What price mass-market? Part 1

If you'd told Microsoft five years ago that the second Xbox console would be in its current market position, they would have been high-fiving over the cubicles in Redmond. On the surface, Xbox 360 is looking strong, with 18 million consoles shifted, over 10 million subscribers (though not all paying) on the Live service and the strongest portfolio of software amongst current generation systems, setting a new benchmark for entertainment launches with Halo 3.

But the dynamics have changed. While most of 360's success to date is credit to Microsoft's canny strategy and relentless drive, it has been helped considerably by Sony's sluggishness with PlayStation 3, which arrived a year later, considerably more expensive and embroiled in a brutal entertainment format war.

Blu-ray, almost entirely thanks to PlayStation 3, has now killed off HD-DVD, of course. This is expected to provide a huge boost for Sony, ending at a stroke prolonged consumer uncertainty. Meanwhile, despite 360's strengths, PS3 has been catching in many areas, even overtaking 360 in several major continental Europe territories. Has the momentum shifted?

Microsoft's aggressive price-cutting of all 360 models in Europe earlier this week is its gamble to once again derail the accellerating Sony juggernaut. With the lowest-spec model now even cheaper than Nintendo's casual-conquering Wii, Microsoft is banking on this move finally giving it the mass-market traction it so craves.

Now overseeing all of Microsoft's entertainment business in Europe, Chris Lewis is spearheading this bold new push across the continent. Here he explains why Xbox can still win.

Chris Lewis: It was always the plan to move the price point at the right moment. We always said that the strategy was to secure the core gamers in the first wave and then move into an expansion.

We enjoy 42 per cent of that revenue share right now in this generation. That's a key milestone for us to have met and surpassed. We're also attaching just a little bit over seven games for every console — considerably ahead of where we stand with our competition - which puts us in a great place in terms of achieving that whole positive ecosystem of attach and share.

And then there's pure installed base. We are now at 17.7 million units worldwide. Europe is a significant part of that and having got to that, surpassed that milestone, we can now feel very good about this being a perfect time to move into the mass-market with amazing value price points. There are some sweet spots of pricing, particularly in parts of Europe, that do genuinely open up larger communities to the console and certainly EUR 199 is one of those pricepoints.

That's linked to our game portfolio — and we do genuinely, I think, have the best games for both the core and the masses. We've got 150 games that are aimed at three-year-olds and above. We've got parental controls and that whole space there on the front foot in terms of giving control to parents and carers. And we've got diverse entertainment through video store and what we're doing with Live. It's a perfect time to open up the mass-market floodgates.

Well, to some extent. I know what you're saying, but the attach performance clearly played a huge part in all of that, and if you look at what we are attaching now with an installed base getting close to 20 million in relatively short order, still attaching seven or more games to every one of those is great for us, it's great for the ecosystem.

Sure we were the first mover in terms of next-generation gaming. We felt that was the right thing to do because that was what our consumers were asking us for. But I still maintain that our revenue share and our ecosystem performance is an incredibly important thing for us and for the partners that we work with.

You identified these as areas where you needed to perform better with 360 compared with Xbox 1. But it seems PS3 has already overtaken you. Why do you think that's happened?

On a general level I certainly wouldn't trade places with any other platform holder right now. We've got the best games line-up, over 1,000 games for the holiday period - that's true for exclusive and first-party and third-party. I think we're very well poised in terms of our online experience and what people are signing up for in terms of the Arcade games, video store generally and Live. We have secured the core space in the way that I've described and now these new pricepoints add further fuel to our performance overall and get us into the broader space.

There are some parts of Europe where we enjoy less success than we aspire to. There are parts of continental and southern Europe where we made a slightly shaky start, certainly with the first version. We've addressed some of that. Let's take Spain as an example — we are heavily invested there, we've tripled the size of the team, we've put a warehouse in Spain that makes sense to the local retailers' need there. And we'll continue to invest in that way.

The other thing I think we've got to do is be more consistent, fixated and single-minded about our marketing message. And you will see us do that in a more consistent way going forwards. And the price points make a big difference there. We have to represent great value for money whilst having the best games.

I'm not complacent about the competition. The competition is very strong, very competent. I think that's great for the consumer, because the experience ultimately for them is a good one as we all vie to enjoy a winning poisition. But I feel very confident that we're in a good place and I think we will continue to invest, make the right moves, listen to what consumers want and continue on our trajectory because we want to win in this generation.

With all of these things it's a mixture of content, of price, it's a function of marketing. It's also, I think, making sure that we develop marketing and content there that is appropriate and that resonates with local tastes. I think we are getting consistently better at recognising that. I will say that in the early stages of the last version and this we were less fixated on that than we should be. I guarantee to you that will change.

Part of this new alignment, this strong voice that we now have back into the development community and the marketing spaces in Redmond will assist in that. We have to be more consistent, we have to be more single-minded about the message that we represent.

Yes, I acknowledge that we're not where we should be in certain parts of the geography. We aim to rectify that and this step is a key stage towards it. You will see others. They will be significant. And the proof of that will be in the eating.

Of course we're very focused on the competition. I'm not going to sit here and say we completely march to our own rhythm. But I will say that we are on a very clear course and a strategy that's very well thought through and we won't be diverted by that tactically. We have a strategic set of goals that revolve around our performance not only in terms of console volume, because to some extent, yes it's a key metric, but it's only one metric.

There are others that make a lot of good economic and sound business sense that include our attach performance, that include our share of the ecosystem, that include the support we enjoy from publishers and retailers as a result of all of that. All of those elements go towards fuelling a successful business in my view.

Of course we watch our competition with interest. But we are on our own course and we will take the steps we need to take at the pace we need to take them. And that's not going to change.

Well, I certainly think that we enjoyed and maximised the opportunity we had there that you described there. Let's take a few examples. We were very pleased an excited with what we achieved with Halo 3, there will be a whole spectrum of content that will continue to fuel that performance. Gears of War 2 will be a fabulous and important franchise for us. I've spent a little time with Peter Molyneux last week. That which I've seen around Fable is very exciting and will continue to define to some extent what we do in that particular genre.

I'm happy that we did what we could do and that we exploited those opportunities to the full. My point really to you is that there's still a lot more coming. GTA, yes it's important not just for us, but I think the key thing there is, we have exclusive content that will be very important for the Xbox platform and the GTA players on Xbox 360. We have got Rock Band coming and we are becoming synonymous with music — Guitar Hero III was an example of that.

I think our position will continue to strengthen. And I think that the fact that we now do have a more family oriented portfolio of content, that we do now have a price point that is attractive and will wider our market much further. We are now much more of a mass-market entertainment proposition than we were. Online's right at the heart of all that. I challenge anybody to come up with a more powerful, insightful online experience that is as seamless and as user-friendly as ours. And you'll see us continue to revise and develop that service. All of those things are aligning to put us and keep is in a strong position.

A resounding yes! We are very well positioned to win in Europe, best games for the core and the family, best service and a great set of price points to broaden our appeal to a wider community - and a lot more to come.