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LAS VEGAS—Robbie Bach, president of Microsofts Entertainment & Devices Division, spoke with eWEEK senior editor Darryl K. Taft at the Microsoft Mix conference here. This is Part 3 of the interview.
So, is Nintendo disrupting things for you, or were you surprised to see them?
Im actually not—the product has gotten more broad-base acclaim that I would have expected. Its a very nice product, but it actually has a relatively specific audience and a fairly specific appeal, frankly, based on one feature, which is the controller itself. And the rest of the product is actually not a great product—no disrespect, but … the video graphics on it arent very strong; the box itself is kind of underpowered; it doesnt play DVDs; there are a lot of down-line components [that] arent actually that interesting.
In the casual space theyre going to do very well, because the controller is pretty intuitive and the game experience is pretty simple, and Nintendo can produce a lot of those simple game experiences themselves.
The challenge they have is that third parties arent going to make much money on this platform because Nintendo is going to make all that money, and their ability to compete with something like a Halo or produce an experience like Madden on their system is going to be tough. They dont have the graphics horsepower that even Xbox 1 had. So it makes sort of the comparison set a little bit difficult.
So the challenge for us is how do we drive to more casual users, and how do we bring more casual experiences to Xbox and Windows? And the challenge for them is figuring out, “Hey, how do I broaden beyond a casual demographic?” Well see how that plays out.
Its interesting to note that a year ago if somebody had said, “Hey, we wont be discussing Sony,” thats an interesting statement, and I think something that frankly hasnt been written about very much.
So, do you feel that Nintendo is a more fierce competitor than Sony?
I think Nintendo and Microsoft are clearly in the drivers seat on whats happening in this generation. And theyre different drivers seats. In a way, … our circle and Sonys circle overlap I would say 90 percent. Nintendos circle and Microsofts overlap say 20, 25, 30 percent, something like that. We had people laughing and call it the Wii 360 because you already see a lot of dual-household ownership.
But Sony I think has some real challenges. Theyve got a pricing problem, they have a cost problem, they have a content problem, and they dont have an online service. But Im just talking about the psychology of me doing an interview with you as a reporter coming in and not uttering the word Sony without me bringing it up.
Do you think things like the recent BlackBerry outage will create an opportunity for Windows Mobile to increase its franchise in the mobile e-mail space?
I think what happens in all of these things is over time … quality rises to the top. Over time people expect reliability, and reliability does become a purchase criteria. And I think its a space where the Microsoft brand name absolutely helps us.
You know, in general in the businesses I work on, sometimes you could say, “Hey, Microsoft, is that an entertainment brand? Oh, isnt that the Windows and Office and SQL Server brand? And tools, gosh, they dont feel very entertaining to me.” But when it comes to things like this, when I want my mail and I want to know its going to be there, then the Microsoft brand has big-time value. And its where the RIM BlackBerry brand doesnt help frankly as much. So, I do think it creates some opportunities.
Next Page: “Xbox Live cannot go down.”
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Now, to be fair, were not perfect either, so we have to do a better and better job of making sure our service is always there. And you cant have outages. Xbox Live cannot go down. Thats just sort of the demand. IPTV cannot go down.
Why did AT&T and those guys pick us over the startups that were all in this space? Because Microsoft could say were going to put the resources behind it to make sure it doesnt go down. And it is the benefit of bringing our brand to bear.
Back to Zune, when will the Zune music store have DRM (digital rights management)-free content from EMI?
As soon as EMI says, “Hey, we want to do this. When do you want to do it? How do you want to do it?” I mean, all the DRM situations are under control of the labels and actually the publishers, and actually publishers are as important as the labels are in that sense. And the artists certainly have some degree of influence.
I dont think of DRM as something we like or dislike. Its something were asked to do. Somebody says, “Hey, we dont want you to do it,” we say, “OK, so what format do you want it published in? You can use MP3, you can use ACS, you can use Windows Media. Tell us what it is, tell us if you want no protection, tell us what that means, and well go, and well work through the business model, sign the contract, and away you go.”
So, to me its just a function of when they want to do it and how they want to do it. The EMI Apple thing was not new news to anybody. Theyve been talking to everybody for a while. And so then it comes down to a business arrangement and all the things that go along with that.
I just thought Id throw it in there. I agree, it wasnt huge news, but it was interesting.
Its not a big surprise, its interesting. It would have been more interesting if it had been Warner or Universal. In a way, … because of their market position [EMI] can either prove or disprove that works, but … theyre not a tipping point provider. Youd have to look to Universal or Warner or Sony BMG to say, OK, one of those guys moves [in] that direction, it changes the dynamic in a different way. In some ways thats more interesting.
What kind of demand do you expect for Xbox 360 Elite?
Well, initially I think the demand is going to be based on how much we can supply. So, Ill tell you that right out of the gate. I think well sell—I mean, I had friends who tried to buy it this weekend, and they were all gone, and I think youre going to see that for a number of weeks, just because its a new product. Its a different product for us to manufacture, and were going to make sure we do it right. And, I mean, the volume is going to be somewhat constrained for a period of time.
Next Page: Strong demand from enthusiasts.
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Ultimately, I think it has a lot to do with audience segmentation. For the people who are hard-core gamers or the people who are hard-core entertainment enthusiasts, I think a high percentage of them will want it, partly just because it has the right acronyms, so it has HDMI [high-definition multimedia interface]. If that is a big thing in the end or not, people want it. Partly because those people tend to be very hard-disk intensive, they want to store a lot of things there, they download a lot of TV shows, they save a lot of games, so theyre going to want the extra hard disk space. And partly because those enthusiasts like the black color. So, I think in that enthusiast audience youre going to see … very strong demand.
Then the question is, in the broader audience, … at that price point how much uptake do we get, and I think at the price points were at now, I think that will be modest. I think the sweet spot is going to be the pro SKU—the $399 SKU—and then the real price-sensitive people, and frankly outside the U.S. a little bit more, the core SKU will continue to be a reasonable percentage of our business.
And youre going to see that evolve over time. At some point the price point of the 120GB version gets down low enough that even somebody whos just a casual buyer is going to say, “Hey, for whatever the extra is Ill buy it,” but were certainly not there now. Its like asking at $500 how many people are going to buy an iPhone. It may be a good product, but at $500, its going to appeal to Apple enthusiasts. And theyll sell to that group, and that will be fine, theyll probably do fine from a business perspective. Its going to be a small percentage of the total phone sales. Just mathematically thats true. Its not a knock on the product, its just—
And I was actually going to ask you about it.
Yeah, the answer would have been its an interesting product, we think the phone space needs lots of different phone designs, and at $500 their audience will be a certain set of people who were not even really trying to target.
Is Verizons FIOS based on Microsoft IPTV?
Sort of. So, their FIOS system was originally based on a combination of our IPTV system and our Foundation Edition system. Their FIOS TV system is a hybrid between a pure IPTV implementation and a cable implementation. And so they took software from us both from our cable infrastructure and from our IPTV infrastructure, and we merged that into one product, which the first, I dont know, 300,000 or 400,000 of their subscribers are actually on.
Weve since evolved that relationship where were just doing a pure technology provision to them going forward, and theyre actually carrying the service themselves. Because its such a unique service, its hard for us to scale to that specificity for them, where in the IPTV space the basic infrastructure of what AT&T, British Telecom, Deutsche Telekom, Swisscom are using is all the same. The FIOS system is really specific. So, for us its a little bit of a better model. They wanted to do more of the development themselves. So, going forward, it will be their own technology based on some intellectual property that we provide.
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