E3: Peter Moore on Xbox 360 - and the competition

Speaking to GamesIndustry.biz at E3 this week, Microsoft's games boss Peter Moore discusses his reaction to Sony and Nintendo's conferences, and Microsoft's own plans for the future of the games business.

GamesIndustry.biz: All three companies laid their cards on the table earlier this week - from your perspective, what do you make of the three conferences and the reaction to them so far?

Peter Moore: I think that we came here with a very focused view on what we needed to communicate at our press conference. I was quite frankly surprised at what Sony had to show - and I was a little surprised at the pricing announcement. We weren't quite sure about whether they were going to come clean with the pricing. Having two SKUs sounds familiar, having a global launch in November sounds familiar...

I'm trying to rationalise $500 and $600, though. I don't know what that is in pounds - they haven't announced pricing yet - but I remember the abuse we got for �279. I'm trying to rationalise whether Blu-Ray, a format that hasn't hit the market yet, can justify that pricing - and whether, when I look at their games and look at our games, I can see a $200 or $300 price differential in the quality of their games versus our games. I don't know about you, but I'm not seeing that yet.

Maybe I'm missing it, but when I see Gears of War... When I know that what you saw from Halo 3 is in-engine... Actually, blown up on the big screen, I didn't like the way it showed, because I've seen it on things like this [gestures to LCD screen] which is the way you should see it, and the game was spectacular. That was not CGI, that's in-engine work.

Then, having that little announcement of making sure that Grand Theft Auto IV debuts on our platform on day one, October 19th in Europe - when I roll all that together, and throw in this little thing called Xbox Live, and all of the opportunities that has provided for gamers to look at different ways to play, for publishers to have the opportunity to commercially transact with consumers who are totally connected. Xbox Live and Marketplace continues to be a monster phenomenon.

I add all that together, and compare it to what I'm seeing from the other guys, and I'm feeling pretty good that we're certainly in the right place. You know, having ten million units head-start - it's funny, you wrote about it at the ELSPA Summit last summer when I said that ten million was important. People kind of laughed at that and said there was no way we could do it, but we'll hit ten million way before the holiday of this year.

We think that a head-start of that magnitude is a virtuous cycle. There's a lot of goodness for publishers, there's a lot of goodness for retailers - but more importantly, we're driving Xbox Live, driving Marketplace, driving Arcade, driving fresh, downloadable content.

Providing gamers around the world - as we're dong right now, in real time - the ability to download hi-def content. We put everything you saw at the conference up on Marketplace last night, so that the guys who can't get to E3 can experience it on their hi-def TVs or whatever way they want to experience it. We're getting the numbers right now, but I can feel the heat from the servers as they handle those downloads. The Gears of War demo is being downloaded, the video of that, the trailer itself - and of course, Halo 3, the in-game video that we showed.

So I'm feeling comfortable that we're delivering what we say we're delivering. I don't think we've ever said things that we haven't delivered on, at this point. Last year was tough for us, because we took the high road; you, and everyone else, criticised us for having alpha kits running, but to me it would have been disingenuous to show videos of things that we needed to ship that year.

I haven't had a chance to go over to Sony's booth - I'm sure there's a ton of playables over there, I don't know. I want to go see Killzone, and see what it looks and feels like that.

You'll be disappointed on that front I'm afraid, there's no sign of it this year.

Yeah, well. There's a surprise.

From our point of view, we're completely focused on delivering volume and supply for retail this year - because it's going to be another tough holiday if we don't step up our volume.

Despite what Sony will tell you, they really don't know - they don't know what their yields are, they don't know what issues they're going to face in production. While I hope for the good of the industry that they hit the numbers that they say they're going to hit, it remains to be seen whether you can ramp at that level. That's a lot of units ramping; they've got to start making it very soon. Complexities of Blu-Ray, complexities of Cell technology, silicon yields and what have you... They'll figure it all out, but they know it's not easy.

You mentioned GTA IV a moment ago, but is it really a huge coup for you just to get equal treatment from Rockstar on a game? Is a simultaneous multi-platform launch really worth tattooing yourself over?

Well, here's the deal - yeah, absolutely. Many people would attribute the success of the PlayStation 2 to the success of Grand Theft Auto 3. It is our view that in the next generation, third party exclusives will become harder to find - so what people were missing, and maybe it wasn't made clear, is that day and date is important to us because when we do our research and ask PS2 owners why they're going to buy a PS3, they say it's because the only place they'll get Grand Theft Auto. That is empirical data that we've been amassing.

So when you talk about neutralising that, that's very important to us. Then we say to gamers - and this flooded my inbox during the night - the only place you can play Halo 3 and Grand Theft Auto IV is on an Xbox 360, and they've seen Gears of War and it blows the doors down for them.

What we look at is how you switch people on a market share basis from one generation to the other - and the ability for us to be able to say that the only platform where you can play those games is Xbox 360. More importantly, what people weren't even listening or didn't pick up on the importance of, is the exclusive episodic content, from Rockstar, for the Xbox 360.

If you think online is going to be important over the next few years, exclusive content online is going to be even more important. Having someone like Rockstar, who totally believe in our vision for what episodic content will be, downloadable content, bringing you maps, levels, vehicles, things of that nature - that ability to do that is very, very cool. People missed a little bit of the importance of that bit of the announcement. Having Grand Theft Auto IV on our platform is very important.

You say you'll have exclusive content, but will Rockstar also be making exclusive content for the PS3?

You'd have to ask them that. They're not going to tell me what they're doing. I don't know, I mean, how good are they feeling about the power and strength of the PS3 online network? What development environment are they working on right now, what size of installed base?

I mean, the guys at Rockstar are very smart guys as you well know. They've never really been able to do a lot on Xbox Live and that hurts them. People like Sam Houser and Terry Donovan are the most innovative guys in our industry, as you well know, and back in the UK where a lot of this is made, there's a real desire now to get with what's going on in the future, and that's driving a connected state with consumers that are millions strong.

I'm sure Sony's going to come up with something, but the proof of the pudding is in the tasting on this thing. We're there, we're going to be at six million by next E3, our attach rate is phenomenal. It's not just that early adopter any more - by having the Silver tier in there, by removing credit cards... As of last night, we now have a thousand pieces of downloadable content on Marketplace.

When you add all of that together, you've got to be able to predict an environment that you can develop into, with a predictable installed base and a consistent interface. Then we talk to them, as we did, about Live Anywhere on top of that - which Bill went through - now we're talking about hundreds of millions if not billions. That's a market that we've got to look at. We've got to address how you take a platform, that is Live, which has been given birth to on the Xbox but which is ultimately a platform play.

This is about a connected state - this is no different from the phenomenons of things like MySpace. People want to connect, and while offline gaming will still be popular, connecting your console now is not some geeky, intimidating, first-person shooter thing. It's things like Viva Pinata, which people scoff at, and that's fine. We'll prove them wrong. The boys at Rare, as always, are going to push the envelope and see where it will split. We're broadening that demographic, getting people to feel more comfortable about connecting. That's very important to us.

Does Sony's announcement that they won't charge a subscription fee on their online service put pressure on you to follow suit on Live?

Well, on Xbox Live Silver you can do anything except play multiplayer. What Sony has actually announced is that they're pushing the emphasis to the publishers to figure out what they want to charge. They have said, "we're not going to charge you" - but if you truly believe that the publishers are going to build data centres, build user interfaces, network stacks, run bandwidth costs, egress costs, do compatibility with every provider around the world... For free?

Somebody needs to show me the business model there that's going to work. What the publishers are going to tell you is, not only are we providing Xbox Live as a platform - we built it, they know how to deliver into it, every single publisher is into it - but we've now acquired a company called Massive, and we're going to provide a turnkey solution for them to allow them to monetise their intellectual property. They're going to put hooks in the games, as long as that content is relevant - driving games will have a Coca-Cola sign in there, or product placement from Ford or GM built into the game; if it's relevant and pertinent to the game experience, we're in.

Sony... I'm not worried about them. They've got their own problems to fight here. We know where the future is - the future is connected state. It's not about hardcore games, although that will still be there. It's about all of us being able to talk, and interact, and play, and race, and drive - and monetising that, with development costs going through the roof, is going to be very important.

The pieces in the jigsaw puzzle are there, and we're not a company that's afraid of making bets.

[On the status of the Xbox 360 project now...]

We're in the second generation of the next generation. I've got 40, maybe 50 thousand dev kits flying around somewhere at this point. Developers are now moving into their second full year - and actually, for some guys, they'll be looking soon at the third year of working on the hardware. You never hear anybody say, boy, that Xbox 360 is tough to develop for!

So you add that, you add the XNA which we've started delivering, you add Live Anywhere, you add Xbox Live, you add 10 million headstart... You build on content that we've been amassing from an IP point of view, like Halo, Gears of War, Viva Pinata, Shadowrun, Too Human, Mass Effect, Fable, Forza, Project Gotham Racing - all first-party. You tie in spectacular relationships with third parties, and you bring it all together with the platform that sits above it, that can monetise it with premium downloadable content, with in-game advertising. You bring MSN into play, with 450 people around the world selling on behalf of EA, Activision, Ubisoft, all these guys - assuming we can figure out deals, obviously.

You tie all that together, and you've got the business model for the future of this industry. It's not relying on someone to go to Dixons on a Saturday morning and hopefully have �50 in their pocket, and scan a hundred games and go, "that one" - that's too random. Absolutely too random, and then you never hear from them for another month, when they've saved up another �50 to go and get another game.

That's not how business is conducted going forward. Business is conducted in real-time, 24 hours a day, seven days a week, building a relationship with the consumer that's connected. Everybody wants to connect with the consumer, and be able to build a commercial transaction - whether that's micro-transactions for a a hundred Microsoft points, or going forward to buy �40, �50, �60 games.

I prefer the ability to interact - I want everybody to connect. There's no reason, in today's world of massive broadband adoption, that you can't move towards a goal like that. I don't need your credit card any more, I don't need any money. Just give me a try - in fact, this week, Adidas in Europe is putting people up there in Gold for free.

Do you expect the HD-DVD drive you've announced for the Xbox 360 to go out to a wide audience?

I don't know. It's about choice - you want to buy a games machine, I'll give you a games machine right now for $299 that plays high-definition games and connects. You want to step up and get local storage on there, that's $399, or its �279. You want high definition movie playback, well, I'll announced a price soon, but here it is.

What I'm not telling you is that you must have high definition movie playback, and it's going to cost you between $100 and $300 dollars. I'm not forcing that upon you. We learned the same lesson with Xbox, when we put the hard drive in there. We learned a lot of lessons, most of them fiscal. Some guys like having local storage and some guys don't.

High-def will come - whether it comes next year, or the year after, or the year after, at a mass market level - but we had to make some very tough choices two years ago about what you build, on a pricing curve level, if you want to scale. We made the choice that we felt that DVD9 was still a very lively format that our developers could work with - that it was going to be too early to embed the cost of high definition movie playback in the device itself. I think that what you've seen at $500 or $600 bears that out.

The bigger problem, as well, is not this year - because, you know, they're going to sell what they can deliver. It's two years down the road when you're trying to hit �149, and ultimately �99 - can you catch up, in a cost reduction curve, at a time when your competitors are already there and are actually at a zero gross margin, in other words, the cost is balancing out the whole thing.

That's where the rubber hits the road on pricing - not in the first couple of million.

So you're pretty adamant that PS3 is overpriced at that level?

I don't know. You go ask consumers. As you know, I go tool around on the boards every now and then, and I tooled around the boards - a lot of the stuff that you do. I love going around the Brit boards because boy, those guys are very shy, and they don't tell you what they think... [laughs]

I go into Eurogamer and I look at how many comments there are already, and which threads, and that's where I get my feedback from - because it's not about me, it's about what the consumer thinks.

Put it another way then - are you happy that Sony has priced at this level?

I am very comfortable with our price point, for what it delivers, for the number of games that we have, for the quality of the games. What's got to happen is, the consumer has got to walk over to Sony's booth and say, oh yeah, those games are $300 better. I can see $300 of difference in that game right there. I'm not sure that's the case right now.

If they can see that they've got more games, or they can see that they've got a better online network, or they can see that their first-party stuff really rocks... Or that the franchises that they have are superior to Halo, or Gears of War, or Project Gotham, or Forza... Unless you can answer those questions, if you're Sony, you've obviously got some challenges. They need to answer those questions.

They're a great company. It's a great product. I'm sure they have answers - I don't know what they are.

Looking away from what's coming this Christmas, and more to what's coming in the next six months - you've got six months to get to a stated goal of ten million units by the time Sony launches in November...

That's assuming they get to market in six months.

Assuming that, yes. Let's take them at their word for now. How are you going to get from where you are now to ten million units, when your launch schedule on software doesn't really look that strong over the coming months?

You don't like Gears? You don't think Gears is....?

I think Gears looks great, but Gears is one game. One game doesn't get you to ten million units.

You don't think things like, certainly in this country, having Madden coming up there first in next-gen and hi-def for us; Splinter Cell; Saints Row.... From our point of view, even Viva Pinata, which people are going to underestimate, I think. You don't believe that that, on top of everything else we've already got in the market right now... I don't know. It's a rhetorical question. You don't believe that we can hit 10 million, so we need to reconvene over a pint in London in December when we'll look at the numbers again. I believe that we can, so it's a subjective call.

So you don't see any weakness in your release schedule over the next few months?

Where do you think we're weak?

You spent a lot of your conference this week talking about big games for 2007, when we might have expected to see more about games that are happening in 2006. 2007 is still a long way away.

Grand Theft Auto was 2007, but I talked about Forza, this year. Fable I did talk about, we didn't even give a date for Fable, but Forza - obviously, the game is phenomenal game. That game will be huge, particularly in Europe.

There are 160 games - and again, you're taking the old model of, what's available for �50 on the shelf? You're not looking at Arcade. Arcade is unbelievable - I can't tell you how powerful Arcade is as an alternate medium for going in there and picking up packaged goods. The conversion rate of Geometry Wars, which was a lad in Liverpool in his spare time - I mean, you know the story - that thing has converted at 38 per cent.

So don't take the old model, where you have to have triple A software to make a platform. Yeah, that's important, but again, talk about the things that I laid out ten minutes ago - about the multiple things that are going to drive this business.

You and I are going to, as we often do, agree to disagree. We need to meet in London, and you can buy me a pint, or I'll buy you a pint.

And by the way, bringing eight new markets on doesn't hurt either. There is incredible demand - we're scratching the surface right now of demand in this industry, and going into places like India where there is, well, a couple of billion people. Now, certainly, only a minority of them will have them, but when you look at those countries... And we haven't even talked about China, which has its own complexities - but we'll be there.

Looking at the Live Anywhere system, that's all about interoperability between systems like the Xbox 360 and the PC. Does that mean we'll be seeing more games being launched simultaneously on those systems - things like Forza or Halo 3, maybe?

Yeah, I think... Well, I'm not going to comment about specific games, but I think that ultimately we start looking at this less as making a game for a device, and more as making a game for a platform. Shadowrun is our first attempt, and Shadowrun won't be perfect - but Shadowrun is a game which we believe will be the proving ground for the experience of cross-platform play.

Games will be important, but the community aspect is going to be really important. Scott did a great job of showing what it's about - I think productivity is going to drop, actually. When I can see what you're doing in the office on your PC, and I can invite you, and you have that game on there...

Again, we're not a hardware company. Hardware is necessary in this business, but also, ultimately, this is a platform play. Hardware, as most companies will tell you, is a pretty crappy business. It's difficult to make great margins on, it's difficult to make the money to plough back into the software. It's all about a combination - you've heard this before from us, it's hardware, software and services. We've said it, you all yawned, we'll keep saying it. Hardware, software and services - we're delivering your games, your friends, your lifestyle. Eventually, it'll all sink in. That's what it's about.

For Bill to stop what he was doing, fly down here and do this press conference twice, is because he believes in it. I can tell you a bit about Microsoft - when Bill believes in something, people generally snap to order and get it done.

He was self-deprecating yesterday, but he loves Arcade. I know exactly what he's good at, and Zuma is one of those games he's very good at. His kids, too - I mean, now you've got a different Bill Gates. Now you've got a Bill Gates who's looking at it as a guy who's raising kids, who's interacting with them in a different way through Xbox. He doesn't, he can't come across as involved as he really is. I can tell you, Bill has a real point of view on the games we put up there, a real point of view on the experience. I get emails from him, and the guy is so strategically brilliant about what needs to happen here. Live Anywhere is - you're going to accuse me of saddling up the Trojan Horse again! - but the ability to drive a platform play, rather than hardware software and services, is very important.

That's what we're good at. We're good at it. We're learning with this stuff, but as a lot of companies around the world have proven, hardware is a very difficult business to be in. You've got to be able to build up - if you're going to continue to invest in making world class software, you've got to find those margins, and those margins come out of the platform rather than the hardware.

How did the plan for Live Anywhere come about?

It's something we've been working on for a couple of years. When you look at what Live is about, it wasn't always going to be something tethered to a device - whether it was the Xbox or the Xbox 360. A lot of it came as we started to see the capabilities of Vista and DirectX 10, and the ability to get into Vista early. First of all we're getting PC games back up and running again, with Games Explorer and easy installation - again, that's Bill. Bill's saying, here are the things you need to put in, and our ability is to put some of the world's best and brightest software engineers to figure out how it works.

The overall vision that he and we have, of this thing that floats above everything, that is a connected state that we all have, is very key to the future of what I believe this business needs to be. If we're going to stay tethered to expensive hardware, and have game developers spending $20, $30, $40 million dollars on games to deliver against that hardware, and then hope to God it sells... The business model is still going to be a challenging business model for all of us.