Moore on Microsoft's next-gen battle

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.

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.

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.

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.

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

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

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.

Where do you think we're weak?

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.

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.

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.