Peter Moore rocking out on Guitar Hero II at a February 2007 Xbox sales and marketing meeting

In Part III of our four-part Q&A with Microsoft entertainment and devices corporate vice president Peter Moore, he explained why, despite Rare's inability to regain its former sales dominance, the U.K. studio was still essential to Microsoft's ambitions to broaden its audience beyond shooter fans. In the final part of our interview, Moore turns his attention to the competition among Xbox 360, PS3 and Wii. (Once again, as we've noted previously, this interview was conducted in January of 2007, before the December 2006 sales figures were available.) But we also get him talking about the prospects of Media Center for Windows Vista and the then-recent removal of Super Columbine Massacre RPG! from competition at the Slamdance Film Festival.

Sony's going to announce that they've shipped a million units of Playstation 3 in North America. [Sony Computer Entertainment America CEO] Jack Tretton was very clear with me that that did not mean that half a million just came off of a factory floor in Guangzhou; that these were units that were pretty much on store shelves--

Okay. Then that's sold, not shipped.

No, that's shipped.

Okay.

That's shipped. The implication is that their production kinks are largely worked out.

Sony officially stated that on Tuesday back in Tokyo, if I recall, that "Our production problems are behind us." I can't remember the gentleman's name, but "Our production problems are behind us, and we will meet our six million unit mark on March 31st." Okay.

So assuming they're through the difficult period, let's back up a little bit. Now that all three consoles are in the market, let's take Sony first. What, if anything, do you need to do specifically to counter them for 2007?

Well, I still think it's all about the games. Many of us get distracted with other things, but 2007 is all going to be about the games. It's going to be about unique experiences, to your point, what is going to be truly next-generational. I think Microsoft Game Studios plays a huge role in 2007. I think the ability for us to be able to effectively deploy some of our exclusives with third parties, whether it's BioShock or the next Splinter Cell, is going to be important. But in a year where we're delivering Crackdown, Forza 2, Shadowrun, Mass Effect, Too Human and a little thing called Halo 3, we're feeling pretty good about where we're at in first party. And then with titles like Alan Wake, Fable 2 on the horizon as well, when you roll all of that together, we need to continue to deliver reasons for people to buy our console over somebody else's. I mean, it's as simple as that.

You read the boards as much if not more than I do. One of the things that Sony has to do is start delivering a slate of content that's both exclusive and truly next-generational. The only thing that gets into that conversation right now is Resistance: Fall of Man. I think they've got to build upon that and build upon that very quickly. So back to our original conversation: we're feeling good about where we're at; we've exceeded our number; the ecosystem is looking very healthy; and we've hit some form of a critical mass with a lot more good stuff to come.

Once you come out of the holiday, are you projecting to be above 300,000 units a month in 2007, consistently, without a price drop?

We're not projecting anything about 2007 right now. One of the titles I forgot to talk about was Lost Planet, which I'm very excited about, by the way. No, I think the key numbers, N'Gai, that you need to focus on--[Microsoft president of entertainment and devices] Robbie Bach will be on stage tonight, as you know, with Bill [Gates]; we'll announce 10.4 million sold globally; we're feeling good about our guidance for the fiscal year, which is 13-15 million; and we're also reiterating that we're going to hit our 6 million member mark for Xbox Live. On top of that--you can extrapolate whatever you want to figure out 13-15 million, but that's our guidance. Obviously, we're not going to update that, because we're just going to reaffirm it.

So to Nintendo, which certainly seems to be getting the bulk of the attention right now with the Wii.

Yep.

They seem to have very good supply, even though it's not enough, and they seem to have really strong demand. They seem to be reaching into audiences that traditionally haven't gamed much. How concerned are you about Nintendo's ability to impact your business? You're seeing publishers like EA building studios specifically for the Wii; you're seeing publishers step up their support for the Wii; and while none of that seems to be coming at the expense of 360 or PS3--no-one's canceling for those platforms--people are saying, "Hey, we may have underestimated the Wii. We need to get behind it in a big way." You said $199 is the key price point--they're closer to that than anyone. So how much of a concern do you have about the impact that Nintendo can have on your business?

One thing I admire about Nintendo is that they recognize what they need to do to be successful as a company and they do it. They also say what they're going to do as a company and then they do it. There's no surprises, there's no backtracking, they deliver on what they need to do. They delivered good inventory and they delivered an innovative experience.

The jury is still out, N'Gai, as to whether that experience can carry that platform at a mass market level to as many homes as I they think they think they need to on a global basis. It's still--I think the Nintendo Wii experience is an innovative experience. I've said that since the first time I saw Iwata-san pull it out from under his podium at Tokyo Game Show three years ago. I played Wii and I enjoyed playing Wii. The question is, is it a sustainable experience that will continue to have great third party support? Because, yeah, third parties are getting behind it, but I'm not sure the numbers bear out that it's going to be something all third party publishers can drive big numbers at.

As I think you know, Nintendo is a very first party-focused, and the numbers bear that out as regards what Zelda has sold versus anything else. I'm not seeing huge third party successes on the Wii right now, and that might improve as the installed base improves. But I will, as I've gone down on record many times, applaud their innovation, applaud their launch--I think they did a very, very solid job in getting the product out there and appealing in particular to some of their marketing efforts with broader demographics and what have you--I thought they did a great job there. The jury is still out, if we sit here a year or two years from now, as to whether that is sustainable at the levels that we need it to be as an industry to get to that mass market level.

When you look at the success of the DS, which has the same characteristics that you would point to: primarily driven by Nintendo's own software; hardware sales through the roof; third parties not doing terribly great, not doing horrible--there's a couple doing well--but hardware sales are through the roof. So what is it about the Wii that would make you feel it might not be sustainable?

I think that Nintendo would say that the Playstation 3 and the Xbox 360 are serious competitors in the same space as the Wii. I don't know what really competes with the DS, because I don't believe the PSP truly competes; I don't think that Sony ever intended it to compete in that space. The portable space, it's very difficult for you to try to compare a portable experience at a price that's almost disposable income with a console experience that's a very important part of the way that entertainment is consumed in the living room. As a result, the DS is doing incredibly well because of the uniqueness of its experience, but at the same time, it doesn't really have a competitor in the same space that is offering an alternative experience. Because the PSP is not proving, as you point out, to be a viable competitor in the portable handheld space.

So all I'm saying is that the jury is still out; I'm not saying that the Wii is going to taper off in 2007. The jury's out. As is the jury out on this salad. I keep nibbling and going nowhere. You make me feel bad that you're not eating that burger.

That's okay. The work comes first.

All right.

Which I'm sure you can identify with.

Oh, sure.

Going into the games side of things, Nintendo's having incredible success with a casual pack-in like Wii Sports. Wii Play is coming, it hasn't shipped yet. You talked about wanting to broaden the Xbox 360 audience--Viva Pinata is a slow-growing property as opposed to a hit--are those areas that you feel you can tap into? Is the vehicle packaged product, or do you think that Xbox Live Arcade is more the place for people to get that kind of fix?

I think it's a combination of both. One of the things you have to be cognizant of is that as strong as Live Arcade is, not everybody is connected, and it's actually the un-connected consumer that you want to be able to give a choice of packaged product to. We're now at 20 million downloads of Arcade games, it's unbelievable how many people are downloading Arcade games.

But again, you're talking about homes that have broadband, and there are a lot of homes that enjoy videogames that aren't connected, or don't want to connect or can't connect. We need to offer packaged products and different experiences to those consumers that do that. So as giddy as we can be sometimes about Xbox Live Arcade and that great casual experience that it provides and offers those consumers, we also need to continue our work on top of what we're doing with things like Viva Pinata and Banjo to offer more and more broader experiences going forward to consumers that may not want to connect or can't connect. That's important.

What's your take on Warner's announcement of Total HD: a single disc that plays both Blu-Ray and HD-DVD?

Boy, I tell you, I mean--I'm kind of a spectator to this whole thing, because it's not core to my business, although we do offer the choice of the HD-DVD player. But I did hear this morning as I was flying in that they announced the price point on this thing, which was $1,200--

You mean the combo player?

Yeah. I mean, we're having enough--if I talk about we as an entertainment industry--we're having enough of a challenge to commit to this stuff without offering them something that's even more expensive. Clearly, I think this is a ploy to get Disney involved with things other than just focused on Blu-Ray, but I don't know. We're very clear, N'Gai, and I'm sure you've heard this until your ears bleed: we want to offer choice, and I'm not going to burden the box with $200 extra for a high-def movie format that people don't know whether it's going be successful or not. Right now, a minority of people have the equipment necessary to take full advantage of high-definition movie scenarios.

So if you want it, and you're fortunate enough, as I am, to have a big screen and a nice rig, then I go out and buy my HD-DVD player, and I love it. I absolutely love it. But I'm in the minority. I'm not an average consumer. I have a 110-inch screen, and sometimes I squint every now and again and say, "Eh, if I had to pay real money for all this stuff, I'm not sure that it's enough of a quantum leap that I remember VHS to DVD being." I remember being blown away when I saw that, as many years ago as it's been. I'm not yet seeing that, where if I was a consumer that had to really say "Do I want to do this or do I want to do that with my money," that I would say, "Boy, I've got to do this." I think you've go to have at least a 50-inch TV to really take advantage of this.

Just a couple more questions.

Yes, sir.

On the IPTV front, on the digital transmission of entertainment, the set-top box. It seems to me that even the original Xbox, which some would say was not successful relative to the PS2's installed base was still far more successful than Windows Media Center as far as getting placed in the living room, as far as getting placed on top of TVs, next to TVs.

Okay. Some would say that, yeah.

Some would say that. I'm assuming not you.

[Laughs.]

What learning, if any, is going out of your group towards the Media Center group, to increase the likelihood that consumers will start to in meaningful numbers put their Media Center-enabled PCs into their living rooms?

Well, there's two scenarios. Just so you know, this evening we're showing IPTV running on an Xbox 360. That will be demonstrated by Robbie, and a good friend of yours, Albert Penello will be on stage--clean-cut and all showered and sparkly--and showing IPTV on Xbox 360.

The other thing of course which I've started to enjoy now that I've had Vista for about five weeks--I run Vista Ultimate; and I have Media Center in there--and utilizing my 360 using the Media Center part of what I do with Vista Ultimate is such a seamless experience. That is one of the challenges--and we'll admit to this--if you asked Media Center Edition customers a year or 18 months ago, it was very difficult to get it set up. I don't know if you've tried it at home, but you're again not the average consumer, you're a technically savvy guy that figures it out.

Joe Blow had a tough time figuring out Media Center. The one thing I will tell you about Vista Ultimate is that it's plug-and-play. It is very simple. When my 360 got cranked up and I signed on to Live, Windows Vista recognized my 360 on my home network, and it was simply "Do you want to connect this to your home network? Yes or no?" and punch in the eight digit code that was showing on the TV, and I was up and running. It is very, very simple, and Vista is doing that for us.

So I think Vista Ultimate helps the Media Center Edition, which in the last 12 months has really started to gain steam. And I think Vista will continue to help drive that. I think they're finally breaking through.

Yeah, I don't think the question is Microsoft's ability to sell them, because they steadily reduced the price difference [between Media Center and non-Media Center PCs.] The thing is getting them in the living room. Or, as you seem to be saying, maybe 360 is the way that it gets in the living room and Media Center doesn't actually get there physically.

They've got a better 10-foot experience now than they ever have before. It was still, to be blunt, a good two-foot experience; it wasn't a great ten-foot experience. I'm stating to feel now that it's a great ten-foot experience. But it becomes about choice. What you'll see this evening, you'll see us talk about Media Center; you'll see us talk about IPTV running on an Xbox--you'll see IPTV running on an Xbox 360. We'll talk about Xbox 360 itself and Video Marketplace, and it really becomes about choice: how you want to consume your media.

The idea is, and you've seen some of the interviews Robbie's done recently on connected entertainment: it's utilization of multiple devices and bringing them all together and Microsoft being the glue that does that. The keynote tonight will show you in real-time how we're answering a lot of those questions. We're still very bullish on Media Center, there's no doubt about that. But I will say, even as an employee, it's a better experience now than it was 18 months ago when it as pretty painful, quote unquote. But boy, it is so simple now, it's surprising.

The last question, and I'm not sure that you're aware of this, but the Slamdance Film Festival has a sidebar for games, a games festival. One of the games they requested be submitted for competition was a game called Super Columbine Massacre RPG!

I remember that, yeah.

It got a lot of controversy last year. Now it seems, through either sponsors threatening to pull out, actually pulling out, or the taste or moral judgment of the overall festival organizer, they decided to pull it from competition. Looking at this separately from your position running Xbox, but as someone who cares about the future of the medium, what do you make of that, considering that the festival would have been unlikely to pull a movie dealing with the same subject matter, like "Bowling for Columbine" or "Elephant"?

I think you see there is still from authoritarian figures misconceptions about our industry. I don't know if you know who Boris Johnson is; you saw his "Garrote the Game Boy" statement. This is a guy that--I don't know how to describe him if you don't know British politics--is a classic, outspoken Tory member of Parliament that lives on the edge of his publicist all the time, because that's how he gets exposure. The sound bites of "Garrote the Game Boy," and I can't remember the other thing on the Playstation, whatever it was. We still as an industry have this misconception--for better or worse, N'Gai, the ability now for consumers to develop their own entertainment, whether that's consumption on YouTube; user-crated content. This was a little more than user-created content, but it wasn't a lot more, it wasn't exactly a huge development studio that did this.

The First Amendment rights to create entertainment experiences about real events still exists in this country, whether we like it or not. Now, the organizer of this festival was well within his or her rights to say, "You know what? I'm making a personal judgment, and I don't think this is appropriate." Fine. What we tend to do, certainly at Microsoft, is the ratings are something that we rely upon, we support and as you well know, we will publish M-rated games. We do not try and apply personal, subjective opinions about entertainment content, because that's a very slippery slope.

Now, I don't question this guy or this lady whatsoever. That's their choice, it's their festival, they can do what they want. But does become a challenge when individuals apply personal preferences, likes and dislikes for things and then enforce that on the consumer. I think we need to continue to make sure our ratings are enforced and are defensible.

Peter, thanks very much for your time.

My pleasure. Now please, eat, for god's sake.