being too controlling, gradually expunging creative freedom from their partners with endless demands.
Microsoft came with a clear idea: a game for gamers. If ReCore really does turn out to be the Metroid / Zelda-like throwback Pacini hints at, then Microsoft will get what it wanted.
Pacini says Microsoft Studios has been involved but not prescriptive, a relationship that benefits from a mutual understanding of what both parties wish to create and an abundance of resources.
Where the development of Quantum Break evolved with the changing strategies and leadership at Xbox and Microsoft Studios, and Crackdown constructed itself around its proprietary technology, Pacini describes a much more streamlined approach for ReCore. That means a pure gaming experience, free of distractions like Kinect and SmartGlass.
The runway's been cleared. We can just concentrate on making a really good game
"Those things just kind of get brought up less often," says Pacini, "and all of a sudden they're never brought up in a conversation anymore, and it has nothing to do with anybody fighting for one thing or another. It's just a natural part of consumers responding to certain things they like or dislike about the hardware."
"It feels like, for us, the runway's been kind of cleared. So we can just concentrate on making a really good game and putting features in that make sense for this game."
Are things easier, I ask, with Xbox's new leadership, like Loftis and Xbox head Phil Spencer?
"With a lot of publishers," Pacini says, "the immediate group that you're working with — the publisher development group — they're always kind of trying to get it past marketing people, past the businessman, past whatever. Our group has to get it past [the team at Microsoft Studio]. That's a huge difference."
This team, Pacini explains, has a history of making games; they know what a successful one looks like.
Back in the quiet corner of Xbox HQ's break area, I have a question for Loftis that is so obvious and so big that I'm a little embarrassed to ask: Why? Why does Microsoft bother making games?
The company makes billions off Windows and enterprise software, and Xbox is a comparably small portion of the profit pie that, as of late, has attracted a good deal of bad attention. Xbox headquarters in the Redmond campus is surrounded by countless other buildings, many larger and with more complex and lucrative-sounding names on their signage.
"I think one of the best reasons for Microsoft to continue to engage in games is just because gamers are also consumers," says Loftis. "That loyalty, the passion that they bring to their gaming and entertainment experiences, the communities that they build."
Loftis offers Kinect as an example. The motion controller began as a peripheral for games on the Xbox 360, but even before Microsoft released an official version for Windows, hackers and do-it-yourselfers began finding other uses for the device, from art installations, to medical applications, to interior design tools.
"These incredible experiences," Loftis says, "were so far beyond anything that anybody that worked in the Kinect program had ever visualized. It created a fly wheel around a creative ecosystem. That's just good for the world. What's good for the world is obviously good for Microsoft."
The hard truth is that Microsoft's renewed focus on Xbox and games and the gamer is bunk if nobody owns the hardware to play them. But the solution isn't and can't be as simple as selling more Xbox Ones.
Microsoft's big mistake with the launch of Xbox One was ignoring how the typical person consumes media. At launch, the hardware brought together our various forms of entertainment on a singular device. You could play a game, have a Skype call, and receive fantasy football stats all at once, and in the same place. This was a Jetsons-like fantasy 15 years ago, in the era of the original Xbox.
In 2015, we expect media to follow us wherever we go
But our media habits are neither as static nor as constrained today as they were in 2001. When we read a Kindle ebook or stream a Netflix show, we may start on a laptop at work, switch to a smartphone for our commute, and finish on a tablet or television at home. In 2015, we expect media to follow us wherever we go.
A little over a year ago, Microsoft acquired Minecraft, along with its developer Mojang, for a reported $2.5 billion. Yes, billion. If you haven't heard of the Lego-like online game in which players construct entire worlds with friends, ask the nearest child or parent. For them, the game is inescapable.
Minecraft has sold over 70 million copies, making it one of Microsoft Studio's most popular brands. The most successful Call of Duty sold 26.5 million copies. The most successful Grand Theft Auto sold 54 million. Minecraft has sold more copies than Halo 1 through 5 combined.
Minecraft's global domination stems from its extreme availability. You can play it on Xbox One, Xbox 360, Windows, and a dozen other platforms, including Microsoft's competitor PlayStation 4, Apple's iOS, Google's Android, and even Amazon's FireTV.
"An acquisition like Minecraft," says Phil Spencer, the head of Xbox, "makes so much sense because Minecraft is so pervasive both as a service, as video, obviously as the game across so many different devices — it really is a manifestation of what I think gaming can be."
You can't help but wonder if Phil Spencer was created in some unmarked moonshot laboratory to be equally palatable to both board members and customers. At public events, the man who oversees the future of Xbox hardware and software wears indie game T-shirts under a blazer. His conversations seamlessly weave between corporate strategy and ornate opinions on forgotten video games of the 1980s.
He also sits on the board of Windows 10.
"It gives me a real good insight into what we're doing with the service and how gaming can show up in Windows itself. I feel good about the early steps there. It opens up a ton of opportunities, I think most importantly for our development partners."
In the months after Minecraft's acquisition, the company has begun merging Xbox and Windows, not in half steps, but leaps.
Microsoft has begun merging Xbox and Windows, not in half steps, but leaps
A new Xbox app for Windows 10 lets Xbox One owners stream their games onto their computers, allowing them to play in a different room. Features like messaging, voice chat, and activity feeds are included. It's a work in progress, Spencer says, with plenty of additions and updates to come.
Over a billion computers run Windows, and over 100 million devices run Windows 10. They're about the only numbers in software that dwarf Minecraft's. "As we embrace [Windows users] as an active part of the Xbox community, it opens up opportunities for our first-party games," says Spencer. He calls Xbox's proximity to Windows 10 "beachfront property."
As of its fall 2015 system update, Xbox One now runs on Windows 10. Along with an improved user interface and the option to play over a hundred Xbox 360 games on the hardware, the shift also made the Xbox experience, in the words of my colleague Tom Warren, "so much faster."
Both Spencer and Windows 10 leadership have talked about the streamlining of development the operating system provides, painting a future in which apps created for one Windows 10 device work on all other Windows 10 devices. In April, Microsoft CEO Satya Nadella told investors that Windows 10 "will be a service across an array of devices and will usher in a new era [...] where the mobility of the experience, not the device, is paramount."
The initiative has already begun to seep through Microsoft Studios.
Lionhead Studios, responsible for the Fable series, is developing the next Fable Legends for Xbox One and Windows 10. Rare Ltd. is developing its multiplayer adventure game Sea of Thieves the same way. Core franchises are making their way to PC, too. Albeit slowly. Gears of War: Ultimate Edition, a polished remake of the original, is scheduled for release on Windows 10 in the future.
When I ask why the latest Halo isn't available on Windows 10, the head of 343 Industries and the Halo franchise, Bonnie Ross, points to the headway the franchise has already made away from consoles: Halo mobile games; the Halo Waypoint social platform; and the upcoming Halo Wars 2, a real-time strategy game for both Xbox One and PC.
"It's being deliberate," says Ross. "So yes. We will, of course, play a critical role [on Windows 10], as I think that we're an important IP for the company. It's doing the right thing at the right time."
If and when the time comes for new Halo games to appear on Windows 10, the thinning line between console and computer will have all but disappeared.
If the Xbox One launched with a catastrophic lack of focus on games, it's fair to ask whether this Windows 10 strategy doesn't also presage yet more problems, another move to minimize console systems.
"I love that console experience," says Spencer. "It's obviously the core of what Xbox is about, and Xbox One is our most important gaming device inside the company. There's no doubt about that. We also know there are millions and millions of gamers who access Microsoft [in other ways,] whether it's Windows, their phone, Skype — it could be many different things every day."
Loftis wants to make gaming "more inclusive across the board."
"As head of gaming inside of Microsoft, I think about how we make sure that all of those customers feel as supported and engaged as the Xbox fans do who own a game console."
Loftis describes the expansion as broadening their demographics and making gaming "more inclusive across the board."
"Most of the games that we've announced," says Loftis, "and that we've talked about so far are obviously very controller-centric," says Loftis, "but believe me we are exploring as many ways to make all of our experiences relevant across all of our platforms as we possibly can."
As televisions, computers, and smart devices become the all-in-one-devices that seek to displace consoles, does Xbox just become an app or a storefront or a brand?
"No," Spencer says, "I fully expect that you'll see another console from us [...] Our best customers are Xbox console customers, and I want to keep those people engaged both on the Xbox One and anything we might do in the future. I'm 100 percent committed to that."
"I don't want to dilute what the Xbox console customer feels," says Spencer. "I want to expand what we're able to do for more customers."
Before we wrap our interview, I ask Loftis about making games in the pre-Xbox era.
"We were a little bit of a renegade group," she says, "making games back in the mid-'90s for Windows. In those days Microsoft was aware that Windows was a huge phenomenon but that in order to keep Windows relevant we needed to make sure that we were continually pleasing consumers. Not just back offices, but to have Windows at home as well."
"That was really our initial purpose. There was this emerging thing called gaming at home — let's latch onto that and see what we can do."
Two decades, multiple leadership shuffles, and billions of dollars later, Microsoft's original game plan comes full circle with a twist: court gamers, regardless of where one finds them. Windows or Xbox, work or home, somewhere in between. Wherever you go, there Microsoft is.
A couple weeks after my visit to Redmond, Shannon Loftis got another promotion. Though technically her title remains the same, she now shares control of Microsoft Studios with Hanno Lemke, the general manager of Microsoft Studios in Europe — the same studio where Spencer and Loftis first worked together. Loftis now has even more say over bigger games.
Loftis will also become a public face for the company. In years past, former Microsoft Studios VP Kudo Tsunoda and Spencer made appearances on stage at Xbox's biggest and most lavish events. Now Loftis will get her chance. Maybe she will bring back the swagger and spectacle of the past.
You can imagine it now:
Loftis is lowered to the stage on a literal Xbox-shaped cloud. She steps up to the podium, and with a confident grin, proudly announces the latest entry in a property she nurtured from a small downloadable game to AAA blockbusters.
"You can play it this fall," she'll say, "on Xbox One and all Windows 10 devices."
Correction: a previous version of this article stated that Gears of War: Ultimate Edition was scheduled for release on Windows 10 this holiday season. The article has been amended to reflect that the game's release is scheduled for an unannounced future date.
Edited by Dieter Bohn, Michael Zelenko