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Microsoft has given Xbox head Phil Spencer a vote of confidence, promoting him to executive vice president of gaming. In return, Spencer will be expected to solve the company’s immediate problem: The Xbox One doesn’t have enough big-name exclusives.

As we tumble into the mass-consumer era of this console generation, the Xbox One is far behind the PlayStation 4 in terms of global install base. Microsoft refuses to release hardware sales numbers, but analysts we spoke to estimate the Xbox One at around 35 million, compared to the PlayStation 4 at more than 73 million.

That yawning 2-to-1 disparity is unlikely to get better this year. A look at the two companies’ 2018 exclusives roster makes for grim reading, at least for Xbox fans.

“We’ve gone through ups and downs in the investment”

This year, the PlayStation 4 will offer up The Last of Us Part 2, Spider-Man, God of War, Dreams, and Detroit: Become Human as major releases from highly credible studios. Sony has also been busy locking down third-party deals for games like Destiny 2, Call of Duty: WWII and Star Wars Battlefront 2.

The Xbox One’s confirmed 2018 exclusives include State of Decay 2, Crackdown 3 and Sea of Thieves. These are interesting games from good studios, yet all but the most rabid of fans must admit that this is a less invigorating prospect than Sony’s solid lineup. The high-profile cancellations of two Xbox One games over the past two years, in PlatinumGames’ Scalebound and Lionhead’s Fable Legends, were blows to Microsoft’s slate of exclusives.

Spencer knows he’s got a problem. He said so himself. “Our ability to go create content has to be one of our strengths,” he told Bloomberg late last year. “We haven’t always invested at the same level. We’ve gone through ups and downs in the investment.”

Finding the games that will energize the Xbox One is going to be the biggest challenge of his long career.

Analysts’ view

We spoke to four analysts who all agreed that Microsoft needs to act soon, and that major acquisitions are by far the most likely route.

“Microsoft recognizes this as an important issue,” said Piers Harding-Rolls, director of research and analysis at IHS. “Hence, Phil Spencer’s comments about investing more in delivering first-party content.”

“They’ve got to make some pretty big strategic decisions”

“Sony’s going to be aggressive at this stage of the hardware cycle,” said SuperData Research CEO Joost van Dreunen. “It gives the impression that Microsoft’s exclusives portfolio is pretty meager. They haven’t had that consistent content agenda like Sony has and so that’s why I think they now come up [a] little short. Some of their titles didn’t perform all that well.”

Microsoft has a cash pot of at least $130 billion, boosted by recent tax cuts that heavily favor large corporations. When you consider that the market capitalization of a company like Electronic Arts is around $35 billion, it looks like a handy war chest.

“Microsoft overall had a great year,” said David Cole, owner of DFC Intelligence. “But that had nothing to do with the Xbox One. For the Xbox team, they’ve got to make some pretty big strategic decisions. They need to explain a strategy for how they can be relevant going forward in the game industry.”

Rumors of acquisitions are a perennially favorite pastime in the game industry. But with Microsoft’s exclusives problem, married to its lagging behind PlayStation and its pot of gold, the gossip has intensified recently.

Acquisition rumors

Some of the names being thrown around as possible acquisitions by Microsoft are, frankly, astounding, even unthinkable. But the fact that they are doing the rounds is instructive. The most recent one we heard (from a reliable source close to Microsoft) was, in fact, Electronic Arts. We also heard a whisper about Valve and about Korean outfit PUBG Corp., which Microsoft last year signed to a timed exclusive for its hit survival shooter, PlayerUnknown’s Battlegrounds.

“Because of where we are in the lifecycle of all these things, I’m expecting to hear Microsoft announce something very, very shortly,” said van Dreunen.

“I’m expecting to hear Microsoft announce something very, very shortly”

Another reason for optimism about an acquisition comes from internal shifts within Microsoft. Spencer was promoted in the fall to executive vice president, gaming, where he has a much bigger say over how video games fit into the company’s overall strategy.

“He came on at a time when the Xbox One was in a bad position,” said Cole. “I think he’s made the best of a bad situation. The overall strong position of the company is positive because it gives the room to invest in gaming.”

Microsoft CEO Satya Nadella is more enthusiastic about games and Xbox than his predecessor, Steve Ballmer, greenlighting the $2.5 billion purchase of Minecraft developer Mojang as one of his first major acquisitions in 2014.

Patchy record

It’s worth looking at Microsoft’s patchy history of game industry acquisitions. Mojang was Microsoft’s first game studio acquisition since Lionhead in 2007. Lionhead was closed in 2016.

Prior to that, Microsoft bought Rare in 2002. Rare has proven to be a disappointment, relegated until recently to punching out Kinect games. This year, it makes something of a return with the unusual multiplayer pirate adventure Sea of Thieves.

“Sony has a lot of internal studios, and that means they are going to have more exclusive games than Microsoft,” said Michael Pachter, a senior analyst with Wedbush Securities. “Sony has always been about first party and Microsoft wanted to emulate that, but they allowed studios like Rare and Lionhead to fade away.”

Microsoft’s biggest studio success was Bungie, which it acquired in 2000, fueling the Halo series through three generations of consoles. But Bungie is no longer a part of Microsoft. Its hit sci-fi shooter series Destiny overshadowed replacement internal studio 343 Industries’ Halo 5.

Back in 2013, while he was corporate vice president of Microsoft Studios, Spencer said he planned to open new internal studios and incubators, but these seem to have mostly come to nothing, with decent work like Project Spark fading away.

Some of Microsoft’s teams do great work. Turn 10 Studios and Playground Games release a Forza Motorsport or Forza Horizon title every year, respectively. The ID@Xbox program is doing a competent job of attracting great indie games, like Cuphead.

“They may start to be seen as a secondary platform”

This year, a number of smaller exclusives will arrive on Xbox One, including Ashen, Deep Rock Galactic and The Darwin Project. But none of these are likely to make a difference against Sony’s behemoths. And, of course, Sony too has a strong slate of indie exclusives, including an attractive PlayStation VR lineup.

No doubt, Microsoft has some secrets up its sleeve. A new Gears of War to follow The Coalition’s 2016 Gears of War 4 would be a welcome addition, but there’s no word on it, outside of a passing mention in Microsoft’s recent announcement about Xbox Game Pass. It’s possible that a studio like The Coalition is working on a big new IP, although this seems unlikely, given that company’s false start with its earlier attempt to create something new to take on Sony’s Uncharted series.

And, of course, Microsoft has Mojang, but the studio’s biggest game isn’t a Microsoft exclusive — Minecraft is available on just about everything.

We know there’s a new Tomb Raider game coming from Square Enix, but whether it will be a yearlong Xbox One exclusive like 2015’s Rise of the Tomb Raider is an open question. Commercially, it’s more difficult to argue for this than it was earlier in this console generation.

Rumors are knocking around that shooter brand Perfect Dark might make a comeback. British studio Electric Square is staffing up significantly to work on an Xbox One exclusive.

Looking forward

Certainly, we can expect something at E3 this year. In November, Xbox publishing manager Shannon Loftis told GameSpot: “I think our offering is good and it is solid. I definitely hear that gamers want more. Would we love to have two-dozen more super-strong exclusives? You bet. We do have more coming; more that are in the works that we’re not talking about now.”

But it will take a lot to close the perceived quality gap with Sony, positioning Microsoft as a viable contender in this generation. After all, it now faces a serious threat from Nintendo’s runaway success with the Switch, which that company is achieving through exclusive games as well as smart hardware design.

“On top of PlayStation 4’s continued success, the Switch had an incredible year,” noted Cole. “Once Microsoft falls behind, they may start to be seen as a secondary platform.”

All this brings us back to the potential for an acquisition that might give Microsoft a pool of development talent, some great new IP and potentially, big new games ready at hand for release on Xbox One.

Tomorrow, we’ll look at the most (and the least) likely targets of a big Microsoft acquisition.