What's been the early reaction to your E3 showing?
People keep asking me what's the score, who were the winners and losers, but that's for you guys to decide. The reaction has been overwhelming and that very gratifying and humbling. We're super-excited by it. We thought we had some special magic this time and it's one of those things where we had a ton of content, and the show ran over, but nobody cared.
The big reveal was Project Natal how long has that been in development and how many people have been working on that?
It's been in development for quite some time, we're not talking about it specifically, but it's been in the works for some time which is why we're able to ship development kits to developers this week. The technology and everything you saw is real. We're at the point where we can absolutely give it to developers and let them start working on it. I'm confident that we haven't even begun to see all the experiences that other people can imagine.
The other aspect that's very important is that being part of Microsoft we get to take advantage of research work that goes on in other parts of the company, in particular the areas of user interface. So we're taking advantage of voice recognition work that's been in development for many, many years, and that's why it's a big part of Natal. Although people want to focus on full body gesture and skeletal tracking, which is very important, the idea that you can also use voice commands and facial recognition all of those things we get to take advantage of and integrate into the Xbox 360 experience but we don't have to invent it ourselves.
So what's been the early reaction from your publishing partners and independent developers?
Great excitement because they see the potential of the technology, but they are also excited from a business standpoint because it's going to be compatible with every Xbox 360 we're ever sold. We already have a 30 million installed base today, by the time it launches it will be much bigger than that and it's a great thing because it's an addressable installed base immediately.
It's not like launching a brand new console, where partners make business decisions of when do they decide the installed base is big enough. This is something where we're going to have a lot of customers pretty quickly and we're focused on magical launch experiences to get this ball rolling right from the get-go.
Do you have a window for release that you're targeting?
Yes not 2009. That's the only thing we're saying.
Sony has said it's launching it's motion control technology in Spring 2010 does that put the pressure on Microsoft to get Natal to market quickly?
There are a few things I'll say to that. One is, that's what they say. They've said many things in the past and missed dates, so we'll see. Two is, we're going to launch when we feel like we have the entire program ready to go, including the experiences and support from third parties. It's not a lot of time between now and the spring, considering it was just unveiled. The third and most important thing is this has nothing to do with Nintendo and Sony. This has everything to do with unlocking the potential of the industry and addressing the many millions of people the 60 per cent of households who don't have a videogame console at all. That's the real opportunity for us.
Our focus this E3 has been on breaking down barriers, those that prevent people from enjoying the vast wealth of everything that we have to offer on Xbox 360 and Xbox Live. We continue to add more entertainment, more value, more social networking connections to Xbox Live, yet we know the controller remains a barrier for people. That's what Project Natal is all about. If we'd just come out with something that looks and feels like the Nintendo Wiimote, I think you could have fairly criticised us and said it was derivative. That's not the path we wanted to go down. We could have done that, but we wanted to reinvent the industry and revolutionise home entertainment. That's what we will achieve with Project Natal.
It's a given that Microsoft has got the hardcore gaming market sewn up so Project Natal is the way to reach new consumers, the mass market that's looking for new and exciting entertainment?
I do think that Natal is going to create enhanced gaming experiences for core gamers, but it really is about the new frontiers.
So that means changing internal development to focus less on hardcore and more on casual first-party titles?
Look at the games we demoed on stage. We don't have a game like Ricochet, and we certainly don't have a game like Paint Party, not at Microsoft Game Studios. Those are very different types of experiences and yet we can apply the same skills that have led us to be one of the leading publishers in the industry in terms of creating great quality entertainment to Natal.
A perfect example of that is Peter Molyneux, who speaks from himself, his history and his achievements. I've never seen Peter more excited and energised by anything like this since the initial Fable. And now with Natal and Milo, you get a sense of what he thinks he's capable of. And believe me, Peter wants to lead the way. He's going to apply all of his experience, and it's a great analogy for Microsoft Game Studios. All of those game skills can be applied now with a new canvas with Natal.
Is Peter Molyneux going to be heading up the overall development of Project Natal?
No, Kudo Tsunoda is the creative director, but Peter Molyneux is working on Milo and some other things. He's got his hands in a lot of other things Natal, but it's not just one person.
Are all internal studios and development teams currently working on Natal projects or incorporating some of that tech into games?
Yes, absolutely. The role of Microsoft Games Studios has always been to obviously be the first-party game team for Xbox 360 and lead the way, to showcase the platform. You can't rely on third-parties to do that. In the same way we led the way with high-definition graphics on Xbox 360 and Xbox Live functionality, we're going to do the same thing with Natal.
Do you see the technology being incorporated into the hardcore titles like Halo and Gears of War?
Sure, there's a whole bunch of things that you could do with these games, but that's not the focus initially, it really isn't. The focus has to be in creating new experiences that have never been imagined or possible before. We've never had the ability to track an entire skeleton and now we have software for multiple players to take advantage of that. If one person goes behind another, we don't lose track of that because we can extrapolate. That's the magic of software, it has very little to do with hardware.
Is Project Natal also an opportunity to expand the shelf life of the Xbox 360?
There's no questions about that at all. We talked last year at E3 of the Xbox 360 having a lifecycle to 2015 which obviously wasn't the case with the original Xbox. We believe this generation will be defined by software and services, not by a new piece of hardware. In the past there have been reasons to jump from 2D to 3D, standard to high-definition, and then where we've arrived today with Milo.
Milo is pretty close to lifelike in a lot of ways. So do we need to push more pixels or is the next generation about how do we add more services and features? Things like Sky in the UK, I think that's going to be huge. It's super-exciting because it's live television being delivered over Xbox Live and surrounded with our social entertainment experience. That's something we don't do anywhere else in the world. And one of our fundamental beliefs is that every experience is better as as a shared experience, and we can do that because of Xbox Live.
Another significant announcement was that the Xbox 360 is to get a games-on-demand service later this year. Will the initial focus on that be older 360 titles?
It's not going to be new games. We did it with Xbox Originals and now we're expanding that to Xbox 360 games for the first time. They're bigger and more complex and there's a whole bunch of business related issues that we have to work out there if we wanted to start going day-and-date with new releases.
Do you see a time in the next 12-24 months when that will happen with new titles?
I don't know about a timeframe, but in the future, sure I do. The follow on question is do I see retail going away? I will emphatically say no, that's not going to happen for a lot of reasons. This is not like the movie rental business shifting online because that's a USD 5 decision. These are USD 60 decisions. A lot of people like that tactile feeling of owning something.
The other challenge is our competitors are not in a position to be able to offer a similar service. So what would out third party partners do? Do they just shift to an online only model? Of course not. We need our retail partners as part of our eco-system. They've been a big part of our success and we've not figured out how to push an Xbox 360 down the pipe yet. Anybody who thinks retail is going away is being naive
Another big focus for E3 was your exclusivity deals that's still an important part of the business, signing developers, titles and content for exclusive Xbox 360 release?
What we've done, the strategy from the start was to level the third-party playing field. Third parties had driven a lot of the success of the PlayStation and so strategically we needed to level the playing field and make the domain of exclusive content be first-party. We had to competitively manage that and I think it's played out in a large part. We've also done a good job of being able to secure exclusive content on a downloadable level.
If a third-party publisher today really has a difficult time going exclusive to any particular platform, we can still create an exclusive relationship, and create the perception that it's better on Xbox 360. And that's not even perception, that's reality. Third-party games do better on our platform because we have Xbox Live. DLC directly enforces that. Whether it's the DLC for Grand Theft Auto, the map packs for Halo or the song for The Beatles Rock Band. That's been really powerful for us in expanding relationships and expanding the business model.
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