NEWS - Sunday, May 25, 2003

Q&A with Robbie Bach about Future of Xbox

One on one with Xbox top dog Steve Makris Edmonton Journal Saturday, May 24, 2003 Xbox top dog, Robbie Bach, chief Xbox office (CXO) and vice president of the Home & Entertainment Division at Microsoft Corp. was in Toronto on Friday May 23 visiting the Canadian Xbox team and partners. Bach, who holds a bachelor’s degree in economics from the University of North Carolina and a master’s degree in business administration from Stanford University, joined Microsoft in August 1988. He is responsible for managing the Microsoft Xbox video game system, including the hardware, Microsoft and third party games development, Xbox operations, marketing, research, sales and support. Microsoft, whose core business is consumer and business software, launched the Xbox video gaming console two years ago with an initial investment of US 1.5 billion and an additional US 2 billion one year ago. The Xbox has sold 9 million units worldwide, compared to the 50 million units shipped by rival Sony PlayStation’s 2. Canada surpasses the U.S. in per capita Xbox sales and has the highest Live online subscription. During the quarter ended Dec. 31, Microsoft’s home and entertainment division, which includes the Xbox business, generated a loss of US$348-million on revenue of US$1.28-billion. According to April console retailer surveys, Sony PlayStation had half the market share in Canada while Xbox took a 29 per cent share and Nintendo had 21 per cent. Edmonton Journal technology writer Steve Makris interviewed Bach on the phone on Friday May 23. Q. If Xbox sold everywhere else like it does in Canada, would it be making money for Microsoft today? A. Canada and Australia are our top two markets. Having a good product that fits with the culture here works very well. We could make it profitable today, but this is going to be a long investment business for a while. Q. How long will Microsoft support a platform that seems destined to be in the red for the next few years? After all, you have invested US $3.5 billion on the Xbox and are still losing money on the sale of each unit. A. We are being smart about bringing the cost of producing the Xbox console down. We can decide to not make it a long investment business and price it to get a better return, but this is a 10, 15 and 20 year investment. Q. What percentage of Xbox owners have migrated from Sony and Nintendo? A. Most Xbox owners have likely owned existing competitors consoles. We think our challenge now is to broaden the market even beyond the 30-40 per cent of people who have been in the gaming market. Today the gaming market has grown because new generations of people are coming along. Q. Who else do you want to sell the Xbox to? A. What we haven't done as successfully is reach out into the broader market place. We just announced the Xbox Music Mixer with interesting non-gaming features, something that a variety of different audiences, like women, might want to engage in. Or getting text messages on your cell phone on your virtual league’s standings. Q. Is Xbox becoming more than a gaming machine in a living room? A. Gaming is the centre of Xbox, but the definition of gaming and interactive entertainment as a whole is going to broaden. We believe music, movie, TV and video games is a powerful combination that will lead to new things. Q. You now have PC, Internet and cell phone connectivity with the Xbox, plus Karaoke. How are you addressing security issues now that the Xbox is stepping out of the safe living room? A. We are designing everything we are doing to provide security as a service for both player and game publisher. For example, we can sense and disable an Xbox modified with third party "modchips" and not allow it to play online. Q. Folks have even built a Linux-Xbox computer. How can you control this? A. Electronic hobbyists will do what they want to do...the numbers are not really that big. It’s not a commercial as much as it is an intellectual property issue and we always pursue those. If someone finds a way to cheat, we close it down and do an update so people can't anymore. Q. How soon will we see a new Xbox console to counter Sony’s rumoured PS3 model? A. Well, tell me when PlayStation 3 ships and I will tell you we are going to be there at the same time. But I will tell you, Sony will not have the benefit of the 12 to 24 month head start they had in most markets with their current console. We are very focused on being there with a great product. Q. Is a portable "Xpocket" player in the works, similar to Nintendo’s successful GameBoy and Sony’s recent announcement of a portable model? A. There is not a lot of leverage between console and handheld game players. It took Sony eight years to decide to get into the hand-held space and Nintendo is pretty much demonstrating there isn't any leverage between GameBoy and GameCube. It’s like starting a new business...we will focus on making the current Xbox successful. Q. What is your relationship to Bill Gates. A. I see and talk to Bill all the time and we meet regularly on Xbox issues every three weeks. Q. What fires Bill up about the Xbox? A. He looks at the whole concept and says how do we bring console gaming into the mass market. How do you enable the 90 per cent of women who don't play games, want to play? How do you make it easy enough in our generation can pick up a game console and have a great entertaining experience? Q. Do you play? A. Mostly with my 12 year old son. Q. Does the government have any business regulating gaming content over and beyond the existing game rating mechanism? (Some local US state laws have been signed bills prohibiting selling violence against police, to gamers to users under 17) A. This is protective content in the US under the first amendment and it's a freedom of speech issue and we will defend both our and industry and game developers to develop the content they think is appropriate. Telling us what we can or can’t create, we think is unconstitutional. But we also feel parents should also have the tools and capability they need to decide what is appropriate for their kids to play. We are big believers in the rating system and we are the only console that provides that control right out of the box. Q. Do you compete with your own PC gaming division? Is there room for both? A. There is a lot of synergy there and the PC game industry is doing well or better than it ever has. We now have games like Mech Assault which is a completely different game on the PC and the Xbox. Q. You are now number two, ahead of Nintendo, will you catch up with Sony’s huge installed base? A. We have every intent of being the industry leader, Microsoft enters markets to be a leader from a technology and market share perspective. Sony has a year or two head-start in this generation but when the next generation consoles come out we think we are well positioned to win there. Q. Can Xbox become Microsoft’s next cash cow? A. Xbox will never be the type of profit margin business like Office, Windows or SQL Server, because it is a consumer business and it has hardware components. Q. Can the Xbox make money at some point in time or is it a loss-leader that Microsoft had to get into, just to be there? A. Xbox is important to us in the home market strategically, but I run businesses to make money, ultimately. Xbox has a large upfront investment and a long lead time but can make money over time. Q. How patient is Microsoft with the money Xbox is losing? Sony claims 60 per cent of its total revenue comes from PlayStation sales while Microsoft’s Xbox is the opposite. A. I think Bill Gates and Steve Ballmer are very happy where Xbox is. We went into this knowing it was going to be a long lead investment process and that we were going to be there for the long haul making the investment necessary to be a profitable business. Sony basically is a hardware company that runs on very tight hardware margins with software (games) margins driving business. Microsoft on the other hand is a software driven business. Q. You say everybody is happy with the way the Xbox has progressed. But a price cut on the European Xbox console and rumoured cuts in the Japanese console seem to indicate otherwise. A. Well, if you look at the performance by territory, Japan would be one where we haven't performed as well as we'd like. That's certainly true and that's a business where we're going to continue to invest and make changes in. Q. So how would you gage the Xbox success? A. Hey, 18 months ago Microsoft had never done anything in the video game business and now we have over 20 per cent market share, except Japan...and we beat somebody (Nintendo) in the business who's been doing it for 20 years, you have to be pretty happy with where you are. Q. How important is the Japanese market to you? A. We want to be successful in Japan because it's a gaming market and an important territory where we have a lot of third party game publishers. Q. Is the Japanese project N.U.D.E., where you create your own virtual private female companion online, quite different from anything else we have seen and will it be available in North America? A. The basic concepts in these different interactive titles revolve around different ways to create communities and social interaction. I don't know if N.U.D.E. will be available outside Japan, off the top of my head. A lot of the new content you will see is more interactive, social community...people want a competitive but fun social experience and we are experimenting with a lot of new concepts like project N.U.D.E. Q. Your background is finance and marketing. How do you decide on Xbox gaming issues? A. It is all about who you have on the team and I have a tremendous amount of trust in my key Xbox group, Ed Fries for game content and J. Allard on the technical side. But you have to do your due diligence, like research, customer data gathering...and at some level it comes down at making good judgment calls. Q. How do you make good judgment calls? A. It’s a combination of science and art and my way of doing that is I try to take the data I see, the team research and the feedback from my experts and use that along with my own expertise to make a decision. There are very few business leaders in the world who know every part of their business well. Q. Do you ever get impatient with Bungie, the developers of Halo 2, the sequel to your flagship title Halo? A. Software development is part science and part art. I have a lot of faith in those guys to execute and produce on time, just like they did for Halo for the Xbox launch. Q. Does Bach’s 12 year old son, an avid Xbox gamer test new games? A. He gets to play plenty as it is, if I introduce that to him, the homework would never get done. For more information on Microsoft's XBox visit their website at

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