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E3: Peter Moore Talks Xbox 360

Plus the next-gen battle and billion dollar costs.

Following the platform holders' conferences at the E3 Media and Business Summit, and in advance of the news that he is resigning from Microsoft, got the opportunity to sit down with Xbox boss Peter Moore. Here once again is what he had to say in one of the last interviews before Moore takes on his new role as head of EA Sports. What do you think of the reaction to your E3 press conference?

Peter Moore:I haven't had a lot of time... If I'm encapsulating the reaction that I've read on the blogs - no disrespect, but I didn't read journalist reaction, I read what the people thought - it was that there weren't a lot of announcements per se.

There were no tattoos, there was no Metal Gear Solid. Maybe the anticipation of these announcements that some people have planted in their minds haven't come to bear.

But we had so much stuff, as well as the rather unusual step of just focusing purely on this year, rather than trying to do some visionary stuff about 2008 and 2009. If I read the mood of the boards correctly it was 70 per cent positive, 30 per cent negative - wishing we had showed more visionary stuff.

You may have had time to read reaction more than I have, but I literally have not had the chance. So tell me what the reaction is...

I think people were looking for more about what's beyond 2007. But then all three of the conferences featured a lot of stuff that we've seen before.

This is a very critical moment in this coming holiday, because it's going to be who's got the goods. If we still all believe that great games move hardware, then it's about the great games.

So we made the decision several months ago that we've probably got 40 games we need to show in some way or another - but for 2007 we don't want to short-change either our first-party stuff, or more importantly our third-party partners. So we said we were just going to focus on right here, right now, and, as we said last night, put our cards on the table.

We felt good about what we showed. Call of Duty I think blew a lot of people away.

Was that live, the Call of Duty demo?

Trust me, it was live.

The football one wasn't though, was it? Madden?

I'm not going to comment on that one.

I think that answers it...

But [Call of Duty] - absolutely, no doubt about that. Unequivocally live.

Are you going to be able to produce a similarly exciting line-up at next year's E3, when Halo 3 and GTA IV are out of the way?

Too Human, Alan Wake, Halo Wars, Fable 2, Banjo Kazooie. Which are five titles - first-party exclusives obviously - that I think about for 2008.

I think our challenge was, at E3, that we were going to have to short-change things this holiday to talk about the future... We may have been wrong, but we wanted to focus on 2007. Then we've got plenty of opportunities, whether it's Leipzig or TGS or [other events], to talk about 2008.

What did you think of Nintendo and Sony's conferences?

I saw glimpses... I saw Nintendo's Wii Fit, which was interesting... But you know, [the conference was] a classic. You could have predicted it: Reggie, Iwata-san, Miyamoto-san all came together.

It was a lot of PR reels of launch and stuff we all know. This wasn't educating the mass audience - this is E3. So I was a little surprised. But other than that I thought it was a classic Nintendo press conference, and they have a lot to be proud of.

Sony's was... Interesting that they decided to try Home as a venue for Phil and Jack and Kaz to speak from, and I'm not sure what I felt about that. It felt a little forced.

But they had the goods. I didn't see the end, but I assume they showed Killzone, and I don't know how that looked. And I saw Kojima-san talking about Metal Gear Solid, and that seemed to go on for a long time. In the end I had to leave halfway through the trailer they showed.

I remember him saying this is in-game footage, and it clearly looked very good, and it's Metal Gear, so it is going to be very good - I didn't get to see anything after that.

I always look at it through a different lens. I don't know what you guys thought, but it feels like we all now get into our rhythm and we do ours and they do theirs. Now it's Jack more than Kaz, and Reggie's become the primary spokesperson.

At Microsoft's conference, you put up the numbers and said you're in a tight race with the Wii and implied the PS3 is lagging behind. Is Sony not so much of a threat any more?

No, I was just quoting numbers, I wasn't making any commentary about them being a threat or not. That's NPD numbers... And they're stunningly accurate.

We shouldn't be totally fixated on hardware installed base numbers, but focused on total consumer spending. In the old days you sold as much hardware as you could and cartridges, and that was it.

Now we're selling hardware, packaged games, digital downloads, we're talking to companies like Pepsi, Nike, Nissan and Ford about advertising revenue flowing in.

I don't want to sound like a corporate suit, but this is a business that has become high stakes. The cost of development and the cost of marketing continue to escalate. We need to make sure that not only ourselves but our partners have good opportunities to offset that cost.

Why don't you tell us how many people are playing Xbox Live? You tell us how many sign up, but you don't tell us how many have got Gold. The only reason we can think of is the figure isn't as high as you'd like...

You've got a conspiracy theory there. No - the majority are Gold, and we have some very clear competitive reasons why we don't start breaking down revenues much crisper than that...

We're not lying to you, if that's the insinuation - that somehow we're actually lying about the numbers...

You're not lying, you're just not telling us the numbers.

Well, you just said the numbers aren't as good as I'm saying. There are complex GAP accounting things that we have to adhere to. Microsoft is a very conservative financial company, and rightly so.

We'll break down the numbers in the aggregate. After that, it just becomes very competitive, and we have to be careful how much information we start sharing.

Going back to what you were saying about how games are more expensive these days and costs are rising, you recently spent USD 50 million on Grand Theft Auto 4 content...

No we didn't. Take-Two I think reported something - I can't speak for companies that are publicly traded that are not Microsoft - but they reported, and didn't attribute it to us but reported getting revenues for, I can't remember the phrasing in their accounts, but recognising revenue for content in the future... We didn't make a statement.

The official line was "no comment on rumour and speculation". Presumably you would have given them a lot of money to secure that exclusive...

We have a business arrangement, because there's a cost involved for Take-Two and Rockstar to go and do things. Clearly business arrangements are always private... It's no different from business arrangements that Sony has, no different than business arrangements Nintendo has.

Yes, we're delighted to be able to have that episodic content, and that stuff doesn't come for free. But we're not going to comment on somebody else's financials; that would be rude of us.

So it's not bribery, to use Jack Tretton's phrase.

That was a strange comment. I'm not going to get involved in that, but saying they've never had a business relationship with a publisher to make content for the PlayStation platform...

We do it all the time. We're not shy about saying we'll sit down with publishers and ask how can we invest in making their game better on our platform. We did it with Guitar Hero, and it worked out very well.

Jack made a statement and I'm not going to get lured into a battle... He knows how to run his business.

One cost you have confirmed is the USD 1 billion for Xbox 360 repairs. How hard of a decision was it to commit that money?

It was a very difficult decision, but in some instances a very easy decision. We had not done right by the consumer... From all the way to the top of the company it is not easy to take a billion-dollar charge. Anything that begins with a 'b' is a lot of money. But we had to do it; we needed to do it.

People have to understand is how difficult it is when you sit down, you look at your business and everyone in your team that has given sweat, blood and tears to get this thing out, and you have to make this admission that we hit an unacceptable failure rate.

It was a tough day - a really tough day. But I like to think we did the right thing. Even then you get criticised for doing the right thing.

Do you think you left it a bit late?

Well, it's expensive. This is complex to roll it out. All you guys see is a billion dollars and three years, and three flashing red lights. What we see is global repair and refurbishment centres having to get geared up because the worst thing we could do is give you a bad experience again now.

You've got a fiscal responsibility to the corporation and the shareholders to sit down and go through all the costs... You have to calculate every penny, as difficult and painful as it is, to make sure every customer is taken care of here. The logistics were unbelievable, getting it done.

The most important thing is we needed to make sure we'd figured out all these issues.. There's no one systemic issue, there are a number of factors that combine to this general hardware failure, as we call it.

Why haven't you come out and said exactly what's causing the problem?

There is no one problem that's causing it. It's a number of environmental issues. You're getting in the field 12 to 14 months of experience of people using the consoles more than other people, and you start to see trends. Clearly we were seeing that trend and watching it very closely, and again made the very difficult decision.

We're not going to talk about specific hardware problems. They're very technical in nature, very complicated, and it's really not going to do us any good. All people should focus on is that if you've got the problem, we're going to take care of you.

What's the wider impact on the Xbox project of that billion dollars? Does it mean that now you're not in a position to make the price cut you might have made later this year, for instance?

No. You take a reserve. You have to do it because it's the right thing to do for customers, regardless of what impact that has. You don't say that's a billion dollars you could have given back to the consumer in pricing, no. That has to be done separately.

We're continuing to accelerate our cost-reduction curve. We're continuing to improve on our costs in the hardware so that ultimately, as we all know, the next few years we can start bringing our prices down in line with where we need to be.

Has the cost of manufacturing the 360 come down significantly since launch?

I don't know about significantly. On a very regular basis you're constantly negotiating with suppliers - there are 1700 parts in an Xbox 360, and they come from a myriad of different suppliers.

The great thing is we've got a critical mass of volume. You amortise things and then the suppliers you deal with can give you a better price, and so your price comes down from there..

It's not that one day it costs you USD 500, and then the next it costs you USD 250. There is a waterfall of cost reduction that goes on for years. It's planned out by the engineers, who are much smarter than I am, who have to figure out how you work with suppliers, how you assemble it in a more efficient way, how you get better yields in the factory.

It's no different than what Sony and Nintendo are doing right now - you bring down your costs over a period of time, which allows you to pass that on to the consumer.

Are there any plans to cut the price this side of Christmas?

We have no plans right now to make any pricing announcement whatsoever. We feel real good about where we are right now.

Does that feeling extend to the end of the year?

Don't know. You know us. That is a statement I make on a daily basis, and you have to react.

What about the PS3 price cut? Do you think USD 100 is significant enough?

Interestingly, I didn't see a price cut, and I must have been reading the wrong thing. It's still 499 and 599.

It's 499 for the 60GB and 599 for the 80GB...

So they've added greater value at the same prices. Which to me is not a price cut. I don't want to be anal, but I read "price cut" and I expected to see USD 399. When I hear the words "price cut" I expect to see a price cut. They've added greater value in the form primarily of storage at the same price points. We'll have to wait and see.

I did see Nintendo's George Harrison saying that it's ineffective, but the consumer will vote on that. Jack [Tretton] did say, anecdotally, that their sales have doubled [since the price cut], so we shall see.

I'm not sure adding more value triples their run-rate of sales, and I don't know what's going to happen in Europe because there's nothing been announced there of yet.

Why didn't you announce the Elite price for Europe last night?

When the appropriate time comes for our subsidiaries, in particular obviously in the UK, they'll announce the price - which we won't be long.

Sony does seem to be doing better than you in Japan...-

One would hope so. Although they're getting beat; what, better in relation to us, but getting outsold six to one last month by Nintendo?

The Xbox original didn't do very well in Japan. You went into this generation being bold about saying this time we're going to get it right, and yet you're still shifting 3000 a week...

Yeah, we move three, depending... We had Trusty Bell [Eternal Sonata in the West] ship a couple of weeks ago. Yeah, the numbers are the numbers. We shipped 7000 that week, and we trickle on.

Simply measuring hardware sales in Japan people only see a very small part of the very complicated relationship I deal with... And that is being part of the global publishing infrastructure with the Japanese publishers.

When you go over there it is about face, honour and respect. They respect the fact we compete in the Japanese market. They also respect that their own market is flat-to-declining and they've taken a more global view.

It would be easy for me to say, 'You know what, we're simply not going to do business in Japan - we can't, they don't like Americans, they're too loyal to Japanese companies, they don't like foreign games.' Whatever excuse I could make, but that would be disingenuous to what we need to give to Japan.

Japan is far deeper than simply looking at Famitsu numbers and saying we're only selling 3000 units. It's still the cradle of our industry. It's still where some of the greatest games are made.

We're going to be representing a lot of the Japanese publishers in Europe... You're going to see more of that from us.I've the greatest respect for all of those people, and I like to think they have the greatest respect for us. They like the fact that we go in and we compete and we try.

But they're not buying Xbox 360s.

The Japanese underground consumer is probably not buying it as much as I would like; that's a fair comment. But again if that's your only measurement...

I'm trying to make the point that it's more complicated. There are greater benefits that you don't see simply by Japanese Famitsu sales every week.

I just won't take no for an answer. We're just going to continue to develop games over there - Lost Odyssey's going to be fabulous - and we're going to keep hammering away.

Do you think you have the right strategy? Because it doesn't appear to be working.

Well, it depends what working means. That one measurement...

It's quite an important measurement.

Hardware and what we do with our domestic subsidiary in Japan is not turning out the way I would have hoped. Fair comment. The overall uber-strategy of ingratiating ourselves with some of the most powerful publishers in the world so we can deliver millions of units of games around the world - that is working.

So you'd rather have the relationships...

I'd rather have both, but right now I'm happy... You're probably right - we've done it either wrong, or haven't executed well, or somehow Sakaguchi was the wrong guy, or marketing has been flawed. But we're just going to keep going at it.

So what has been going wrong?

It's tough to say you've done something wrong... We flew out and met Sakaguchi-san three years ago in Hawaii where he lives, and we sat down and we figured this whole thing out.

If the complaint last time was you don't have Japanese RPGs, well, we went and got Japanese RPGs - and Blue Dragon's sold well. It hasn't blown the doors down by any means, but we believe in him.

You recently announced that you missed the 12 million shipment target for Xbox 360 by 400,000 units. Why do you think that happened?

We're a little short. In this generation this industry is going to drive 150, 170 million consoles, Being short a few hundred thousand at a point in time in relation to what you thought you were going to be a year before - I think it's a rounding error.

With what we've got coming, starting with BioShock, PGR, all the way into GTA IV, Splinter Cell - I'm confident. Until we get to earnings, which are a couple of weeks away, we can't talk about guidance for the next fiscal year, but we will do that. I just need to forecast better, I guess.

If you take it in the overall structure of a complete life cycle, it's a few hundred thousand units in a monstrous business. I'm very excited about the length of this cycle.

One of the great things about seeing the PS2 continue to sell well, particularly in Europe, is that it really gives us great confidence that we get our console - two, three, four years from now - at the right price point, with the number of games we're going to have for it. I think we're assured of the same success, and I think it benefits everybody.

Peter Moore is head of Microsoft's interactive entertainment business division. Interview by Ellie Gibson and Johnny Minkley.

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Ellie Gibson: Ellie spent nearly a decade working at Eurogamer, specialising in hard-hitting executive interviews and nob jokes. These days she does a comedy show and podcast. She pops back now and again to write the odd article and steal our biscuits.
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