Microsoft's Peter Molyneux

This is to be expected. I know everyone's talking about it now, but hang on a second - we always think the games industry is unique, but it's nothing new. This has happened before - what happened to the movie industry when television was introduced? It's very analogous.

I can imagine movie executives meeting around a table worrying that movies would be dead because everybody would have TVs, and nobody would want to go to the cinema any more. Well guess what? There was a bit of imbalance, but more people go to the cinemas these days, and TV programmes are still being made.

I think the same is true of this - there's been a gold rush here. It's only a matter of time, Phil, before some b*****d out there makes an amazing quality app on the iPhone which blows everybody away, which costs a $5-10 million... and everybody will turn around and say: "Great - now we have to spend $5 million on every app."

This time next year I bet you there'll be five of them - and there's only a matter of time before the franchises that we're now attaching games to come on to these devices. And when they do, when Star Wars and Disney and goodness knows what else is one there...

Exactly, and they're pretty powerful machines. Just look at how much more powerful the iPhone 3GS is compared to the first iPhone release - it was about three times the power. And the iPhone 4 is double the power of that one.

I think Apple completely underestimated how important games were going to be to the iPhone. I think they've been much more important. I remember when Steve Jobs stood up with a big pie chart and said something along the lines that the games industry was only $10 million, and they weren't really interested in that.

But now that you've got 200,000 apps and there are a lot of people downloading small, bite-sized games, they're realising the games industry is important - we're a proper industry!

It's amazing how designers have done a fantastic job of getting around the problems that this multi-touch screen has. Your finger's always in the way - but they've done some smart stuff.

You're asking me to judge my own child. Is your kid going to be a nice person? Yeah, of course he is. I'm not going to say he's going to be a horrible brat.

But absolutely for sure, Fable III is the best Fable yet, by a million miles. Definitely. Absolutely, without question.

Because firstly, Phil - I know this sounds like a PR line - we love making Fable, we really do. It's amazing to me and the rest of the team to go out to somewhere like E3 and have people walk up to you, and ask what you're doing with the game.

That's a brilliant feeling, and it's not like it used to be. 15 years ago in this industry, if you did a sequel, people would come and spit at you in conferences - but now people love the idea. The dream that me and the Carters had back when we first thought of making an RPG was to make a big, huge adventure that spanned time, that took us from fairy-tales right up to - well, that's moving on, but where we are now and beyond.

And we're doing it - that's pretty cool. It feels that now we're getting accessibility right, the core stuff is right, we're sorting out problems with co-op, introducing more innovation than we've ever introduced before... but we're implementing it in such a way that makes sense, that makes the whole game better.

I think Fable III's going to be great - I really do.