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Phil Spencer, head of Xbox at Microsoft, at the Xbox E3 Briefing at the Microsoft Theater in Los Angeles. (Microsoft Photo)

Rumors have persisted for a while now that Microsoft is working on a low-cost console to complement its upcoming Project xCloud streaming service. However, Xbox Chief Phil Spencer took the interesting step of shutting down the speculation in an extensive interview with Gamespot.

Microsoft unveiled its latest console at the big E3 gaming conference in June, Project Scarlett. In the lead up to the announcement, speculation percolated that Scarlett was the code name for an entire new family of consoles. However, that doesn’t appear to be the case, and Spencer said Microsoft is focused on smartphones, at least for now, as the primary outlet for streaming.

“We are not working on a streaming-only console right now,” Spencer told Gamespot. “We are looking at the phone in your pocket as the destination for you to stream, and the console that we have allows you to play the games locally.”

The new console, which will ship in the 2020 holiday season with Halo: Infinite as a launch title, has been designed from the ground up to represent a “bigger generational leap” than anything that the Xbox has done before. The same development team that created both the Xbox One X and the Elite Controller is building Project Scarlett.

Microsoft’s most recent financial update illustrates how badly the gaming division could use a console refresh. Gaming revenue dropped 10 percent year-over-year to $2.05 billion last quarter, driven by a 48 percent plunge in Xbox hardware sales.

Here are a few of the other big updates from Spencer’s interview:

Backwards compatibility remains an important priority Project Scarlett: The ability to play older generations of games on newer consoles has always been an important Xbox feature. Backwards compatibility will live on with Scarlett. Spencer gave some insight as to why it is such an important feature for Microsoft.

“Making sure that all four generations of content — so the original Xbox games that run on your Xbox One today, the OG Xbox; the 360 games that run on your Xbox One; your Xbox One games; and the new generation game — all run on the next platform is important to us,” Spencer told Gamespot. “We want to respect the games that you’ve bought from us. We want to make sure that the generations can play with each other, so if you happen to adopt the next generation early and somebody stays back, that if their games are on both platforms, you’ll be able to cross-gen play.”

A Project xCloud demonstration at E3. (Photo by Casey Rodgers/Invision for Xbox/AP Images)

Developers getting their hands on Project xCloud: Microsoft is building out a massive network of infrastructure in its global portfolio of data centers that will power the Project xCloud service, which lets users play powerful games like Halo on smartphones. Public trials are set to begin in October, and Microsoft is gearing up to get the service in front of developers.

“We’ve already started putting xCloud servers near locations where our largest third party developers are,” Spencer said. “So now we’re starting to get developers at third parties on it so they can see their game on a phone, which is critical because there are things like font sizes that if you wanted to take advantage and understand how the game runs on the phone, you want to make it available. You want them to see it and experience it themselves.”

Gaming giants aren’t as competitive as you’d think: “Console war” is a trendy way to describe the competition between major gaming companies like Microsoft, Sony and Nintendo to get customers to spend hundreds of dollars on a high-end device. However, Microsoft has steadily pounded the drum of collaboration within the industry, evidenced by a recent cloud-computing deal with gaming rival Sony.

“I do know there are parts of the community that wish we were more aggressive in being competitive with each other,” Spencer said. “I think competition between us, from an innovation and business model and value standpoint, makes a ton of sense. Competition at a human level or a punitive level, I find isn’t really part of how we continue gaming’s growth. There’s much more to be gained by us at least having a joint point of view on issues that are important to gaming.”

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