Platform Holder Focus: Microsoft

It sounds like Micosoft and Xbox had a good Christmas?
We have been blown away with our success over that phase. I was bullish about it, I knew to expect success. Christmas 2008 was the biggest sales period in the history for the brand. Console sales were more than double on the previous year.

We’re now at eight million Xbox 360 consoles sold in Europe up to the end of calendar year 2008. And we’ve just had record sales in January in EMEA. It’s been a much better start to the year than anticipated. We’re set up very nicely for this year. We’ve built a great business for ourselves, retail and the publishing community. And we’re going to continue to invest in keeping that strong throughout the year.

Can you provide any UK specifics?
We want to win everywhere, not just in certain geographies. But the UK remains one of our strongest markets. We’re consistently well ahead of Sony for a long and sustained period. We also enjoy particularly good partnership relationships in the UK, with retail and publishers. We’ve been very pleased with the leverage marketing deals we’ve been able to secure with both. We’re in great shape here.

Is your price point perfectly placed in a recession? Can it get any lower?
We have reached a critical price point that opens up much more volume. In the UK, by getting to 129 a unit, that opens us up to a much broader purchasing base. We represent fabulous value because we do now offer a wider proposition and experience – not just games, but the richness and breath of Xbox Live. The Xbox Live community is more than 17 million members worldwide and there’s ongoing and very visible marketing.

To what extent will the blanket Xbox marketing we saw from yourselves and your publishing partners continue into 2009?
Anecdotally, we’ve had a lot of good feedback on just how visible we’ve been; people telling us in a tongue-in-cheek way that they just couldn’t move for Xbox ads, which is a real compliment to us.

I would say no one quite expected us to do as well as we did last year, outside of ourselves. But the fact is that this is just the beginning – it has to be the start of a long-term strategy. You can’t in this businesses turn the lights on very brightly for a short term and then switch them off again.

Recently Ubisoft CEO Yves Guillemot predicted a new generation of consoles in 2011. Was he being premature?
Far be it for me to suggest that he’s ahead of himself – but I can say we see this generation having much longer legs than previous equivalents. There’s an awful lot more still to come, whether that be content, services or platform innovation. We’ll continue to enhance the proposition and I see real legs in this generation of the console as we see it.

Xbox Live currently stands at over 17 million members. How big can it get by the end of this calendar year – and what sort of consumers are yet to come to the service are you targeting?
We obviously have our own internal goals, but I can’t be specific about where we see the membership going. We’ve beaten all of our expectations on Xbox Live by some margin. It seems very much the central driving force with what’s happening now on Xbox 360.

I see a very wide spectrum of people joining for different reasons. It’s not just gameplay, it’s more community-orientated stuff or broadly based around entertainment, rather than just games. I think you’re going to see people engaging and participating with the broad community of Live in the future.

Our challenge is to keep that experience as rich and as vital as we can. And we’re great at that. It’s in our DNA. Xbox was architected with online gaming in its very centre from the start. And we’re seeing the fruits of that now. We can continue to revitalise that interface over time when consumers tell us what they’d like to see.

Why isn’t retail as concerned about shelf space for Xbox 360 titles as it is for Nintendo releases?
We are very much focused on keeping quality very high. In the current climate, the consumer becomes even more central to the focus than even was the case before. It’s absolutely incumbent on us as platform holders to ensure that quality continues to go up and that experience of the consumer continues to be excellent. Any compromise there is done at your peril.

Undoubtedly, our third-party publishing partners have their own very high standards in terms of games they want to bring to the platform. They enjoy developing games for our platform because we give them real latitude for expression that doesn’t exist on other platforms. That’s always been helpful to us and continues to be so. We have to be careful to spread releases evenly, too – so as to not create a logjam for retail – and that takes careful planning.

As Nintendo launches the DSi, are you looking at taking a chunk of the handheld market?
You’ll hate my answer, but I’ll give it to you anyway. Ultimately, we’re totally laser-focused on what we’re doing in console right now. We’re having our greatest level of success ever; we’re seeing the fruits of our labours truly manifest in the market in terms of shares and volume. We wouldn’t be contemplating other focus areas right now. We want to make Xbox 360 an even greater success.

EA CEO John Riccitiello has said that the company feels it needs more focus on Wii. What do you make of it as a strategy? Why do you think he feels he can get something commercially from Wii that he can’t from 360?
You know EA is a very close partner of ours and we have an excellent ongoing relationship. We have great mutual success, and that won’t change.

I can only assume that’s one reference point of them wanting to take a larger component of the volume that’s available on other platforms.

Having talked to EA on a regular basis, they have some very robust plans for publishing on the 360. I’m sure John feels as positively about our success here in EMEA versus where we were a year ago as I do. We all wanted to see us turn the corner in such an important region, and I know those guys are very happy with our installed base growth.

Has Microsoft still got the capital available in its Entertainment and Devices department to acquire a publisher or studio at the right price?

Without doubt. All businesses without exception now are looking hard at digressional spend and at operating costs. But I will say that we are profitable as a division. That’s public information. We’re in a good, healthy state economically.

Microsoft is prudent in terms of investment areas – and we always keep our eyes open over where acquisitive plans may make sense. Certainly we have got no announcements to make here, other than the fact that we keep our eyes open. We only look for complementary investment areas where they make sense.

We’re not immune to the economic problems – nobody is. But the companies that do best in these situations are those that really focus on customer value and continue to spend money on research and development.

You will not see us stepping back from investing very heavily in the future.

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