Microsoft's Shane Kim

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.

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.

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.

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.

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.