Joystiq

What has been the mix of sales for the Premium vs the Core systems?

It’s been almost exclusively for the Premium SKU for the Xbox 360. We predicted that and put retail levels in accordingly.

So that was the emphasis?

Yeah, but we wanted there to be a lower-priced option as well. What we found, obviously, is that the guy who had to have it at midnight that night, if he couldn’t get a Premium one, got a Core system and bought a hard drive.

You’ve announced plans to offer an HD-DVD external drive attachment later this year, how do you think that’s going to factor into things going forward? Is that something that might be bundled, or is that going to be exclusively something that you can buy as an add-on?

There’s a number of different tactics you could do with it.

You could bundle it. You could sell it separately. I mean, we really wanted to, as I said when I announced it, make it about choice. It’s about movie playback. There’s no doubt that high definition movies are going to play in our homes in the next 12 months. We’re a great believer in the HD-DVD format, obviously, and I’m sure Bill reiterated that yesterday. One thing we don’t want to do is burden the box for consumers who just want to play games and force in a high definition drive, you know --

--Which would raise the price.

Of course it would. And then that hurts your supply again, because there are not millions of them available. There are people, I’m one, you guys are probably the same, that would say, "You know what, I’ll buy an external drive because I’ve already got the core of what I need there in my 360.” Do I want to buy another? I don’t know if you saw the box that Bill showed, but it’s a Toshiba box, $500. I can buy an external drive that can, that I can have in my house, and if I’m just playing games I can actually pop that drive in a drawer somewhere. That’s the perfect solution for me.

How much is that drive going to be?

Don’t know. We haven’t made any pricing decisions, but clearly it’ll be cheaper than the standalone.

And it’s going to hook in through the USB port?

Don’t know yet. There are a number of ways. We thought this through in the design of the box, and so there are a number of ways it can connect.

What’s your reaction to the launch in Japan? Was it anticipated?

Well it’s always anticipated -- it’s not easy over there. Me more than anybody knows that, but when we built our plans we built our plans around a software title launch, both in quantity and quality, that didn’t quite make it. I mean, DOA4 was 19 days late. Big difference. We were marketing DOA4, and stuff slips. You get to the race of certification. You find things out. You want to make sure that you don’t, in any way, challenge the integrity or the quality of the product.

So you say, no. It’s not quite right, not quite ready, want to slip it a few days. And that affects things, but I’m reasonably happy. I was over there for the five days of the launch. A lot of very loyal Xbox consumers over there. It’s really a long-term plan. This is a marathon, not a sprint.

Sakaguchi continues to work on both Blue Dragon and Lost Odyssey. [It’s] very different than the original Xbox where we actually had a pretty good line up at launch and we then fell off a cliff and didn’t have the support of the third parties. Now the support of the third parties over there is unequivocal. We’ve got things like Dead Rising coming and we haven’t shipped Project Gotham over there yet. We haven’t shipped Kameo over there yet. We’ve deliberately merchandised the portfolio to spread it all out. There’s long-term strategy there, don’t let early numbers worry you because you know, it’s my job to worry. Japan is tough. You know it’s tough, but we believe in the Japanese market. We’ll continue to hammer away there.

With every console it seems like it takes developers a little while to really get the hang of it and figure out how to push the capabilities of the box, and eventually there’s always a title or a handful of titles that become the killer titles for that console and almost drive a second wave of adoption, just like Halo 2 did with the original Xbox and Vice City did with the PlayStation 2.

Right.

How long do you think it’s going to be until we see developers come out with a game or a couple of games that really push the capabilities of the console?

This year.

Early this year? Second half of this year?

Well, there are titles that excite me right now like Elder Scrolls 4: Oblivion. The team that has done all our Ghost Recon, there’s Ghost Recon Advanced Warfighter. The scenes I’ve seen look spectacular, and their ability to take advantage of Xbox Live is huge. Even Lara Croft is looking great, so Lara’s coming. And then of course we’ve got Ninety-Nine Nights out of Japan that we are very excited about.

The real title that I think everybody’s looking at is Gears of War, and we’re allowing Cliffy B. and the boys that extra time to not make it a launch title. They’re brilliant at what they do, and we’ve continued to show the progression of Gears of War, whether it’s at E3, and then XO5, and then TGS. That will be a huge title, and then Crackdown from Real Time Worlds is a title that I am very excited about, having seen some of the latest builds just recently. Very unique art style, very unique camera perspective of how you play the game.

So you’re confident that there will be titles that redefine gaming rather than just more of the same?

Yeah, you can’t just do a Grand Theft clone. I mean, a lot of publishers have attempted to do that and it doesn’t work, just like a lot of people try to do a Halo clone and it really doesn’t work.

With Crackdown what you’ll see is a vertical perspective in the camera angle. A lot of the action takes place on top of the buildings. It’s very unique. The art style is very, very unique.

But aside from the graphical upgrades and things like that, Xbox Live is really the key part of Xbox.

What steps do you take to push third-party developers to come up with new ways to use Xbox Live?

Well, it’s part of what we call showcases and essentials. As a core essential, there’s got to be some form of Live, whether it’s simply Live-aware or looking at tournaments and ladders, and then, of course, all the different ways to have massively multi-player. There are levels of Live playability in just about every title, and there are several elements of Live that have captured the imagination of gamers in the last few weeks. Xbox Live Arcade, which we originally thought was for my mom or for my sister, people who don’t play games, well, the hard core of the hardcore are saying “This is addictive stuff.” And I announced Street Fighter II and Texas Hold ‘Em Poker. It’s sponsored, by the way, so you won’t have to pay for it. 20 games will be available, so Arcade is going to be something. I’d sort of like it to be an indie films-type thing for smaller publishers who’ve got great IP, Geometry Wars is a great example. We put a small team on it and said, “Let’s take advantage of the 360 and let’s make it a visually stunning, fast-paced game.” I love Geometry Wars, although it gets a little quick for an old guy like me who’s not quite there.

It was certainly a surprise hit.

People love it. They play the demo, and they download it for a few bucks and they own it and they love to play it. And if you’ve got a big screen or something, it really is beautiful eye-candy

And then Marketplace. Marketplace is huge. The concept of achievements is addictive. I’m watching the boards where people are saying, “How did you get that? How did you figure that one out?” That is really creating this tremendous community interaction, people love to show stripes and badges.

You go up there and if you’re behind you feel like you’ve got to go on. I’ve got to play for two hours because I’ve got to catch up with my friends. We love that. Then there’s ability to offer trailers. Hollywood’s waking up to the fact that it’s a high def box, so the Mission Impossible III trailer was on there.

The demos are a great way to showcase things.

Oh, well, the Fight Night thing was spectacular. For me it just feels like a whole new business model. When we showed that off we said it’s immediately available right now everywhere in the world. Get your controller. Go to Live. One button download. And it downloaded. Our server farms lit up and people were playing it. This ability to instantly bring in a live demo to your box and play it, you don’t have to wait to go to a magazine and get a disk, pop it in the drive.

That is the future, and we’ve always said that Live is the differentiator. We still scratch our heads that the other guys really don’t see this or are certainly not making any real pronouncements about a global service that builds community and brings people together.

Speaking of the other guys, it seems like the PS3 has been something of a no-show here at CES. Neither Stringer’s keynote nor the press preview the previous day really talked very much about the PS3 at all. At some point this year you’re going to have your major competition entering the market, how confident are you feeling? Do you risk becoming overconfident?

No. I mean, first of all, Sony’s a great company. They’ve come off two spectacular generations of consoles. You never underestimate the power of your competition. The only thing you can do, the only thing you can control, is your ability to execute flawlessly with your own product, with your own marketing, with your relationships with publishers, building software that is innovative like Xbox Live, connecting people around the world. That’s what we’re about.

The other guys are launching this spring. Don’t know what that means. I can’t worry about that. What I need to worry about is making sure that my consumers’ experience on a global basis is world-class.

Are you going to time some major titles to coincide with the launch?

Such as? [Laughing] Well the interesting thing is, when is the launch? How can I time for something when I don’t know when it is? So first of all, the answer is no. To somehow artificially plan something to combat things? They’ll launch, let’s face it. They’ll launch and it’ll be very successful.

There’s no doubt, regardless of whether I throw a title in there or an update of Live or whatever, that it’s not going to affect their launch. You don’t think they’re not going to sell out of PlayStation 3s, do you? You think that if I could create a piece of IP so that PlayStation 3s would arrive at Best Buy and they’d sit on the shelves? Come on, it’s not going to happen. It never happens with a console launch, so the ability for me to distract the consumer, I mean, I’d rather focus on the fact that whatever we do, whether it’s what Rare’s doing or what Bungie’s doing, that we make the best games possible and that we release it when it’s ready and that it moves our platform.

It’s stupid, ridiculous, and almost impossible to say to 80 guys programming, “I want you to make sure they see you can be ready to go two weeks from now.” It just doesn’t work. You know what you end up with? You end up with a sub-par game because you’re actually building a game with an alternative plan in mind other than making a great game. Game development doesn’t work that way, and anything that is of the quality of a Halo franchise, you do not risk screwing it up. And, by the way, don’t forget, we’ve done all this without Halo.

So yeah, you’ve got Gears of War coming. You’ve got Crackdown coming. You’ve got BioWare and Silicon Knights working on exclusive titles.

The Halo Nation would string me out from some flagpole if I used Halo to be a competitive counter balance to something else, for it to be anything other than for it to be the greatest game ever on an Xbox console -- or on any console. I mean, people love the conspiracy theories, like that it’s already ready to go. You know, no, that is not the case at all. We have a very precious piece of intellectual property in the Halo franchise. As you know, we’re doing the movie, and we’re delighted that Peter Jackson is working on it with us. There’s too much invested in this franchise and the Halo Nation is too dear to us to use them as pawns in some bigger game. It doesn’t work that way.

Jumping back to Live, I’m curious if you have any numbers about the proportion of people that are using Gold memberships.

We haven’t broken down Silver versus Gold. Our first priority is get people to connect the box, and the announcement I made is that 50% of all boxes are already connected. We have a very clear view on who’s doing what connecting.

Silver has done exactly what we intended it to do. It’s that little step for the gamer who’s a little intimidated about getting involved in a Halo class, but loves the idea, and they already have DSL or a cable modem enabled. There’s no commitment, no credit card, bend over, plug it in, and all of a sudden I’ve got the Mission Impossible III trailer. I’ve got my gamer achievements up there, all the stuff you can do in Silver. Gold is important because of the early adopters, the hard core. They’re probably Xbox Nation from the first version and they love Xbox Live, but silver will continue to be important and grow in its importance going forward.

Broadband adoption is becoming ubiquitous, particularly in Europe, where we had a tough time with Live because we said we need your credit card. In Europe people typically don’t carry credit cards and believe me, our adoption rates in Europe are very, very strong. We’re delighted about that.

When you look back at Xbox Live, people laughed at us. I mean, you go back just a few short years ago, and now everybody that’s come in here in the last two days says, “I’ve played it. I love arcade achievements, my profile up there, Marketplace, Microsoft Points, Hexic, Jewel Quest, Zuma, Joust, Gauntlet.” I mean, people gush about the experience, and it’s interesting, they’ll talk for 30 minutes and they’ll realize they haven’t even talked about a game.

Now games are the core, let’s not forget that, but the fact that we’re delivering a great entertainment experience that fits into peoples’ lifestyles is exciting a lot of people. I’m playing Call of Duty 2 right now. I don’t know if you’ve had the chance to do that with real surround sound, but it’s just spectacular. That and PGR3, those are titles that are really pushing the envelope. With Gotham TV I just sit there and I’m watching two guys -- I have no idea who is racing -- embarrassing the heck out of me, but racing in Shinjuku or the streets of London. I don’t know if you’ve looked at Gotham TV, but it’s like you just pick two guys racing. I got an e-mail from Bill Gates, who loves Project Gotham. He’s been playing it, and he said, “I’ve watched these guys on Gorham TV and I’d love to know more about them.” Bill’s very good at thinking these things through. I’m watching one guy in a Ferrari and another in a Lamborghini, and I don’t know who they are, but I’ve got their gamer tags there, and boy, they’re really good. It’d be very cool to learn a little bit more about them. There’s privacy issues, but how cool would that be that then you could look at their game attack and then click in and maybe something pops up as a picture in picture. Here’s who I am. Here’s where I live. That’s the stuff that really builds community. It builds heroes out there. You know, guys like, Fatal1ty and those guys. And then the Korean phenomenon, these teams of guys that go out there. We’re not far away from being able to do that.

Thank you for your time!