Nov. 10, 2020

How gaming wins the streaming wars

By some estimates, there will be about 3 billion gamers worldwide by 2023. For comparison, Netflix has 170 million subscribers globally.

It’s clear: Gaming is the streaming wars winner we’re not talking about. In our attention economy, video games have virtually endless potential to keep us enraptured. But the business models and tech standards that have long governed the gaming world are in flux.

Listen to today’s episode with Larry Hryb, Director of Programming for Microsoft’s Xbox Live, for a complete picture of how the gaming space has shifted with its consumers, why competition matters and doesn’t matter, and when next-gen tech will start infiltrating your life, gamer or not.


Kinsey Grant, Morning Brew business editor and podcast host [00:00:06] Hi, everybody, and welcome to Business Casual. It's me, Kinsey Grant, and with the next four words, it is game on. Let's get into it. [sound of a ding]


Kinsey [00:00:16] It's hard to think of almost 40% of the world's population agreeing on anything, but by some estimates, by the year 2023, that's how many people will join the gamer population. That's about 3 billion people. 39% of the world. And an unfathomable well of potential for the gaming industry to make bank. Now, not that it's had trouble thus far. The Brew's Jamie Wilde has reported that this year, gamers will spend some $159.3 billion. And that's a ton of money. But maybe more importantly, that's a ton of time. 


Kinsey [00:00:49] The sheer volume of hours being spent on gaming will undoubtedly impact other sucks on our time, like video streaming, television, social media, and so many more. So today, I want to explore the gaming industry from the inside out. What makes this space tick? How does it compete with other forms of entertainment, and media, and entertainment media? And where is gaming going next as technology changes everything? 


Kinsey [00:01:12] Here to help answer those questions, I am so excited to welcome to Business Casual Larry Hryb, director of programing for the Microsoft Xbox. Larry, welcome to Business Casual. 


Larry Hryb, Director of Programming for Xbox [00:01:23] Hi, Kinsey. Thanks for having me. It's great to see you. And I'm really excited to chat with you today. 


Kinsey [00:01:27] I am excited to have you on the show. You have had an illustrious career in the gaming world. 


Larry [00:01:33] [laughs] Is it over now? [Kinsey laughs] Is that what you're telling me? 


Kinsey [00:01:36] No, this to be continued, right? [laughter] But, you know, so far you've spent many years at Microsoft and within Xbox. You have been a well-known personality in the gaming space yourself. And you're just fun to talk to. We had a fun conversation before this interview, and I copped to not exactly being a gamer myself. 


Kinsey [00:01:54] And that's why I'm so interested in learning about this. I mean, we think about how important this industry is going to be in terms of the time that we spend and how we allocate our time in this attention economy and what comes next. It's obviously huge. And I want to get a better understanding of how it works, because this has sort of been a blind spot for me in terms of my business news coverage, and I'm looking forward to learning more about it. Definitely an influential industry right now. 


Larry [00:02:19] Yeah. Gaming is—you said you're not a gamer, and that's fine. I mean, you're frankly the new audience. We've got, as you alluded to earlier, this massive audience in gaming. And Microsoft has a tremendous pedigree in gaming that is frankly unmatched. If you look over the history of Windows, which is one of Microsoft's primary platforms, millions and billions of people use Windows every day. 


Larry [00:02:44] We came out with a little game called Flight Simulator back in the '80s, so predates a lot of people that may listen to this podcast. And this was when it was just green blips on a screen, and you were trying to look at the Chicago Tower and trying to land. And recently, just about a month ago, we launched the new Flight Simulator, which is high def. 


Larry [00:03:01] So what I'm getting at is Windows as a platform has always really pushed the innovation of gaming, whether it's with our direct technology, whether it's using controllers or flight simulator sticks. Windows has been an entree into gaming for billions of people over the past 30, 40 years. This is tremendous in that we're seeing just this rapid growth. It feels like all of a sudden, you know, it's an overnight success that took to 20 or 30 years. [Kinsey chuckles]


Kinsey [00:03:29] The best overnight successes always take several decades, don't they. But you make a fantastic point here to kick off, is that things have changed tremendously in the gaming space. And the momentum has certainly been very, very strong in recent years. But we are a far cry from that original Flight Simulator sort of gaming space that you are alluding to here. What are some of the biggest changes that you think, in terms of technology or innovation or the kinds of people who are part of this gaming community—what have been the biggest changes in the gaming industry on the whole over the last several decades? 


Larry [00:04:00] Yeah. When you look at a couple of things, one of the main areas that people easily gravitate towards is the graphic fidelity. So I talked about making small blips on the screen. And we all, you know, people that are perhaps a little bit older, remember standing in an arcade and playing with these little eight-bit games. 


Larry [00:04:17] And then over the years, you know, in the '80s, we saw eight-bit kind of give way to 16-bit, 16 to 32. Long story short is bigger numbers tend to be better. But we saw this better resolution and then, so that was kind of fun. And we saw home consoles really kick in and really become their own in the '90s with the Segas, of course Nintendo. And then in the late '90s, we had the PlayStation and of course, Xbox came on the scene in 2001. 


Larry [00:04:42] So we've seen a graphic fidelity kind of increasing and people getting these richer experiences to not only play mobilely—we certainly have a whole other mobile game conversation we can have—but just bringing them to the big screen and having these really amazing experiences. And then over the past 10 or 20 years, since I've been in the industry, it certainly has gone from graphic fidelity, from the SD to the HD era, we saw that in 2005 with the launch of the Xbox 360, and all of a sudden everybody has to get high-def screens. 


Larry [00:05:11] Now we've got high-def screens in our pocket. So what's the next thing? So as we look forward, we're seeing things like the speed of games and speed of loading and all sorts of different things along those lines. 


Kinsey [00:05:23] Yeah, it's so interesting. I think all the time [chuckles] back to middle school and elementary school, and we are constantly told we wouldn't be able to have a calculator in our back pocket. And now we have a calculator, a perfectly fit [chuckles] like gaming device, a translator, whatever you want it to be is right there. [laughs] 


Larry [00:05:41] A mobile communicator, right? 


Kinsey [00:05:41] Right there, yeah. 


Larry [00:05:41] I mean, it's all there in your pocket. It's the future, Kinsey. 


Kinsey [00:05:44] It really is. But this, I think, speaks to how ubiquitous some of these tech evolutions have really, really become. Something like nine in 10 American adults have internet readily available wherever they are. And it certainly hasn't always been the case. But, as we deal with this sort of next wave of tech in the gaming space, I want to talk about cloud computing. 


Larry [00:06:05] Yeah. 


Kinsey [00:06:05] Cloud gaming could be really, really incredible when you think about all of the [chuckles] different ingredients that we need to make the recipe actually come to life—better internet, faster internet, everywhere, [chuckles] 5G maybe. Do you think that there is promise in cloud computing—that instead of just playing on a console and trying to just communicate out of the device with other game players, that it all is in the cloud and it all just kind of exists when we need it and where we need it, wherever that might be. 


Larry [00:06:34] That is certainly where we're going. Microsoft—we talked a little bit about PC gaming and then we have Xbox gaming and now we're kind of moving a lot of the console to the cloud so that you can play your games whenever, wherever you want. We had a beta of xCloud—boy, over a year—and it just recently went into general availability. It's part of our Game Pass Ultimate package, where you can get access to over 100 games and you can stream them wherever you are, whether you're on a console. 


Larry [00:06:58] But that's exactly right. I mean, the head of Xbox, Phil Spencer, has this vision for us in the gaming division, which is 2 billion gamers. We want to get 2 billion gamers on. And what's the best way to do that? You can certainly have them buy another console. And we love people that buy our consoles for local high-fidelity experience. But at the end of the day, people that have phones—they're going to be, frankly, the future because why not open your phone up wherever you are, whether you're in the bus station waiting in line at the DMV or where have you, and be able to play your games and then go back to your console and pick up right where you left off. That's what people want. 


Larry [00:07:33] So we absolutely see that. And that is all powered, as you alluded to earlier, by our xCloud back-end, which is frankly, it's like consoles in the cloud wherever you are, so that you can have those instant experiences mobile. 


Kinsey [00:07:45] Yeah. I think there's certainly something to be said for meeting the customer or the gamer where they are now. But I also think that it's important to highlight here that this could meaningfully reduce one of the big barriers to entry, which is that it's just expensive to buy an [chuckles] Xbox or to buy any console. It costs money. 


Larry [00:08:04] Yeah. Well, not only does it cost money, Kinsey, certainly it does, but it also, you know, it has resources. In other words, we're very cognizant at Microsoft of what are we doing to the environment. Perhaps if you had a console that was in the cloud that you could share with somebody else when it's not being used as opposed to just sitting here consuming energy. So there's a lot of benefits to it, and flexibility. And just being able to be part of the Game Pass Ultimate, and be able to just constantly get access to games wherever you are and keep going, is really the future. 


Kinsey [00:08:34] Do you think, as we move into more cloud-based gaming, we've talked about how this might lower the barriers to entry for gamers themselves who want to start playing. What about for developers or people who want to start making, you know, want to join the supply side of this equation here? Does the paradigm shift for them in any way? 


Larry [00:08:53] Well, you know, it will in a lot of ways. Microsoft—we talked about Windows and our work with developers. And it's no secret that Microsoft has worked very closely with developers since its very beginning. And that's something we continue to do and carry that mantle forward. 


Larry [00:09:09] Additionally, on the Xbox side, we have a massive program called the ID@Xbox Program, and this is the independent developer program. So this is somebody like you or me, Kinsey, that maybe has an idea. We can download a free set of tools to start our game going and figure it out, and maybe get feedback from the community, and work on it, and make it better so that all of a sudden, one day, it can release on a console or onto xCloud. 


Larry [00:09:34] So we have a long, rich tradition and frankly, many, many, many, many successes of working with independent developers to bring their dream to life. 


Kinsey [00:09:44] So if you kind of take off this Xbox hat here, where is the money in all of this? Is the money for the Microsofts of the world who are building these consoles and building the platforms on which games are played? Is it the developers who are creating the games themselves? Where is the money? 


Larry [00:10:01] Frankly, it's wherever you look. You talk about the developers, certainly they have opportunities to make money. Look at the platform with which we are [indistinct] they have money. There's another whole layer that we haven't even talked about, Kinsey, which is the average person sitting in their house, streaming. 


Kinsey [00:10:17] Yeah. 


Larry [00:10:17] Game streaming is huge. So being able to put your game up on YouTube or Twitch or something like that, there's a lot of people that are making very healthy livings doing just that. And they are not a developer or the platform. They just play games.


Kinsey [00:10:31] Right. Yeah. And I think that's one of a couple of cottage industries of [chuckles] sorts that gaming has laid bare in recent years especially. And I want to talk more about the streaming part of this, because I do think it's incredibly interesting and honestly, is such a psychologically [laughs] a very interesting phenomenon for me to kind of wrap my head around. 


Kinsey [00:10:48] But, before we do get into that, I want to hear your perspective on this entry of big tech players. And I say big tech, maybe the other big techs, not Microsoft, entering the gaming space. What does it mean to you when you hear something like, you know, today we are recording this in late October, we just got the rollout of Facebook's cloud gaming. What does that mean? Is it a threat to Microsoft and Xbox? Is it proof that [chuckles] everybody will eventually get into gaming in some capacity? What does that mean to you? 


Larry [00:11:20] It means a couple of things. We look at our competitors. People have always thought, oh, well, Sony is a huge competitor, Nintendo is a huge competitor. Those are great companies. But they're also working in a different playbook than Microsoft is right now in terms of where do we go where gaming is. You talked earlier about being where the gamers are, and that's what we're all about. 


Larry [00:11:36] When you look at Facebook, they're getting into gaming. They have a massive install base. So, of course, they're going to go, well, this looks like a fertile ground for us. When we look at companies like Amazon or Google, now, both of the folks that are involved with those products I know personally, and they have come from Xbox. So, I mean, it's fascinating to see people that used to work here kind of go to other areas and try to work on solutions to problems. 


Kinsey [00:12:01] I mean, what does it mean for you personally if you see these Xboxers going elsewhere? 


Larry [00:12:07] I mean, I love it. I love to see what they're doing. I love to see what other companies are trying in this space. It just, again, to your point, it validates what we're doing and it validates our strategy when we look at where we're going and where Phil Spencer has brought us his vision forward of bringing games everywhere. So, I love it. Competition is always good for the free market, so I'm really excited. 


Kinsey [00:12:28] So when we think about competition in the gaming space, in this gaming free market, do monopolies exist in the gaming industry? 


Larry [00:12:36] I would say no. I mean, we certainly have big players. Why? It seems like you've got something going on there. 


Kinsey [00:12:43] I feel like maybe, they might a little bit. I mean, it's really, when you think about consoles, Xbox, PlayStation, that's pretty much it. [laughs]


Larry [00:12:50] But that's on the console side. Then when you broaden your scope out and look at other things, and you look at PC gaming, we haven't even mentioned it. I mean, how long—we're 13 minutes into this conversation. We haven't even mentioned Steam, which is the dominant PC platform for gamers. So, you know, there's a tremendous amount of innovation but I think monopoly—I don't think so. 


Kinsey [00:13:12] Maybe the "m" word is a little strong. I'll own that. [Larry laughs] And certainly because there are so many facets of this gaming industry, that it's kind of difficult to just call one part of this gaming, quote unquote, gaming. But it also, I think, it brings up the question of platform exclusivity, which I think is incredibly compelling in this gaming space. We used to have—the norm was sort of if you wanted to play a certain game that was only available on an Xbox, you had to have an Xbox and also by the game on a disc. And that was the only way to play. But now that business model has shifted a little bit. Can you speak to that? 


Larry [00:13:45] Yeah. I mean, Phil, again, getting back to what Phil Spencer said, you know, we have a tremendous [indistinct] 23 game studios, which includes our recent acquisition of Bethesda. And they make some of the greatest games in the world, all of our studios. And Phil wants people to play games wherever they are. So as far as that is, we want as many people to play our games as possible, which kind of throws—the exclusivity goes into the face of that. We want to be where you are. That's all that matters. 


Kinsey [00:14:17] So is the more profitable side of this business getting people to play the games that Microsoft fosters instead of getting people to just buy an Xbox? 


Larry [00:14:27] Buying just a console is certainly part of the equation, but it's not the only part. If you're going into business in 2020 just to sell a console, just to sell plastic, I don't really think that that's the long game. 


Kinsey [00:14:40] Right. 


Larry [00:14:41] You've got to sell games and the services that people want to absorb wherever they are. That's the future. 


Kinsey [00:14:49] I also do think though, with this advent of your sort of attitude of we want you to just play these games wherever you want to play them, however you want to play them, as long as you're playing. There is almost what I would argue is this sort of new era of platform exclusivity when you think about how important mobile-first gaming is right now. 


Kinsey [00:15:05] Apple runs a very tight ship in terms of what it allows on its App Store and what it does not allow on its App Store. We saw this play out earlier this year with Epic Games and now with Facebook news out recently, they're not going to immediately be available on Apple devices. Is this the new platform exclusivity, whether or not you can get into the App Store? 


Larry [00:15:25] You know, that's a challenge. And I know this book is not written yet. I think we're barely, barely in the first act, let alone the end of the story. So I think it's too early to tell. I really think it's too early to tell how this will play out in terms of those platforms. There's a lot of different ways we're looking at this, but I think it's too early to tell. 


Kinsey [00:15:48] OK. How big of a shift would it be for your business to focus more on this sort of monthly fee business model with maybe it's a streaming, maybe it's a, I don't know, opt into a subscription model and you pay a monthly fee. How much would that change what you do day to day at Xbox? 


Larry [00:16:07] Well, it's interesting. So you said it's a new business model, right? 


Kinsey [00:16:13] Right. 


Larry [00:16:14] It's actually not for us. Microsoft, specifically Xbox, has had Xbox Live since 2001. So that's almost 20 years where people are paying a monthly fee to be part of a well-maintained, well-curated network that has the right tools and has the right games to play on that platform. And it's gone forward. So we've seen Xbox Live, which became Xbox Live Gold in Xbox 360 era about 2005. And now it's become this concept called Game Pass. So what you're seeing is we were very, very, very early on in the subscription business and we're seeing it morph to create even more value for gamers. 


Kinsey [00:16:54] OK. How much did that change your focus on the physical equipment? 


Larry [00:16:58] Well, I can tell you this. Putting hardware into stores, putting consoles into stores, is not inexpensive. It's not cheap. And we're still doing it because we know there is an audience there that would like to play a nice high-fidelity experience locally at home on their big TV. So we know that that's there. But we also know that there's billions of more people that want to play on their devices, whether it's a tablet, whether it's their Android phone, what have you. So I think it's not a "or"—it's an "and." 


Kinsey [00:17:28] Right, right. That's certainly fair. And I think it would be remiss not to [laughs] mention that you have new launches coming out. Xbox Series X and Series S. These are massively hyped launches that people are very, very excited about. So with all of this, I think it's important to kind of take this grain of salt, is consoles are still selling. It might be a little bit of a different process to make money off of that [chuckles] as opposed to making money off of a subscription service. But it's not like these have just gone to the wayside and everything is going to be in the cloud forever and ever. Amen. 


Larry [00:18:03] Right. Yeah. You talked about the excitement around a console launch. And they only happen every seven, eight, nine years. So they're infrequent. It's not like a phone release, which is happening yearly or perhaps even more than that in some cases. This is a consumer device that launches once every seven to 10 years. It's rarer than a lot of things out there in the consumer electronics land. 


Larry [00:18:29] So that creates a series of challenges in terms of trying to look ahead and where's the technology going and keep using the software. And Microsoft has a tremendous pedigree of using software to keep upgrading and creating great new experiences. So, yeah, that's one of the reasons people are really excited is that it's just frankly, it's rare. 


Kinsey [00:18:46] Also, the gaming community is just incredibly passionate. I have to say [laughs] it was really cool to do research for this interview and read about what people are writing online about these consoles that are — 


Larry [00:18:58] Just be careful, Kinsey, don't read the comments, OK? [laughs]


Kinsey [00:19:01] I have a terrible habit of reading every comment. [laughs] 


Larry [00:19:04] Well, that's OK. [indistinct]


Kinsey [00:19:06] Fair warning. [laughter] But no, I think that the passion is really, really evident and really obvious in this gaming community. And to be part of it is that this is sort of fulfilling the need for social interaction right now in a way that feels like appropriate and maybe safer. And I'm sure we'll get into all of the COVID stuff too. But, this is just an interesting world where we see a lot of collaboration happening, a lot of hype happening. And sure, the comment section might be a little dicey every now [chuckles] and then, but there is genuine excitement. 


Larry [00:19:38] Yeah. And as I like to remind people is, you're right, Kinsey, we do have a massive fan base around the world. The Xbox is one of the most recognized brands around the world. And as I like to remind people, because this will be coming up on my third console launch, which is a very rare club to be in. Not many people get to launch one console, let alone two—let alone three! And so this is a very rare club to be in. And I remind people that have not done this before that, hey, it's when they're not talking about you, that's when you need to be worried. 


Kinsey [00:20:09] There you go. It's very true. What kind of demographics within this very passionate community are the most important to you? Is it people who are like, deeply passionate about gaming, have been at this for a really long time? Is it trying to get new people in the door? What matters most from your perspective? 


Larry [00:20:25] Oh, they all matter. I mean, we talked about 2 billion people. 


Kinsey [00:20:28] Right. 


Larry [00:20:28] Each one of those demos is going to get there. You are important to me because you've never played games. So I want to figure out how I can get Kinsey Grant on Xbox, right? So that's what I want to do. And then I have a bunch—millions of people that have been on Xbox for three years, five years, 10 years, some even almost 20 years. They're important to me as well. 


Larry [00:20:49] But it's different layers of how can we get people that are new to us, like yourself, and how do we keep the people that are with us, continue to stay with us and providing them value and so they can get value out of our products? 


Kinsey [00:21:02] And is that what we were talking about before—meeting them where they are, wherever that might be? 


Larry [00:21:06] Yeah, absolutely. It's meeting them where they are. Putting them first in what they want. We really focus on that. It's easy to ship a powerful box, but you have to take this powerful console and combine it with services, which has a great community, which has great games, which has great tools. So it's kind of a whole series. It's a constellation of different stars. 


Kinsey [00:21:27] Right. Two billion people is obviously a lot [chuckles] of people. Do you think it's difficult to kind of parse out where all those people are when we talk about meeting the customer where they want you to meet them? With 2 billion people, is that impossible? I mean, obviously, we have human trends that certainly unite us. But 2 billion have to have a lot of very different preferences. 


Larry [00:21:48] They have a lot of very different preferences. But just as you started off at the top of the show, there's also something very similar—is they want to have a game to play. They want to have those great interactive experiences, whether it's their mobile, their console, their PC, their tablet, what have you. So there is a baseline that we can go after. And then from there, we kind of break off and splinter off into the different areas. 


Kinsey [00:22:12] And it's not like gaming is just one kind of game. [laughs] You can play any number of different kinds of games and something for everybody, I'm sure. So, Larry, we are going to take a quick break to hear from our sponsor. When we come back, gonna talk about how the gaming industry fits into this broader streaming wars conversation that we have been having for so long now. But first, a quick break. —


Kinsey [00:22:34] And now back to the conversation with Larry Hryb. Larry, we have gotten a much better understanding of how the gaming industry works, but what about when we think about gaming in the broader context of entertainment and of media on the whole? Gaming is larger than the movie and music industries combined, which is insane. That is a huge stat. 


Kinsey [00:22:55] But in this attention economy, gaming has increasingly just become this threat to a lot of the streamers we talk about on this show. I mean, Netflix has said that Fortnite and Sleep are its biggest competitors in terms of time spent on platforms. So from the gaming perspective, how do you interpret this attention economy, and where do you think that the gaming industry fits into it? 


Larry [00:23:14] Yeah, that's interesting. It's so exciting for me to see, over the past 20 years being in this industry, to see where it's gone. I remember—I used to work in the music industry. I worked for 10 years in radio and broadcasting, and I left that when, frankly, when I saw that the writing was on the wall, and the consolidation that had happened here in the United States with the FCC. And when I came to Microsoft, I was working on a music product, and I could see what was going on there in terms of that this was a really creative industry, but it just it wasn't headed in a good direction for a lot of reasons. 


Larry [00:23:47] And it had a dark time there for a while. So that's when I jumped over to gaming. When I left music, people like, what are you doing? Gaming? They were scratching their heads. They just couldn't understand. I said, I think it's going to be big. Because there's people like me that were growing up, that were younger, that were playing Atari and in television back in the days, that were having families and wanted to stay home with their little ones and their wives and their sons and their daughters and their husbands to play games. 


Larry [00:24:12] And you alluded to this in the previous, before the break, that, you know, it's safe. I sit here, I sit here and play at night, and my wife is 20 feet away. If she needs something, I just go in there. I'm not out somewhere at a bar or dancing or doing something else. I'm here. It's very simple. I can jump around and play different games. I can pause and run upstairs and tend to my daughter. There's a lot of different things. 


Larry [00:24:32] So I'm so excited to see where gaming has gone. Now, to get to the point of it being bigger than music and video. It's interesting because a lot of things happened in those industries that we certainly couldn't have foreseen in terms of, you know, we talked about COVID and the theaters—it's a nonstarter right now. Unfortunately, live music has taken a massive hit because we can't be in-person. So, this is where gaming has really stepped in, not just in the past year, by the way, with COVID, but over the years we've seen the connectivity of all the consoles. 


Larry [00:25:04] That has been something my social network, Xbox Live, for a long time and continues to be, in some regards, one of the largest social networks on the television. So it's really evolved into this thing. And it's been there. We talked about it earlier—this overnight success. It took 20 years. But it just started chipping away. And every time I would go out, I'd hear different people, oh, I play Xbox or I play online. And so it just became normal. As the younger generation grew up, they gamed. I gamed. They gamed. 


Larry [00:25:35] This is the type of entertainment we want. We want to take our controller and we want to be in the center of the action. I want to decide whether I go out that door or I go out that window. I don't want to have the filmmaker or the storyteller decide. I now get to write my own story and decide what I do in this universe. And that's what this audience really demands—is they want that interactivity. They want that freedom to go anywhere in the game they want and do whatever they want. 


Kinsey [00:26:00] Yeah. I think this is so important. It can't be stressed enough—that when you watch a movie on Netflix, there's really only one way that it ends. Or even a series. You can watch seven seasons of "The Vampire Diaries" and it's going to end the same way every single time. But, when you are gaming, it's a little less finite. It's a little—you have any sort of infinite number of possibilities, in a certain sense, that it certainly negates some of the concern that we have certainly experienced in the media space in recent years over is the attention economy peaking? 


Kinsey [00:26:32] Have we saturated the attention economy because people only have so many hours in the day and they're already spending, what, like 40 hours a week [chuckles] streaming video. It's just this is as good as it's gonna get. But I think with gaming, that's certainly an answer to that question, is that while there are any number of ways you could take this, any number of outcomes that you could achieve in this game, that is certainly not the case. 


Larry [00:26:53] It's interactive. And that's what people want. They want that interactivity, Kinsey. They want to be able to create their own story. I can't tell you how many times when I play games, when I talk to somebody else who plays the same game, how did you do this? Well, I did this. I'm like, oh, I never even thought of that. Or I tell them, and they're like, oh, that's creative. There's so many different ways. 


Larry [00:27:11] Not only is the story binding you together, but the way you approach the story and the problem-solving, and the puzzles you're solving in there. I mean, that's what's really exciting to me. When I look at people today, this younger audience who's able to use a controller or a mouse and keyboard to have interaction and be able to solve problems in such a creative way, that's something that I was never able to do when I was growing up. I kind of had to have blocks or what have you. But what I'm getting at is we're seeing creative problem-solving in so many ways, and I'm so excited to see where that's going to reveal itself in other parts of life. 


Kinsey [00:27:43] When we think about the broader streaming wars in general, gaming has inevitably become a huge part of this conversation. Originally, it was [chuckles] who is going to try to unseat Netflix as the effective market leader in terms of video streaming. Now I think the conversation has evolved in a way that is including gaming and a little bit more serious way. We're thinking about time instead of just the content that people are consuming. Do you think that the gaming industry fits into this streaming wars narrative? Is this a fair comparison to make? 


Larry [00:28:15] Certainly we have influence because there's, as you said earlier, there's some Netflix folks that have indicated like, hey, gaming is a competitor. And you're right, people only have so many minutes in a day. And so you have to choose the entertainment that you like the most. And that's gonna cause a lot of things to happen. It's gonna cause content creators on the linear content side—when I say linear content, I mean like movies and television—to be more creative and create those stories that are going to bring that audience in. 


Larry [00:28:46] On the game side, it's going to do the same thing. But you're going to create these interactive stories. I'm looking at—you know, I wish I had a crystal ball to tell you that, yeah, this is how things are gonna go. But I think it's really just this competition, as you called it earlier, is certainly good because it's going to cause game developers and content creators across the board to up their game a little bit and create these compelling reasons for me to watch this. We saw that. We see that time and time again. 


Larry [00:29:14] We saw "The Mandalorian" last year, which was like, wow, can't wait to see the next one because we didn't know what was going to happen. We see that with video games all the time. We've seen episodic video games. We recently had one with "Tell Me Why," which has one of the first trans characters in it. So we're seeing these creative outlets to content that not only resonates with the audience, but also is creative. 


Kinsey [00:29:34] Right. And in a perfect world, competition is supposed to exist to benefit the consumer. We [chuckles] are all supposed to get better products out of a competitive landscape. What do you think the gaming industry's biggest source of competition is right now? Is it other games competing against other games? Is it people's time? You just can't decide if you want to watch Netflix or read a book or play a game. What's competition to you right now? 


Larry [00:29:56] All of the above. [Kinsey laughs] I mean, it's really—no, seriously. It's all of the above. We want to give people a compelling reason to play content on Xbox, whether it's the console, whether it's game streaming. And that is up to the individual. Is this where I want to go? What do I want to do with my time? And then to be clear, sometimes some people don't want to pick up a controller. They just want to, oh, they're exhausted after the day. They just want to sit back and have a passive experience. They don't want to talk to anybody. They don't make any decisions. They just want to sit there. 


Larry [00:30:27] And other times people really want to pick up that controller, lean forward, and have a really interactive, great, powerful experience. So the answer is everything, but it's all contextual to how you, the individual, are feeling. 


Kinsey [00:30:39] Yeah. Let's talk about this passive experience with gaming—the advent of streaming yourself gaming has become enormous. This is crazy in terms of how many people are watching and tuning in to watch other people play games. Why? 


Larry [00:30:53] You know this, this—why? [Kinsey laughs] It's a couple of reasons. I mean, there's this part of the audience that gravitate towards a personality. I'm sure there's people that listen to this podcast because of you, Kinsey. Because they like the way you do this podcast. There's people that listen to my podcast because they like the way I do it. So personality is one part it. 


Larry [00:31:13] The other part of it is they want to see what's going to happen in this game. Do I want this game? Or maybe I can't even afford the game, so now I can watch somebody else play the game. So there's a lot of components. We've also seen people who say, you know, for the younger audience as well, mom and dad won't let me play this game. But let me see what so-and-so—they're playing the game. So at least they can talk about the game in their social circle. So there's a lot of components—not least of which is, it's easy. 


Kinsey [00:31:42] Right. 


Larry [00:31:43] Usually, like on the console, you click two buttons, you're broadcasting immediately to an audience of one, a thousand, or 100,000. I mean, the list goes on and on. So there's different segments of audience, depending upon how you look at it. 


Kinsey [00:31:55] Did you see this streaming phenomenon coming? I mean, did you think that this would happen? 


Larry [00:32:01] I'm not surprised because of the advent of the technology that's so easily accessible. 


Kinsey [00:32:08] Right. 


Larry [00:32:09] So we saw it coming on a lot of different levels. It's also, you know, it's a way for people to go shopping for games. Do I want to buy this game? You know, back in the old days, you used to go to an arcade and used to look over somebody's shoulder. How do you play that game? Oh, this was interesting [indistinct] before my quarter on that one. Nowadays, you open up a browser, you can scan through and oh, this looks interesting. Maybe I'll buy that game. So it's just another data point. 


Kinsey [00:32:31] And it's at a massive scale. [laughs]


Larry [00:32:34] A massive scale. All the time. 24/7, 365. [laughs] 


Kinsey [00:32:38] So what do you think comes next in terms of these sort of cottage industries in the kind of post-game streaming world? 


Larry [00:32:45] Wow. You know, we've seen so many cottage industries pop up. One of my favorite is—there's so many games out now. There's a company that makes trees. So Kinsey, if you're working on a game and you don't want to spend your development cycles building trees, you can go off and basically go to a virtual nursery and buy trees to include in your game. So there's all these different parts of the industry that people may not be aware of. 


Larry [00:33:10] There's a whole industry of people that make graphics for streamers on Twitch. So what do you want for that? So it constantly—all these other areas are growing, and I wish I could tell you where it was going to go, but I'm surprised that the creativity in—continually surprised at the creativity in this industry because it just knows no ceiling. 


Kinsey [00:33:31] Yeah. I have to say, this almost sounds like an [chuckles] endless amount of marketing opportunities for Xbox or for any other platform. [laughs]


Larry [00:33:39] Absolutely. Absolutely. 


Kinsey [00:33:41] All right. Well, we have one big important question coming up next. How does COVID change all of this? We started talking about it before. We're going to finish answering that question in just a second. But really quickly, a short break to hear from our sponsor. —


Kinsey [00:33:53] And now back to the conversation with Larry Hryb. Larry, COVID has undoubtedly impacted every avenue of making money and every possible [chuckles] outcome in the business world. I ask this question with just about everybody over the last seven or eight months. But, I think with the gaming industry in particular, it's really, really interesting to see how the numbers have shifted. 82% of global consumers played video games and watched video game content during the height of the CPVID-19 pandemic, according to Nielsen. 82% — 


Larry [00:34:22] 82. 


Kinsey [00:34:22] It's crazy. That's so many. [Larry laughs] What kind of—but, you know, I guess the question is, does that number have staying power? We have seen this enormous uptick in people who are participating in gaming because it's safe. There's nothing else to do. We have to be inside for the most part, and this is what we should be doing. But do you think that that can be the norm going forward? If we return to some semblance of normal, will the gaming trend continue to be on the rise? 


Larry [00:34:52] You know, nobody could have ever foreseen what had happened a year ago. Can it sustain? We hope it doesn't. We hope it doesn't in terms of we hope the world gets better and the world gets healthier and people are making good decisions around COVID. So that's really what we hope for. I mean, certainly we're seeing—you quoted those numbers, and they are massive. 


Larry [00:35:12] But, we would prefer if the world was in a better place [chuckles] in terms of COVID. When we look forward, we get concerned six months, 12 months, 18 months, 24 months down the line and beyond, where, hey, if COVID is having a negative impact on someone's life, whether they lost their job or what have you, are they going to continue to play games? Will they even have money to play games? We don't know. We just don't know where this is going to go. 


Larry [00:35:38] So, yeah, I mean, is it sustainable? I don't think at this level. Eventually it may get up there. But, there's so many different new norms now, right? Everything that you thought about a year ago is kind of changed. Everything. So I don't know quite what to expect. I know we've got a bunch of folks that are looking at their Excel sheets and their pivot tables [Kinsey laughs] and trying to figure it out. But really, this story remains to be written. 


Kinsey [00:36:03] Yeah, I could not agree more. It's always kind of fun and interesting to pull out our crystal balls and think about what comes next. But if the last year has taught us anything, it's that we're probably gonna be wrong. And —


Larry [00:36:15] Yeah, right. 


Kinsey [00:36:15] That's OK. [chuckles] It's impossible to be right all the time. One interesting question about gaming. The kind of nexus of gaming and COVID here right now is that a lot of gaming stocks have done really well because of this uptick in usage and momentum. And people are really excited. And to your earlier point, we have console releases that haven't happened in quite some time. It's interesting to then reconcile that with the fact that we are in a recession and there have to be winners even when we're all losers. And gaming has kind of been one of those winners. What do you make of that? 


Larry [00:36:49] It's humbling and it's slightly embarrassing when I look around and I see other industries that are just not doing as well. 


Kinsey [00:36:56] Right. 


Larry [00:36:57] So it's—you know, we talked about the console launch. We have Xbox Series X and Series S launching. I believe by the time this airs, they will have just launched or they're launching like right now in many parts of the world. And that was a challenge. And we wanted to make that commitment because, certainly continuing on with our supply chain, it's going to keep people employed. 


Larry [00:37:18] If we just said no, then that's even more people that are perhaps going to lose jobs or have to cut back on their employment. So we're doing what we can in the areas that we can impact. It's certainly humbling to see this success in gaming and we just wish that everybody, all the other industries, can enjoy similar success at some point in their careers. 


Kinsey [00:37:40] Right. So what gives you the most sense of optimism or excitement in the gaming space right now, as we obviously have new consoles coming out and these stocks have done pretty well. But what beyond that is making you really, really jazzed for the future in the gaming space? 


Larry [00:37:57] What I'm jazzed about is I'm jazzed about the work we're doing with xCloud and we're getting to those 2 billion gamers. Getting to you, Kinsey. [laughter] How do we get you on? So I'm jazzed about that. And the fact that, frankly, gaming has—the stigma has kind of melted away of, you know, it's a primarily young male-dominated demographic that plays games. It's broadening now. Gamers are getting older. 


Larry [00:38:27] You know, I imagine there's going to be a time when I'm in a retirement home and I'm going to be gaming with my friends. I mean, that's just crazy. That's still many, many, many years away. But the fact that gaming is now a legitimate mainstream form of entertainment—that is not going away. 


Kinsey [00:38:42] Yeah. It's been kind of cool to watch this demographic shift because I think, you know, my first—we had an Xbox when I was a child. It had to have been like one of the first ones. It was a hand-me-down from my uncle. 


Larry [00:38:54] Now, what did you play on your Xbox? 


Kinsey [00:38:55] I was trying to remember — 


Larry [00:38:57] OK. 


Kinsey [00:38:57] What the game was. It was like, I think Star Wars something. I don't really remember, but I was never any good at it [laughs]


Larry [00:39:03] OK. 


Kinsey [00:39:03] Is all I really remember. But this is a perfect segue. Can you pitch me? I'm in this new demo. I'm not a young dude. I am a woman who is kind of now officially in the last year of my mid-20s. So — 


Larry [00:39:17] Yeah. 


Kinsey [00:39:17] Pitch me. Why should I become a gamer? 


Larry [00:39:19] Well, first of all, the game that you just mentioned, I believe it was Night of the Old Republic. 


Kinsey [00:39:23] OK. [laughs] 


Larry [00:39:23] That was the name of the game, which, by the way, fantastic game, excellent taste. [Kinsey laughs] 


Kinsey [00:39:27] I will pass along the message. [laughs]


Larry [00:39:29] When I look at, you know, when I look at pitching you and pitching people that are listening, it's like, hey, we've got this great product called Game Pass, which is a, you know, some people call it the Netflix of gaming, which is for a monthly subscription fee, you get access to over 100 games. The full version of the games—there's no ads on them or any of those other monkey business. 


Larry [00:39:48] You get the full version of the game, and with Game Pass Ultimate, you can stream to your Android device, your tablet, and your phone, so you can get right into gaming, Kinsey. Right now. Today. By just downloading the Game Pass app, signing up, and you're in. And within the hour, you'll be playing video games with, you know, whether you want to play on screen with touch controls or real controller. So that's the barrier of entry—is that low. And you can find something there. And I'm gonna recommend a game for you. 


Kinsey [00:40:14] OK. 


Larry [00:40:14] Kinsey, OK? 


Kinsey [00:40:15] OK. I'm all ears. 


Larry [00:40:17] Goat Simulator. [Kinsey laughs] 


Kinsey [00:40:18] OK. 


Larry [00:40:18] OK? 


Kinsey [00:40:18] Why? 


Larry [00:40:21] Because you play a goat and you have to [Kinsey laughs] solve puzzles in the barnyard as a goat. 


Kinsey [00:40:26] I'm curious—what about my personality suggests—because that sounds exactly like something I would love. [laughs] I just read as, like, a goat fan. 


Larry [00:40:36] Well, I'm not, I'm not judging. I'm just saying it's a fun fan. You probably do a lot of reading and a lot of research, right? 


Kinsey [00:40:44] Yes. 


Larry [00:40:44] You love your libraries. 


Kinsey [00:40:45] Yes. 


Larry [00:40:45] Which is great. I have a sister who is a librarian and she called me one day. She's like, I want to play Goat Simulator. I've heard all about it. So I showed her how to play it. And she loves it. 


Kinsey [00:40:55] OK. 


Larry [00:40:55] So she and I played Goat Simulator. So you just remind me of that audience. Which is great, because there's something that you can go to. Not every game is for every person. It's just that's the way it is. But there are so many games right now out on Xbox, on Game Pass, around the globe. I guarantee that you're going to find something. I guarantee it. 


Kinsey [00:41:14] All right. Well, maybe I'll have to get started on Goat Simulator. 


Larry [00:41:16] Goat Simulator. 


Kinsey [00:41:17] And stream it or something. I'll do what all the kids are doing. [chuckles]


Larry [00:41:21] Channel your inner goat. 


Kinsey [00:41:23] Happily. I'll wake up every day thinking that. Larry, thank you so, so much for coming on Business Casual, for being so willing to walk me through this entire industry. I know it's certainly large and there is a lot to parse through. And I feel much more equipped to talk about the gaming space now. And honestly, I'm excited to learn more about it. So thank you. 


Larry [00:41:41] Kinsey, I have to tell you, I applaud you because I'm a big fan of the show and what you do. And when you break out of your comfort zone, you're like, you know, you didn't have to do a show on gaming, but you wanted to because you realized this is a huge thing. And you asked some amazing questions because of your research. So I want to thank you. Thank you for showing interest in the industry. And I would absolutely love to come on again sometime and talk more after you play Goat Simulator. 


Kinsey [00:42:04] OK, perfect. [laughs] Thanks, Larry. 


Kinsey [00:42:13] Thank you so much for listening to this episode of Business Casual. I asked Larry to pitch me, and pitch me he did. So I am going to play Goat Simulator and livestream on YouTube while I'm doing it. Subscribe to our YouTube. Just search Business Casual and you'll find us. See you next time. [sound of a ding]