Keynote Remarks by Bill Gates, Chairman and Chief Software Architect, Microsoft Corporation

Las Vegas, Nevada

January 4, 2006

ANNOUNCER: Ladies and gentlemen, Chairman and Chief Software Architect of the Microsoft Corporation, Mr. Bill Gates. (Applause.)

BILL GATES: Thank you. My wife and I were certainly thrilled to be named persons of the year for our work with the foundation, and to share it with Bono. The competition, I'm sure, was quite rough, as it always is. Kids probably would have voted for J.K. Rawlings. I'm sure Mother Nature was a choice that almost got it. In fact, probably if there had been one more hurricane, Mother Nature would have been on the cover. For a lot of reasons, I'm glad that didn't happen.

Another past winner was the PC itself; all the way back in 1982, it was recognized that this was something phenomenal, that this would really change the world. And that was when the PC was just at the beginning. Microsoft had MS-DOS, we didn't have graphics interface, and we had just started to build up the software industry around the work that we're doing. And over the last 24 years, it's been quite phenomenal what's grown out of that. And what I want to share tonight is a little bit of glimpse of how that will keep revolutionizing itself, and moving faster than ever before with the magic of software connected to the innovation of our partners.

The Digital Decade

Now, we talk about this as the decade of Digital Lifestyles, the decade of Digital Workstyles. That means that all these tools are becoming mainstream. And it's not just one application that makes it happen. It's not just banking or advertising, or filling out your tax return, or even instant messaging, it's the fact that as you adopt those things they really go together, and it becomes more and more familiar to work in that fashion.

2005 was a very big year. A big year for the personal computer, growth of over 11 percent in Windows PCs, a big year with the introduction of the Xbox 360 that we've been building up to for over five years. But this next year, in some ways, is probably even bigger. This is the year that [Windows] Vista, Office 12 and many other products will come out, and the realization of [Windows] Media Center as a volume mainstream product will really be clear to everyone in the marketplace. Consumers are getting more and more connected. They're getting richer experiences, and software is really at the center of that.

I thought I would start off and show a scenario that we think will be real by the end of the Digital Decade, so within the next four years or so, this will be something we think will actually be realistic. Let's start off, let's say we're at home in the morning. We've got a screen here that shows some of the information that we care about. It comes up and it's kept up to date. We just touch it. We've got some of the kids' drawings here. We can just grab those, move those around, pick different pictures that we want. We see the time of day here. All very simple to work with.

Down here we've got a little bit of a map, and because everyone in the family has decided that they're willing to share their location with the rest of the family, we can see here on the map where mom left early and headed off to that soccer game. We see the family schedule there. So, we're able to track everybody and know what's going on. Here we've got a connection up to our video, and so the latest news information has been categorized. It picks the ones that would be of interest to us, and it actually lets us navigate. So, here I can pick a particular show, news item, that's relevant to the work that I do, and I can see there's been a storm here, it's interrupting the supply chain of a lot of different companies, probably including mine. That could be a real challenge. So, I'll click this button here and say, I would like to track that topic. I would like to continue to watch that video clip, and so as I head in to work that video has now been connected up to my cell phone, and I can watch that as I'm getting into the car and heading off to do my work.

When I arrive there, I've got a nice desktop screen. You can see it's got a lot of area. We think this will be very important. You want to have more information that you can just glance at and work with in a very simple way. The idea of a big screen that uses your full field of vision makes sense to us. Now, of course, instead of using a password, I'll just use my fingerprint here, so I'm authenticated in a more reliable way. I see a lot of different information here, including that news story that I was tracking. I go ahead and set up a little conference call that's going to have a lot of people talking about this problem. And so we can see here our Chief Operating Officer is online, our VP of Operations is only connected up through voice. We're talking through the issue. There is the article there, people are annotating that, seeing how it affects us. I've actually got here on my Tablet PC, that's really logically just part of this screen one PC. I've got a little chart here, and so what I would like to do is go ahead and go in and select that, say, OK, this is a chart that I think is relevant, and I can drag it up here, I can either move it to my desktop, or I can move it into this video conference. So, I'll go ahead and drop it there, and we'll sit and talk about this thing. And say, OK, what's going on with it.

It was actually created, I can see, by Thomas Anderson, and so I'm interested in bringing him into the conversation we have here. So I go off and select him, and say that I want to do instant messaging in a side conversation. We're talking to him, and I indicate, hey, you really ought to come in and give us some advice. I can simply drag him over into the conversation, and so he's there. He's now part of that, so not only do we have his document, but we have his advice, and we figure out pretty quickly what needs to be done.

And actually as we get towards the end of the call, I notice that it's been looking at the traffic in my schedule, and it says there's a traffic jam, so I'm going to have to leave a little bit earlier to get to the airport. I've got a flight today, and actually it puts that right here on my telephone as well, along with the map, suggests an alternate route, so I can grab onto this, and take that with me as I leave work.

Later that day, I find myself in the airport, and all I've got with me on this particular trip is my phone. And yet I'm very interested I figuring out what's the latest, what's going on. And so I can take my phone here, and I just put it down on a table that's here in the airport lounge, and it recognizes it. It's got a little camera here, and a little Bluetooth, nothing very complicated with the magic of software behind it. And it says it wants me to authenticate that this is really me, my phone. So, as soon as I put my fingerprint there, I'm connected up, and I actually get a full-sized desktop. And so now, if I want to read mail, or browse, that's all there. Actually, what I'm going to do is take a business card that somebody handed me while I was on this flight, and just put that down on the table there, and the camera scans that, detects it's there, recognizes it, I'll just flip that over, I've got a little note I made when I was talking with this person about some information they would like to see, and it sees that, gets that text, and then I can take that and say, OK, go ahead and put that into my contacts. So, as I drag it up there, I can see the information being connected up and put down into my phone. So, now I have a reminder of a task, send him that information, and see his picture, his name, his e-mail, it's all been added to my contacts list there.

Well, that's pretty nice, I'll take that off and go ahead and look at whatever mail has come in. In fact, I see that Thomas when we were working there in the office has got a press release and here, because it's very critical they know I'm agreeing with what they've got here, again, I authenticate that this is me, and I make my digital signature available because of the fingerprint there.

Now, that that's sent off, here I am, I'm able to do anything I want, I can see up in the right-hand corner through my calendar it knows the flight I'm taking, so it's showing me exactly how much time I have before I have to leave, so I can work here and get the benefit of the full screen, even though this phone normally just has that small screen. When I'm done, I just pick this up, and of course it's smart enough to recognize now that it's logged me off, and somebody else can come in here and use this and that's just simply available to them.

So, it's a very simple thing to have all these devices working together, and I have that Digital Workstyle, my calendar, the traffic, my contacts, my rich communications done in a very different way.

The phone is very different, the idea of meetings is very different, the way we collaborate, we're able to share across different companies, it's all very different, and that's because we've taken software and put it at the center, the digital approach applied to all of those activities.

Well, we see that in so many areas. I think five or six years ago, if you'd said to people that software would be incredible in terms of making photos better, music better, TV better, phone calls very different, they would have been quite skeptical, they would have thought how can software do that.

Well, now particularly in music, to some degree in TV, they've seen that it makes a huge difference. It allows them to pick the things that they're interested in, it allows them to see it when they want to, to share with friends what they've seen and what they like.

And so this really is the symptom of the great progress we have here in the digital decade.

Software: Make Things Simpler and More Effective

The PC sales growth with Windows PCs exceeding any expectation this year was a great example of that, more relevance, more things that are going on there. Broadband was a luxury only three or four years ago, and now has actually overtaken dial-up, and we're getting over a hundred million broadband users here in the United States and we'll have 80 percent of all online households broadband by the end of the decade. And the U.S. is not even the leading country in that respect, all the developed countries moving very quickly.

So what does it mean? It means that software will come in and make things both simpler and more effective. Picking the music that you want, finding out other things by that artist or similar artists, not having to think about disks and putting them in the case; entertainment, finding the things that are great, seeing them when you'd like to, having a digital jukebox so anywhere in the house you can call up the movies that you own and see those exactly when you want to; photos, organizing not just photos but all the memories of your kids growing up, being able to search those, send them off to relatives, have them appear on various nice screens around the house like that one I had in my kitchen in that scenario I showed; communications, not just with the voice but also with the screens connecting people together, letting them annotate documents, work together in a very rich way: These are scenarios that people can understand, if we make them simple, we make them inexpensive and we drive them through a single interface, everything you learn, the concepts for one activity, whether it's gaming or office productivity get applied across these different activities.

Software for the User

Likewise, these things need to work across all the different devices. So it's not just software for the PC or software for the phone or software for the videogame, it's software for the user. And my preferences, my interests, like how I charge things or the news I care about or who my buddies are, all of those things are reflected on those devices. As I move between devices, the people I've chosen to share my presence with becomes available to them. A friend can see, if I want, what game I'm playing and say they might want to play with me, ask me to join in and do something else; if I'm on my PC working, they can notify me that there's a contest coming up, something that they'd like to engage me in. Even watching TV, the ability to chat with your friends while you're watching the same show or different shows should be something that's very straightforward.

So this cross-device approach is a very, very important approach. In fact, that's complemented by the fact that there will be what we call Live services where a lot of your files, your information will actually be stored out in the Internet, and even if you pick somebody else's device up, once you authenticate, all that information becomes available to you. So moving between different PCs can be a very, very easy thing.

There's a lot of themes there, themes of personalization, themes of empowerment, themes of everything moving to the Internet. What is telephony moving to the Internet? That's voice. What is TV moving to the Internet? That's Internet TV or IPTV. People have to have confidence in these things, automatically backed up, security built-in, very reliable systems that use the cloud storage for those kinds of guarantees, and easy connections, connecting to people, connecting up to devices, a very strong way of driving through all these different scenarios and making them very simple.

In sum, it's very revolutionary, but every year we have big milestones, more adoption, and it only really catches up to us in terms of how it's changed the world of media, changed how the business models work there, changed the way that magazines and newspapers are delivered, changed the way that entertainment gets done, bringing these new interactive elements in; TV, where we've picked the new segments we want, we interact with a learning show, we can find the video that wouldn't have been available in a broadcast system; all of that is becoming very, very mainstream.

Now, a huge component to this is going to be the investments we've made in the Windows platform. The Windows PC is a part of this ecosystem, so it's got to connect up, but a very important part, both as it presents a nearby interface, what we call the two-foot interface, and as it presents a ten-foot interface, the Media Center interface.

The Next Generation: Windows Vista

And so we're going to show you tonight a glimpse of a lot of [Windows] Vista that we've never showed before. We're going to ship this by the end of the year, and so we've got a few months here, we'll continue to refine the user interface, get feedback, make sure we've got this exactly right. But we're very excited to show you where we are, show you some of these new capabilities.

So let me ask Aaron Woodman, the group product manager, to come on out and give you a little look at [Windows] Vista. (Applause.)

AARON WOODMAN: Thank you, Bill.

I'm super excited to be here to get the opportunity to show you Windows Vista. You know, as Bill mentioned, there were really three things our customers wanted from the next generation of Windows PCs. They wanted clarity, a way to cut through that clutter. They wanted an increase confidence while using their PC. And lastly, all of our customers have grown to expect Windows to be a bridge to communication and entertainment experiences. Let's take a look at how Windows Vista really starts to deliver.

The first thing you'll notice is a fresh user interface. All the applications are actually surrounded by glass. It gives you the opportunity to see what's in front, but it also gives you a sense of depth and seeing what's happening behind itself.

We've also improved how you switch between applications. In fact, if I go down to the task bar, I actually get now live previews of the applications, including motion video. We've extended that same live preview concept to do fast application switching of ALT-TAB, meaning that I can now see all of the applications as they're running, find the appropriate one, and continue to see what's happening behind it in the applications in a live mode.

Lastly, in Windows Vista we've created an entirely new way to switch between applications, Flip 3D. Flip 3D moves all of my applications into a 3-D space, allowing me to scroll through them with my arrow keys or quickly with my mouse. And you really get a sense of the graphic capabilities behind Windows Vista.

We've also given you a couple of new ways to actually see information itself. The two that I like are Windows Sidebar and Windows Sideshow. The Sidebar is a space over on the right-hand side of the screen that houses small applications or gadgets that give very specific functionality or information at a glance. There are four in my Sidebar. There's actually a picture window showing some of the pictures that my friends have placed up on MSN Spaces, I have an RSS feed; I even have an egg timer. My favorite though is actually a prototype built by our partner, Fox Sports, and this allows me to see the latest upto-date sports information that I care about. The nice part about this gadget, I can drag it to the desktop and see a little bit more if I care about it. It's a great way to stay on top of the information that's important to you and cut through that clutter.

The next innovation is really the Windows Sideshow. I'm going to hold up this laptop so you can get a sense of what I'm talking about, but essentially it's a small LCD screen built right into the side of the laptop. And essentially it gives me some small applications or gadgets, again providing some specific functionality. My favorite is actually the calendar application, meaning that I can look and see where I need to be, when I need to be there, without having even to have me power the laptop on. That's information at your fingertips, that's what you should expect from the next generation of Windows PCs.

Bill talked a lot about information on the PC, and consumers have been clear, they want great tools to find the information when it's relevant to them, search is important to them. Windows Vista delivers. In fact, if I go to the Start menu, I can now type the application I'm looking for without having to search through lots of folders and immediately find the information that's important. I can go to the Windows Vista library and search for content that I care about. And it's going to search through all of those documents, no matter where they're stored, what they're called, and bring the relevant information to me, providing me that sense of clarity that I look for.

And the last thing, when we think about information it would be hard not to talk about the Internet, and the Web has been critical in bringing the information we care about to consumers.

Let's take a look at our implementation of tabbed browsing but with a twist. I'm going to go up and do a quick MSN search on something that I care about. It's going to bring those up, and I'm going to open up new tabs and they're going to open up right underneath the address bar there. I'm going to go through and decide, yeah, mountain biking zone is interesting, not sure what that one is about, couple others here, and you can see they're all opening up on the right hand side. But that twist I talked about is Quick Tabs. This gives me the opportunity to see all those tabs, the state that they're in, and make quick, fast decisions, really taking the clutter out of the concern in deciding, oh, I don't want that tab, not really that one either, that's the one I was looking for; a great way to give tools that consumers are looking for, give them the information that they expect from the next generation of Windows PCs.

Well, what about confidence? We've made huge investments in Windows Vista in terms of the security, making and hardening the Web experience, including things like the anti-phishing browser. My favorite is parental controls. For the first time ever, the Windows operating system is going to have built-in parental controls. I'm going to go ahead and select my son's account, Toby, and you can see the types of restrictions. As a parent, I now get to decide [what I] implement on my PC: I have Web restrictions, time limits, games. Games is a wonderful example of us working with something that the industry has already rallied around, and that's the game ratings from the ESRB. This means that now when you buy a game, on the packaging you see an emblem, on the game itself, and ahead of time you can decide as a parent whether you're comfortable with that PC and your child playing that game on that PC. That puts parents back in control and it gives them that sense of confidence that they expect with having that PC in their home.

Well, what about experiences? It would be hard to come to the Consumer Electronics Show and just talk about clarity and confidence; well, what about the experiences we expect from Windows? I'm going to talk and show three that I think really move ahead: gaming, memories and music.

Gaming is a wonderful place to start. It's been really paralleled with the PC since we started bringing them into our homes. In fact, there's one application I can think about that has this long rich history working with the PC, Microsoft Flight Simulator. The Microsoft Flight Simulator has been around now for over 20 years. Every time the PC has improved in its performance, its capability, its graphic ability, Microsoft Flight Simulator has really been there to take advantage of those opportunities.

I brought with me actually a sneak preview of the next generation of Microsoft Flight Simulator. It's a really immersive environment that's being led by Windows Vista graphics and the next generation of DirectX.

You can see the realism of the reflection. And I'm actually going to drive or going to try to drive with my Xbox 360 controller plugged directly into my Windows Vista PC. You can really start to see the smoke from the boat, the independent and kind of live life that you see with the waves, with some of the birds and the trees that you'll start to see.

This is the immersive environment that people expect from PC gaming in the next generation of Windows PCs. Windows Vista really starts to deliver.

Off the west coast of Maui, it's not a bad place to be.

So the game developers actually have a little bit more than a year to continue working on the product, so the final product is going to be even better. But one thing is for sure, gaming is going to be awesome on Windows Vista.

All right. Well, what about memories? We all expect memories to be part of Windows, and Windows Vista really delivers an entirely new experience. I'm going to open up the Windows Photo Gallery, which is really the hub of the memories experience within Windows Vista. It gives me an opportunity to see a snapshot view of all the memories I care about, including digital photos and digital video.

I can easily and quickly pace over the images that I'm looking for. We've given you a couple of new tools to find the images. We give you dates so you can quickly find things by date, by tags, by keywords. I can search by keyword. It's a great way to put consumers back in control and easily find the memories that are important to them.

We've also implemented edit functionality right into the operating system. I'm going to actually open up a picture that I want to edit and go to fix. And you can see the types of controls over on the right hand side. I'm going to actually select to crop this image and apply that, and then go on to the next picture. You can imagine how many customers have looked for that type of simplicity.

We also want to continue to provide confidence in the experiences themselves. So what can you imagine would be more frustrating for a consumer than coming back to a picture and feeling like they've lost that original fidelity, because of the number of times they've edited it? They've cropped something a few years ago for a print and come back to the photo and decide, man, I really want the content I cropped out.

In Windows Vista we always save an original, which means years later you can come back to this photo and decide actually I want to see the original fidelity, I want to see the original image. We give you the confidence so that you can do what you want with your memories and never feel lost. It's a great way to put consumers back in control of their PC.

Lastly, I want to show you the experience that we've improved in terms of enjoyment. I'm going to go to some of my favorites and open up the Slideshow. The Slideshow is a wonderful way that people have started to enjoy their photos on the PC. It's a wonderful creative way to gather and get a sense and stay connected to the things that are important.

We've made two good additions in terms of the Windows Slideshow in Windows Vista. The first is the addition of themes. In this case it's the white border moving on a sandy beach and those nice transitions. The second improvement is motion video. That means you no longer have to separate your digital still pictures and your digital video pictures. If you're interested in sharing with them, the Windows Slideshow gives you that opportunity. It's a great way to put consumers again back into control of their PCs and give them what they're looking for.

Well, music. It would be hard to come to the Consumer Electronics Show and not talk about music from Microsoft. In fact, I've brought with me the next generation of Windows Media Player. The first thing you should notice is clean user interface. In fact, when I click on artist, I no longer get this list that scrolls on to infinity, I get this nice, clean user interface. We've really done a great job of integrating the graphics, in this case the visuals or album art. I click songs, I not only just get a list of songs but I get the album art associated with that. In fact, it's actually dynamically there so I can decide how much or how little I actually want to see.

We've improved the management experience within the next generation of Windows Media Player. I go to genre and I get what we call Digital Stacks and that's the ability to visually see how much is in the actual collection. And you see blues has two or three albums, bluegrass only has one. If I scroll down, you can see the Latin collection has a little bit more. It really gives you a sense and an ability to make choices very quickly off of some visual information.

Lastly, we've improved performance. When I select songs, I'm going to scroll through, and this is a 10,000 song library. You can see how quickly I get the album art, I get the title, I get the ratings. That's the performance you should expect from the next generation Windows PC.

And because it's Windows Vista, search, which means I have that 10,000 song library, I can instantly scroll down to the ones I'm interested in. I can do it by artist. That's the type of control that we expect consumers are going to want and we're going to deliver within Windows Vista.

URGE: Microsoft and MTV

I'm actually going to bring Bill and introduce Van Toffler, the president of MTV Networks, the music group, to come back on stage and talk a little bit more about some of the things we're doing within music. (Applause.) Bill, Vance.

VAN TOFFLER: Hi.

So thank you. I'm Van Toffler, and it's a privilege to represent MTV Networks here tonight to announce our new venture, URGE, alongside with Microsoft and Bill Gates. Though I have to tell you I'm personally really excited to give Mr. Gates in person backstage the massive $50 royalty check for being the inspiration for our MTV film "Napoleon Dynamite." (Laughter, applause.) Separated at birth. (Laughter.)

Bill, was that a bad career move to put that photo up? You don't need to answer that, it's too late.

Anyway, I thought I'd kick it old school by bringing some handwritten notes here. Microsoft and Bill Gates are synonymous with innovation and technological breakthroughs, and MTV Networks has been at the forefront of innovation around music and content catered for young adults for 20 plus years.

We were the first to put music on a new platform in the early '80s when we introduced the notion of music television, and you can all personally thank me later for introducing to the world both Milli Vanilli and Vanilla Ice, though I think it was a year apart, so please cut me a break.

And today the pairing of MTV Networks and Microsoft takes us down another path of innovation, the digital expansion and migration of the musical experience. The seeds of many of our cultural revolutions have been born in the world of music, and the digital revolution has proven to be no different. Today, with URGE we're bringing to market a unique approach to digital music, one focused on the emotional connection to music. URGE will offer a customized relationship with music, a sense of musical discovery, along with access to millions of songs from major labs and indies, an opportunity to listen to over a hundred radio stations, a chance to learn about the roots of songs and lyrics, plus interaction with hundreds of artists and access to their playlists of must-haves.

You can also take URGE and make it your own and personalize your own soundtrack and make it for any mood or event.

With URGE we're undertaking a long journey with music fans, and this is just the beginning. Like our TV brand, URGE will be continually reinvented. It will be programmed for music fans by music fans. Subscribers will customize and drive this service, they will tell us what sucks and what they hate about the service, they will customize it, program it, share it, change it and move with it.

In addition, taking advantage of our 25 year plus of experience and relationships with artists, labels and music fanatics, we will engage an army of music professionals, bloggers, musicians, creative gray album producing musical freaks, and experts in all genres of music who will help guide the consumer experience as well, which is definitely unique to URGE.

So please taken note we are trying something new with URGE, like music television was 25 years ago, and that's certainly needed some reinvention along the way. Can you say, "Flock of Seagulls video 30 times a day?" Thank God, times have changed. Yet, today with URGE it is our mission to create a truly immersive, emotional, engaging and entertaining experience around music, which will only get better with time.

So we believe today marks a great day for music, for labels, for artists and also marks the continuation of a wonderful collaboration between Microsoft and MTV Networks.

So maybe, Aaron, we can take a look at URGE?

AARON WOODMAN: Absolutely. We're super excited to be the ones to have the opportunity to give you guys a sneak preview of what the URGE music service is going to look like.

Right below my local library is the URGE music service, and it's really kind of that deep integration into the player, working alongside with MTV and the player team to build a great experience.

The first thing you should know is URGE is going to deliver music across genres. They're going to actually deliver hundreds of hand built playlists, over a hundred CD quality radio stations, and the top music you expect. They're going to do that in an environment that is creative and has great design.

When URGE music service launches, they're going to have over two million tracks available for individual song or album purchase or as part of an all you can eat subscription.

And because it's built exclusively in the Windows Media Player, it's going to have those same great tools that you have on your local library now against this 2 million track library. In fact, when I open up the music service it looks a lot like the above library.

I can search by album or artist. Artist is a pretty good way to start. I've been listening to Green Day, I've been talking to Bill a little bit about it backstage. So if I wanted to find Green Day, instantly the results are brought to me, two million songs to the few that are interesting to me.

I could quickly and easily open up my My Playlist, and I could drag these 15 albums over to make an instant playlist and start listening. That's the type of program you can expect from the MTV relationship.

Besides the albums, they're going to really leverage the strong voices that are behind and are in MTV to provide you really great content. In this case, if I go to rock informer, you get some of the strongest voices in the music industry delivering editorial blogging and editorial context and text. In this case I don't only just get the text, I actually get the songs themselves so it's a great integration between the content you're interested in and the music you can listen to, all in a single place.

They're going to actually do that same type of integration with some of their channels. In fact, the MTV channel hub shows a wonderful integration, showcasing new and upcoming artists, superstars, content from some of their channel programming like TRL, VMA, some of their MTV Unplugged, and they're going to build those same type of channel hubs for both VH1 and CMT.

Lastly, why don't we do one more artist search? What's an artist you've been listening to?

VAN TOFFLER: You know, Aaron, I thought you'd never ask. Justin Timberlake.

AARON WOODMAN: Timberlake, all right.

VAN TOFFLER: I hear he has a new album.

AARON WOODMAN: I can quickly find Justin Timberlake and in this case I can actually open up, and not only do I see the albums that I expect when I open up Justin Timberlake's stack, I now actually get some great programming from MTV. My favorite is the auto play mix. When I select that, I get a custom, dynamic playlist built around Justin Timberlake and artists like him. It's a great way to get fresh music.

In fact, I can actually save the feed, meaning that every time I log into the Urge music service or synchronize my device, I get the latest music, meaning that there's no stale music in my experience.

Lastly, why don't we actually take a listen to one of those tracks? (Music.) (Applause.)

JUSTIN TIMBERLAKE: Well, thanks, hi, how are you doing? This is not my usual stage. (Laughter.) But thank you for having me here tonight. I'm here because I'm the type of artist who is always interested, I'm a consumer basically as well, I'm always interested in the newest and coolest things. And from what I've seen, and you guys showed me earlier, I really think URGE is going to be it. I mean, URGE offers artists like myself a new way to specifically reach our music fans with a ton of options to play, interact and buy music.

And I've got a little secret, I want to let the cat out of the bag; when I release my new album this year, which by the way features Mr. Gates's singing debut, we'll be doing a duet -- (laughter) -- [singing] "Artistry and technology" -- no? (Laughter.) Whatever. URGE and I will be doing -- the point is URGE and I will be doing some new and creative things together, so I look forward to it and hope you guys look forward to it, and thank you for having me. It's a pleasure to be here. (Applause.)

VAN TOFFLER: Thank you.

BILL GATES: Great, thanks.

Pretty cool.

One of the special things we've been doing with Windows is creating a tablet version. Now, this fits in with the fact that the growth in PCs was not only fantastic but portable machines are making up a higher and higher percentage. And what we want to do is get this capability, the tablet capability down so it's the mainstream of Tablet PC. We've got dozens of partners building great Tablet PCs, they're getting better and better. In fact, there are some new technologies that are going to make that price premium for this tablet capability very, very small.

Gateway is helping us lead the way with this new CS200. It's a great machine at very much a mainstream portable price.

Part of the way that we're getting this premium down is we're using new digitizers that are called passive, and that means that it will be a simple decision to say, yes, I want to get that tablet capability.

Now, we're investing a lot in this in Windows Vista. The investment is our research group, new ideas of how we adjust automatically to your handwriting style, and so as you use it, it will just get better and better.

We're taking this idea of notetaking, annotating, reading to a whole new level, and we'll have a lot of partnerships around Windows Vista where people are bringing digital content down so that consuming it on the screen instead of on paper starts to be more attractive, that the readability is there and all those rich features that you think about can become available. With OneNote we have a new version of that that will drive this forward and let us do a lot better there. So driving that to the mainstream is something we're very committed to.

New Device Partnerships

Another area of investment for us has, of course, been the Windows Mobile area, and we got into that about three years ago. We've seen a great growth in terms of getting down the learning curve, the breadth of the relationships and depth of the relationships we have. And, in fact, we've got more than a hundred Smart Phones out now with 93 mobile operators in 55 countries.

This year we'll ship more than five million devices, which is a 36 percent year over year increase, and we have some really fantastic stuff coming out this year. In fact, probably right at the top of the list I'd put this new device here. This one you probably heard about, we announced it just a few months ago. It's our partnership with Palm, and Palm does a fantastic job on their devices. Here they were able to take our platform and do a number of unique things that had never been done before. They were able to take and build an ability that they would be able to make it all work with a single-click operation.

So here you can see they made it so you can put the photos in, I can just scroll through those photos, anybody I want to call I just select and I can decide which phone number, how I want to connect up with them, and so this phone is amazing for single hand operation, amazing for nice shortcuts that are built-in, based on the experience they've had, they've brought that to the Windows Mobile platform.

This is on sale starting tomorrow. That's actually ahead of schedule, they got it done, got it approved by Verizon, who's the key partner here, because they're connecting this up to their EVDO broadband service. So the responsiveness of this device getting any sorts of attachment, music, images will be fantastic because of the bandwidth of that device. So a lot of new things that come out here and great to see their work.

We will have more variety of devices coming out this year. One will be a device from Motorola called the Q. We'll have a lot, some of which will bring high resolution cameras in, music capability in, a lot of innovation there.

We also are working with people who do wireless phones in the home, and so this is one that happens to be from Phillips. We've also got a partner Uniden doing something very similar.

This operates, has all the capabilities of that classic in the home wireless phone. You pick it up, you can connect up, make normal phone calls. But they've also built in the ability to do messenger voice over IP calls. And so you just push a button here and, in fact, you get your messenger buddy list. It's completely up to date, I can scroll through here, pick anyone, I can see their presence data and so I can also call through the Internet to any one of my buddies. In fact, this uses what we call the Windows Live Call Services that come through our partner MCI.

So this is a phone that is a very inexpensive phone, but bringing that messenger Live Call Services in along with normal phone calling.

Software and TV

Well, let's now talk about TV. As I said, TV is, of course, a big activity and one that we see software really surprising people with what it can do. The best realization of this is when we have software working on your behalf, creating an individualized video feed to you, to the screen that you're watching.

So what does that mean? That means that the ads can be targeted to you based on the things that you're interested in, and so therefore far more relevant, far more impactful, something that you won't want to skip over as much as one that wouldn't mean anything to you. It means that as you get into a new show, the subjects you care a lot about, you can get more in depth information about those, the subjects you're not interested in you can either easily skip over those or actually have it in advance understand that you don't really care about some sports and you care a lot about others. You might have a ski resort you'd like to see the weather of every time you sit down for your nightly news that you're seeing whenever you want and when you're particularly rushed you just say that and it will condense things, just pick the highlights that are the most important there.

This platform will lead to creativity in doing shows of all types: learning shows, game shows, sport shows with extra information, multiple views.

It's important to note that it completely blows open any of the limitations that channels used to create. We talk about tail video, things like a physics lecture or a high school sports game that never would have made it into that broadcast world now can be sourced in and if it's something you're interested in easy for you to navigate and find. And that's one seamless experience, not your normal TV here and your Internet TV over there, taking that remote control and having that just work that way.

So interactivity, choice, personalization are all things that never were possible before we had this platform.

Now, where are we on this? Well, last year was the year that we did trials, very successful trials, and this is the year that the lead customers -- AT&T, Verizon -- are rolling out in commercial deployment. Over the course of this year these deployments will really scale up into very large numbers, and that's when you'll really start to see the innovation come in, and people recognize that it blows away the previous video platform, and allows for an opportunity to create lots and lots of new things.

Windows Media Center

Now, as that video comes into the home, it will be received on many different devices. You want to be able to see it anywhere, and on those same screens you want to be able to see your own information, your own photos, select music, all those things brought together on every screen in the house.

And that's where Media Center comes in. Media Center is, of course, the other special version of Windows besides what we've done with the tablet. And this was a pretty unbelievable year for Media Center. When I stood here a year ago, we had about a million and a half copies out; now we have 6.5 million. And we're not stopping there but those are big numbers. Most pieces of software don't ship anywhere near that and we're going to drive that up even further for portable devices, devices anywhere you want to get at media, we think Media Center can add a lot of value.

We've got 130 manufacturers doing that, we're in 33 countries, the U.S. is where we're the furthest along, so some of the additions that we make will make us even stronger on a global basis.

Now, there will be special enhancement, a lot of work that gets done with Media Center as we move into this Vista version.

One of the partnerships that's going to be very important for Media Center is our partnership with Intel on this. Of course, we do a lot of things with Intel. We've benefited from their incredible innovation over the years and we've worked to make sure our software takes full advantage of that.

Centrino is a great example of that. We did lots of portable features and they drove those scenarios to the mainstream. Centrino is a great example of each of us doing what we do well.

You're going to see another great example of this with Vive. I got used to saying it right, it rhymes with "five" and "live," so don't make the mistake if anyone from Intel is around, it's Vive. And you're going to see a lot of information about the kind of breakthrough experience that Intel technology enables here, combined with the Windows Media Center, so that's our strengths coming together. This is things like the 7.1 surround sound, which at the chip level they make that very, very straightforward, the dual-core processor helping out on that.

Now, Intel is our key partner here but we have many others that are doing content that exists in the Media Center environment. You can record, of course, it's fantastic at that, and you have special people, over 150 partners who have designed on our online spotlight new capabilities. And this spans all sorts of video experiences, really giving people a glimpse of those new capabilities. And so we're excited that that's a list that keeps on growing, neat new things that go on there.

We're also partnering up with people who provide video connections. One of this, who's very important here in the United States, is DIRECTV. They've been a leader in a lot of things, and the partnership we're announcing that's new today and a very broad multiyear partnership includes the ability to get that DIRECTV video onto the Windows Media Center PC. We'll also connect up to our portable devices, connect up to Xbox 360, and so these Media Centers will let you enjoy the high definition and normal definition DIRECTV content and take that away on a portable media device, so a lot of flexibility there.

Also we're working with BSkyB, who's sort of a sister company of DIRECTV over in the UK, who's done a lot of innovative stuff there and they'll be setting up through our alliance a video on-demand capability, which is one of the things DIRECTV will be doing, and here that video on-demand will be for Media Center customers both to get things on a two-foot experience and on a ten-foot experience. And they've got over 8 million subscribers in the UK who will be able to do those downloads and use those great capabilities.

The best way to understand this I think is to take a look at some samples of how that works, and it's great to have the vice president who's led the Media Center, Joe Belfiore, here to give you a look at that. So let's welcome Joe to the stage. (Applause.)

JOE BELFIORE: Hello. Thank you. Good evening, hello. It's good to be here. I'm going to take you on a quick, hopefully quick 15-minute tour of Windows Media Center and where it is today, where it's going in the future, and how this Windows platform software can tie together content and services and devices in a very compelling way to deliver fantastic entertainment experiences to consumers.

A quick housekeeping note: For those of you interested, last I heard, at the half, Texas 16, USC 10. (Cheers, applause.)

Let's start out and talk about some of the things that are going on with the Media Center today. And I want to talk about some of our terrific partners and some announcements that we have to make at the show. As many of you know, Media Center is a platform and it enables content providers and software developers to create all kinds of compelling application experiences and services that work with a remote control either on your PC, your Media Center PC, or streaming through extender devices like the Xbox 360.

Today, we're announcing five additional online spotlight applications and services, and the one that I want to demo and show is the Comedy Central Motherload. The idea of the Comedy Central Motherload, think of this as an interactive TV channel. I choose the Comedy Central Motherload from my online spotlight guide, and instantly I start getting streamed content like you see here, "The Daily Show with Jon Stewart."

But it doesn't stop there. Although the experience is programmed, I can use my remote to navigate around and find different types of content that I'm interested in. I might get clips from old Daily Shows if I'm a new fan, I might get previews about what's coming up on the Chapelle Show, I might watch background information about "South Park." I can even dive into the Comedy Central archives and get clips from old shows or get video of new and up and coming comedians. It's a terrific way for content providers like Comedy Central to have a great deep relationship with their viewers and offer a fantastic interactive experience to those viewers in lots of rooms in the house.

With these five additional partners, our total number of online spotlight applications promoted around the world comes to 110 right now, and those are all live and available to anyone in an integrated way in today's Media Center experience.

So that gives you a sense for some of the application experiences. Now, I want to talk a little bit about some hardware innovation. One of the things that's been very interesting about Media Center is the degree to which our OEM PC vendor partners have done cool, interesting hardware, and this year we want to show you a piece of up and coming hardware that we think is cool and interesting. This is a PC from Averatec. It's really small, as you can see, I'll pick it up, pretty lightweight, very quiet, runs Media Center, and in this configuration, of course, you can either set it on your desk like this or it's flexible enough to go into your entertainment system. And this particular model actually has all the remote control capabilities built in and has a tuner.

And Averatec will make these PCs available this spring with a tuner for under a thousand dollars and without a tuner for 499. So we think this is a great example of the continuing innovation that we've seen from PC OEM partners like HP and Sony and Dell and Gateway, building great interesting PC form factors for Media Center.

Of course, the hardware innovation doesn't stop specifically with the PC form factors. Our idea, as Bill said, was to try to create a software experience that a user could enjoy with a remote on their couch or could take with them in a portable form factor.

So I also want to show you another new device that is now becoming available this spring, and it's kind of small so I'm going to walk up here and try to give you a reasonable view of it. This is the Toshiba Gigabeat. There we go, you can kind of see it there.

Now, I actually have small hands, so in my small hands this is a really tiny device. This particular model has a 30 gig hard drive and when playing videos you get about four hours of video playback time on the battery.

And as you can see, it's really little, and one of the cool things about it, of course, as a Media Center guy, if I turn it this way and hit the Windows Start button, you can see that in its up and down mode you get the familiar Media Center user interface, which lets you sync all of your music, all of your pictures, all of your personal videos, broadcast video like my recorded TV shows, and of course videos that I might download or load online from service providers like this one that I have running here.

What this actually is is the movie "Hitch," which we purchased before the show from the newly available, the newly announced Starz Vongo Service. The Starz Vongo Service, and I'm going to take a walk over here while I explain this. The Starz Vongo Service is one of many services that are coming online that let consumers get access to digital content that they can use either on their PC or on a portable device like this Toshiba Gigabeat.

One of the things that's great about it is, it offers a flexible way for users to decide how to pay for their content. They can either buy it, or they can sign up for a subscription for $9.99, and get all the movie downloads that they want. And the Starz Service actually has a lot of movie. Right now it's getting up to about a thousand movie titles, the same great content that you see on the Starz channel through broadcast. So, whether you get your content from broadcast on your Media Center using its tuner and record it, or whether you download it over the Internet, maybe because you don't have a tuner, you still get a great flexible platform that lets you watch it either on a handheld device, or on your big screen. And the devices that we're seeing in terms of the portable devices, are getting more and more interesting and flexible. The Toshiba was compelling because it had such a nice small form factor.

And now I want to show you this one, this is a new LG Electronics Portable Media Center device. The thing that's really cool about this one, of course, is the killer wide screen form factor for watching video. And, again, you see, here I have "The Aviator" from the Vongo service playing back on my LG Portable Media Center device. And, of course, if I push the friendly green button, I get my consistent familiar experience with access to all my personal content, again, whether I've created it myself, downloaded it from the Internet, or recorded it straight from broadcast TV, a huge wealth of available stuff.

Windows Live

So, that gives you a couple of examples of portable devices, and hardware, and how the hardware industry is starting to do some more great things overtime with this Windows platform. And now, I want to change gears a little bit and talk about how services can further make the user experience related to entertainment and discovery of content even better. So, imagine now that I'm at work, or I'm on the road with my laptop, and I'm accessing the Windows Live using my Web browser wherever I am. What we're looking at here is the Live.com, a beta of the Live.com Windows Live home page. And the idea in general is that I can customize this with all kinds of different software services.

And what we've done here is precustomized it with a TV service for Windows Live. So what you see here is, this shows me what's happening on my Media Center PC, the shows that I have scheduled, recordings I've already made. Down here, I can get a program guide of content that's available for me to choose to record. And up here is one of the new things our team is working on, a recommendation service that helps you find shows that you might like to watch.

If I click on that, immediately you see it's a service offering me a bunch of choices that might be things I like simply based on what I've already been watching, and what I've already been recording. Now, if I provide the service with more information, like I don't really like reality shows, and I love medical drama, then the service gets a lot smarter about what it can recommend to me. So, here you see, it gives me a recommendation for "Gray's Anatomy." When I move my mouse over that, the service detects that "Gray's Anatomy" is the name of the TV show, and offers me information about when that show is available in my broadcast lineup, and gives me the opportunity to choose to record it right then and there. So, that gives you a sense of some of the service work we're doing that will come online a little later this year.

What I want to show you to expand your thinking on this is how the service can offer lots of different ways of interacting that fit with the personality and care of the particular user who is using it. So, switching over to the beta, a beta of Windows Live Messenger, you can see I have my buddies in here. One of the buddies that I have is a TV service. So, think of this as me interacting with a smart agent that's part of the TV service that I signed up for. So, here I am, and if I'm like some of the people in my family, addicted to instant messaging, then this is an incredibly comfortable and natural way for me to communicate with the service. So, I'll say hello, and it looks like our service might be offline, the risk of Internet based demos. So, I will close that and give it one more try. Let's see, okay, TV service are you there? Hello. Here we go.

Hi, Joe, would you like some help figuring what to watch. The TV service is inviting me to start a TV service activity. This idea of activities is new to the Windows Live Messenger, and when I click accept you can see over here it presents me with a bunch of interactivity. The service says, these are the shows your friends like. That's kind of an interesting thing. Immediately the idea of community becomes something that's factored in and the service can use to do a better job of helping me find things that I like. It knows who my buddies are because I've signed up with buddies, and as Bill described, if I choose to share information about my preferences, and what I like, then that could be used to make everyone's experiences better. So, these are shows that my buddies like. I can just move over there and choose one of those to record.

That's not what I want to do, how about what's on tonight? So the TV service is finding out what's on tonight, it switches over to a grid based guide, only reminding me that I'm here with you instead of watching the Rose Bowl, that's OK, because that's not actually what I want to be doing. How about showing SciFi. I like SciFi. OK, well, here's what's on in SciFi tonight. It further filters the list to show me that. And even better it says, I have a strong recommendation for you and a trailer to watch, cool. The trailer is for "Battlestar Gallactica," would you like to watch the trailer? Yes. Show me the trailer.

And instantly, the service can find promotional material, trailers, background information on content I might be interested, and it starts streaming it to me directly so that I get better information up. It says, if you like this trailer, would like to record it let me know. OK, record it. It finds my Media Center PC, sets up the recording, and now in the future I'll have this show available to watch when it's convenient for me.

So, you get a sense of how the service, both by having a lot of data on the back end, and knowing things about me, can do a good job of recommending things that I might be interested in watching.

OK, we're going to change gears now a little bit, and I want to talk about some future things that are happening with Media Center in terms of great content, and content experiences that are coming. So, I'm going to move over here, and I'm going to talk for a minute about high-definition DVDs first. High-definition DVD is coming online this year, and the first thing that I want to show related to this, this device right here is a Toshiba HD-DVD player, and this device will actually be available this March for $499 as a device that consumers can get to start watching HD-DVD disks. It's a straight-forward player device, as you would imagine, available really soon. What I want to demo is the HD-DVD playback capabilities as a user might get benefit out of interactivity and compelling content running on a WindowsVista Media Center PC.

So, let's switch over and start taking a look at HD-DVD on a Windows Vista Media Center PC. Now, the first thing that you think about when you think about HD-DVD is incredibly great looking high definition content. Well, we've got that. And as you'll see in this movie from Universal, "The Bourne Supremacy," the video content looks fantastic. And this is a great way for consumers to get access to it.

What I want to spend some time talking about, which I suspect many of you have not seen, is how the interactivity capabilities of HD-DVD can really change the viewing experience for consumers who use HD-DVDs. So, you'll see the movie has started here, and now I'm going to start interacting with it in some ways which I can with standard DVDs, and some ways that are new. And I want you to see how much more fluid and immersive the environment stays while you're watching the movie.

So, the first thing we'll do, we'll jump in, and let's say I want to jump to some other scene. I can choose scenes, and I'm not taken out of the movie experience. I can browse around and see what's available. We'll jump to chapter three, and you can see we've jumped there, and now we're back to watching the movie. And the other thing that happens to me a lot when I watch movies, I'm watching this movie, it's rented, and I see someone in the movie, and I could swear I recognize this actor or actress, but I have no idea who they are or what they've been in. With HD-DVD's interactivity layer I can go to the features area and it immediately shows you recent actors. This is smart enough to show you, in order, the actors that are in the scenes you're watching. So here I'm watching the scene and I see this woman, I think I've seen her before, silly as that, click a button, it's Franka Potente. Done.

I now have the answer to my question, I didn't have to leave the immersive experience of my movie. So I find out more about her, I can click, get her bio, and what I really want to know is what other movies she's in. There we go, I now get the answer to my question, staying in my immersive environment, and if you imagine a family setting, everyone isn't angry at me, because I stopped the movie to figure out what other stuff this person is in. Another great thing about HD-DVD is these players can be aware of the Internet and make sure this content is updated, so you really get a fantastic experience related to this interactivity.

OK. Let's look at another example. Another thing that I like to do, a great feature of today's DVDs is being able to get extras like commentary. Although, today when you get a commentary you get a faceless voice talking to you about what's going on. Well, with the interactivity layer of HD-DVDs you get a much better experience. So here I've asked for producer commentary, and in this case, in our prototype, you can see the producer sitting here talking to me about what they intended to do in the movie. Now imagine the possibilities, imagine if this person could actually be walking around and pointing things out that are happening in the movie, or showing me props, models and things that were used to create the special effects. Suddenly my ability to get extra value through the movie is greatly enhanced by the power of the interactivity capability.

The last thing I want to show here that I'm excited about in HD-DVD, is a feature that is part of every HD-DVD, which is that it enables digitally legal copies to be stored on the hard drive of a device like a PC. In this case I can go to the menu, choose manage copies, there are offers that are available here from Universal, in this case I'm going to choose to copy the high definition movie, rather than the full disk image, and you can see here a user interface has popped up that enables me to complete this, the high definition movie is being copied to my hard drive, and now I can put the shiny disk away somewhere safe, and have complete access to my movie library in a compelling, exciting way, as I get more and more of these high-def HD-DVDs.

So that gives you the sense for some of the things that we're excited about in terms of the consumer experience around this particular type of high definition content. And now what I want to do is switch over and talk to you about a feature that's coming in the Windows Vista Media Center, and give you a quick demo of it, one that I'm very excited about, and that is Media Center's ability to receive digital cable natively.

So what I have here in my hand is a device from Dell. This is a digital cable receiver. And you see here, let me show you how this works, on the back I have a spot where I connect my cable, pretty straightforward, and on the front I have a spot where I slide in the cable card. And this cable card is courtesy of Cox Cable here in Las Vegas. I connect to my PC. In this particular case I could connect it to a laptop or a desktop. We're super excited about this, because the benefits that it will bring to consumers are very compelling. Today, with a Windows Media Center PC, you have an analog connection or you can receive HD over the air. And what that means is that you're missing out on some of the really terrific content that your digital cable, your cable company is offering today.

You can't get high-def simply by plugging a cable in. You can't get great stuff like ESPN HD, or Discovery HD, and you can't get premium, or pay services like Showtime HD, or HBO HD. With Media Center, and it's digital cable ready capabilities all of that will change. A consumer can buy a digital cable-ready PC, attach the cable, slide in the access card, and now they have access really to the most compelling and broadest set of terrific content, from standard definition to high definition, even in its premium form.

So we're thrilled to have worked with the cable industry in the U.S. to have reached an agreement. We're excited to announce that that will be a part of Windows Vista this fall, and I'm going to give you a look at what that actually looks like. So let's switch over to Windows Vista Media Center and take a look.

So here you can see, pretty straightforward, I've used my Windows Vista Media Center to choose the Starz Channel, and I've made a recording of "The Aviator" on Starz, and here we are watching high-definition, premium content that has never left the digital form, it's stored on my PC hard drive, and it's available for me to watch either through my PC itself, or streaming through an extender like the Xbox 360 in another room in the house, also a high definition capable device.

So that's something that we're very excited about. Now, I'm going to wrap up by giving you a look at the newly revised user interface to the Windows Vista Media Center Edition. Here we're pressed the start menu, and you can see I'm still watching my high def movie in the background there. As I move through it should look pretty familiar. We've tried to enhance it so that not only do you have quick access to very common tasks, but we really wanted to take advantage of wide screen, high definition displays in an incredibly compelling way.

So let's take a look at well take my music library as an example. If we go into the music library, what you'll see here, keeping in line with what you saw earlier in Windows Media Player we can handle incredibly large libraries very well, both because of our user interface design, but also because of the performance work we've done. What you're looking at here is a library of over 10,000 songs with a few styles and albums. You can see how quickly and smoothly I can scroll through it, and how much more content I get visible on my wide screen display.

In addition, taking advantage of Windows Vista's deep and powerful capabilities for searching and querying to give you lots of great views on their content. I can look at albums by artist, which is a compelling view, and one that we hear a lot of people asking for is being able to view my albums by year. If I want to go back in my collection to find all that great '80s stuff, I know where to scroll back and look for it. We think that the PC is a terrific device for creating these kinds of views, and don't forget, of course, all of this remotes through the Xbox 360, and can be available in any room of your house through its extender capabilities.

The last thing that I want to show, we'll go down here and take a look at the movie library. This will give you a sense of how this user interface design change applies not just to music, but will also apply to photos, and does to movies, as well, in a compelling way. Here are the movie libraries showing me everything that I have available right now, whether it's because I have a DVD changer hooked up, or in this case, with "The Bourne Supremacy," because I've done a digitally legal copy onto the hard drive on my PC, there is the movie we were watching a minute before, and if I wanted to click it, I could jump right in and be watching it again.

Xbox 360

So that gives you a quick look at some of the things that are happening today with Media Center, and some of the places that we're going in terms of trying to really bring together some of the world's best and broadest set of content into the PC, get it delivered on a wide range of really compelling companion devices, and make that experience compelling and great for the user. The one device that I actually haven't spent that much time talking about, although I've spent an awful lot of time using lately, is the Xbox 360. So to pick it up from where I've left off, I'm happy to introduce Peter Moore, who leads out Xbox and gaming for Windows businesses to come out and talk to you a little bit about the Xbox 360 and what's happening with that.

Thanks. Good night.

(Video segment.)

PETER MOORE: Good evening. So let me get this out of the way: USC 17, Texas 16. (Cheers.)

All right, let's focus on some important things here.

So it's five years ago today right on this very stage that we used CES to unveil Xbox, challenging the conventional wisdom we got in the future of what console gaming was about. Xbox as we all know is now a success story in more than 22 million homes worldwide. We envision with Xbox a community connected through Xbox Live, the first and only unified online gaming service. Xbox Live is now a movement of more than 2 million members that grows and diversifies each day. We believed that Halo would be a great franchise. Well, not only is it a great franchise but Halo 2 recorded the greatest day in retail entertainment history with $125 million in sales in one day.

And we built partnerships to create an incredibly diverse portfolio of high quality games that will number 800 by the end of this year.

In the Xbox generation we were the thought leader.

Let's fast-forward to Xbox 360. We're quickly moving from thought leadership to market leadership. And tonight I'm pleased to announce that Xbox 360 achieved an unprecedented global launch for the world of videogame consoles. In the first 90 days we will have launched Xbox 360 in nearly 30 countries, and Xbox 360 is on track to ship between 4.5 and 5.5 million consoles by the end of June.

Xbox 360 has a stunning attach rate of four games per console, and an accessory level and attach rate of three per console, both of which are nearly double the previous record.

Now, it's no secret to anybody in this room that our biggest challenge has been meeting the high consumer demand for the console. We are working to deliver consoles as quickly as we can manufacture them. To further bolster our capacity for output, I'm happy to announce that next month Selectica will join both Flextronics and Wistron as our third manufacturing partner. We need to meet the consumer demand worldwide and having this ability now to do that with three manufacturing partners helps us do that.

Xbox Live continues to lead the way in defining online entertainment for this global audience that we're delivering. Xbox Live is regarded as the standard by which all over online game services are measured. It's a seamlessly integrated world through the entire Xbox 360, and players are instantly connected to a vibrant online community the moment they power on the system.

Now, on Xbox 10 percent of customers connected their box to the Internet, on Xbox 360 more than 50 percent of all consoles worldwide are now connected to Xbox Live.

And Xbox Live doesn't only connect people around the world via games and entertainment, it also offers access to high definition content. Xbox Live marketplace is a one-stop digital download center where you can access high definition games, music, movie content from our leading industry partners.

Using our free Silver level of service, all Xbox Live players can connect to the Xbox Live marketplace.

As evidence of this, tonight I'm pleased to announce that in just four weeks since the launch of Xbox 360, more than 4 million Xbox Live marketplace downloads have enhanced the games and entertainment experiences of Xbox 360 owners around the world.

With numbers like that, Xbox Live is a proven form of mainstream entertainment. In fact, on a share basis, the 18 to 34 male demographic that we deliver through Xbox Live is comparable to network programs such as "CSI" or "The Office," and that fact and the popularity of Xbox Live has not gone unnoticed. Movie studios and record labels like 20th Century Fox and Epic Records have recently released movie and music video content on Xbox Live marketplace, and just two weeks ago Paramount Pictures chose Xbox 360 to world premiere the "Mission Impossible 3" trailer on Xbox Live marketplace, spotlighted right there on today's Xbox Live marketplace blade.

Now, digital distribution of content isn't limited to just music and video content. Watch out for Xbox Live arcade, where hundreds of thousands of people are downloading and playing casual, classic, puzzle and new action pack games like Joust or Geometry Wars or Hearts.

By March, we'll be proud to announce that more than 20 games will be available through Xbox Live Arcade, games like Streetfighter 2 from Capcom, games like Texas Hold 'Em and Marble Blast Ultra. Texas Hold 'Em will be the first fully sponsored game on Xbox Live Arcade, sponsored by our partners at (River Vail ?).

Xbox Live marketplace and Xbox Live Arcade are proof positive that high definition content delivery via the Internet is real and it's happening right now.

We're on the verge of an explosion in the kinds of high definition content available. Similarly, we're seeing a revolution in the way consumers can access all of that high def content, download it from the Internet, streaming over the whole network and, of course, high def optical disks.

Five years ago, we envisioned the future would include the convergence of high definition movies, things like games and photos, movies and, of course, television. Today, Xbox 360 is delivering on that vision.

Tonight, I'm proud to announce that later this year we will be launching an Xbox 360 external HD DVD drive. Soon millions of Xbox 360 owners can pop in an HD DVD disk and enjoy high definition movie playback.

In fact, Xbox 360 is the killer app for HDTV adoption. It's driving HDTV monitor sales. A recent study concluded that 9 out of 10 Xbox 360 owners have either purchased or intend to purchase an HDTV in the next six months. And 90 percent of them say that it was Xbox 360 that is the primary reason for making that purchase, 90 percent of them say it's about Xbox 360.

But exciting as all of this is, Xbox 360 continues to be about great games. It's my pleasure to announce that by June of this year Xbox 360 will have 50 high definition games from the best names in publishing, including 2K Games, Capcom, Electronic Arts, and Ubisoft.

So without further ado, let's get it on by demonstrating the heavyweight power of Xbox 360 games pipeline. The upcoming blockbuster, EA Sports Fight Night Round 3 is the undisputed champion of boxing videogames. Now, for a game of this quality we need some world class fighters. And since we're in Las Vegas, we really need to do this right. So please welcome Al Bernstein, the host of one of the greatest boxing shows on television, both ESPN and Showtime, and a commentator of the World's Greatest Respect for the past 25 years. Please welcome Al Bernstein. (Applause.)

AL BERNSTEIN: Well, thank you very, very much. I am delighted to be here this evening. Ironically, just about two weeks ago, I was in New York shooting a whole sequence of shows that had to do with the Ali-Frasier trilogy and interestingly I'm going to get to participate in that very fight and those very fighters here that EA Sports has provided. And trust me, what I viewed in New York and what you're going to see is just as realistic, that's for sure.

Now, I've announced a lot of fighters in my day, but none exactly like the two that I'm going to talk about right now. First of all, in this corner, playing the role of Mohammed Ali, he floats like an MSN butterfly and he stings like a bee, let's welcome back a true heavyweight, Bill Gates. (Applause.) Can't wait to see your style, Bill.

And they're going to be playing this game.

Now, in this corner, playing the role of Joe Frasier, he's the sultan of security, and he's the prince of productivity, the Motor City hit man, Steve Ballmer. (Applause.)

STEVE BALLMER: Yeah, baby!

AL BERNSTEIN: Oh, wow, we've got some fisticuffs already happening, look out here.

All right, you guys are fired up here, I can feel this, I can feel it.

STEVE BALLMER: You've got it, you've got it. C'mon, Bill, 30 years I've been training for this opportunity. (Laughter.)

BILL GATES: You've got the weight on me, I give you that. (Laughter.)

STEVE BALLMER: Heavyweight division!

AL BERNSTEIN: Can we have a heavyweight against a middleweight, is that possible?

STEVE BALLMER: He could be a lightweight with all this weight he's been losing.

AL BERNSTEIN: Oh, ooh, a lot of trash-talking up here.

All right, trash-talking aside, we've had enough of that, guys. I want a clean fight, I want you to touch your controllers and come out boxing. Here we go.

Mohammed Ali and Joe Frasier, this is the kind of rivalry that you see on EA Sports Fight Night Round 3 and Mohammed Ali starting out very, very quickly in this match, using the jab, and keeping Joe Frasier at bay.

This is exactly the kind of action that is so realistic and makes fight announcers like me feel like I'm calling exactly a real fight. Great hand speed by Mohammed Ali. And this is where you see in this game -- oh, Joe is punching with some good left hooks as well.

STEVE BALLMER: Yeah, baby!

AL BERNSTEIN: Joe is getting some hooks in there, but as you see, the power of Mohammed Ali starting to take effect, and in this game you can see Joe Frasier slowing down, one of the great features of this game. And Mohammed Ali taunting, as always. Big power punch by Ali. Frasier is slow but as in real life, even this can't stop Joe Frasier, because even being tired he will come on against Mohammed Ali. And look at him, the man knows left hooks.

Steve, you've got the control, except Mohammed Ali's hand speed makes a big difference.

Just the kind of action that you get here with all these great rivalries. Frasier and some huge trouble from the right hand. Did you say lightweight, and Joe Frasier in all kinds of trouble, now getting pelted by Mohammed Ali. Like real life and down goes Frasier. Didn't somebody say that once before? It could be over. He's throwing in his controller.

Ladies and gentlemen, watch these replays, they are so realistic that it's unreal.

Fight Night Round 3 showing you the realism and great work of this game, and it's so much fun to play.

And the champion, Mr. Bill Gates. (Cheers, applause.)

PETER MOORE: Don't throw your controllers at home, please, thank you. (Laughter.)

STEVE BALLMER: You get the heck beat out of you and you throw your controller.

PETER MOORE: Thank you. Well, the sweet science has never looked so good. Well, thank you, gentlemen.

EA's Fight Night Round 3 coming to Xbox 360 on February the 14th, and following tonight's speech, very important, those of you connected to Xbox Live will be immediately able to download that demo directly from Xbox Live marketplace, a playable demo, free for everyone to download and play.

So Xbox 360, as you see I think, is the future of games and entertainment, a system that enables breakthrough digital entertainment experiences, all fueled by a combination of powerful hardware, innovative software, and groundbreaking global services. The HD era has begun and the Xbox 360 is leading the way.

Thank you very much and thank you to the fighters. (Applause.)

2006: The Digital Lifestyle

BILL GATES: All right, good job.

All right, well, we've seen a lot tonight, and I think what it says is that 2006 is going to be a big year for digital lifestyle. There's a few themes that I think really stand out here. One is high definition, Xbox 360 driving high definition, the content partners, Media Center now going to be easily connected up to the sources of high definition, movies going to be much more available there, the screens really catching on, coming down in price, so that's a very, very big thing.

Second I'd say is partners, partners of all kinds, the partners who build the amazing hardware you saw here tonight, the partners who do traditional content now coming in and seeing the opportunity for interactivity, even people who think about advertising are now partners because this platform will let them do new and different things. The software industry is stepping up and doing software that uses the Internet in new ways, reaches out to users, create communities, works across devices, and us building a platform to make that easy for those people to do.

Another theme is that this all has to work across these devices, whether it's calling people, seeing their presence, knowing what they're interested in, making it easy for them to navigate; it's got to be user centric, and that's a big theme that's going to make these things a lot simpler.

Software is providing power, but software has got to provide simplicity. And that's why our investment levels are going up, investments in the toughest problems: security, privacy, speech recognition, video recognition, and all of those things will fold into this platform. The magic of the work that people like Intel does allows us to be more and more ambitious with that software.

And so even though this year is going to be amazing, you'll see acceleration in the future as the power of these systems, the natural ease of use gets better and better with that software centricity. So we're all going to have a lot of fun, a lot of productivity using these systems.

Thank you. (Applause.)