NEWS - Tuesday, January 11, 2005

The Year of 2004

Robbie Bach (Senior VP, Chief Xbox Officer)reflects: With a great holiday season and year now officially in the books, I’d like to address the current state of the Xbox business and highlight a few key accomplishments as we move into the New Year. 2004 was a solid year for the industry and was great for Xbox overall. It was a year of strong market momentum for our platform - as well as for our partners - as we entered the sweet spot of the current console life cycle. Significantly, for each of the last thirteen months, Xbox unit sales of consoles and software grew year-over-year. We are the only console manufacturer that can make that claim. In July we announced that we had hit our annual goal and had sold 15.5 million consoles through the end of fiscal year ’04. We continue to be on track to sell in excess of 20 million consoles by July 2005. The important point here is momentum. Based on NPD data for November and internal sales data for December, Xbox won the critical Holiday season in the United States, garnering a projected 40% market share. In the same time frame, Xbox console sales propelled forward with an 11% increase compared to this time last year. Correspondingly, our competitors experienced year-over-year declines - PlayStation 2 sales dropped an estimated 40%, and GameCube sales fell an estimated 47%. On the software side, the 2004 holiday season was one of the strongest holidays on record, with the latest available NPD data showing Xbox software sales up 77% year-over-year. Xbox now offers a rich portfolio for gamers of all ages and interests, with more than 600 titles available. Our attach rate the number of games sold divided by the number of consoles is 7.6 (8.3 with prepackaged games), which continues to be the highest ever of any console at this point in its life cycle. We announced last May that Electronic Arts was the latest addition to our list of publishing partners supporting Xbox Live, and this past year 13 new EA titles joined a portfolio of online-capable titles that now exceed 150. In fact, EA’s first Xbox Live-enabled game, "NCAA Football 2005," saw its month one, year-over-year sales more than double on Xbox, while remaining relatively flat on competitive platforms -- a clear sign that gamers have embraced the Xbox Live community model of online gaming. You may have seen the October Game Developers Magazine, which announced its top 20 Publishers of the Year. Microsoft Game Studios was named the number two publisher, just behind EA, based on revenue as well as use of third-party developers, average critical response to titles, percentage of original intellectual properties (IPs), and developer opinion. I’m extremely proud of MGS’s work, and there are a couple of Xbox titles I feel represent two of the greatest entertainment experiences available for gamers today. A very strong performer for the company has been Fable, developed by Peter Molyneux’s Lionhead Studios, which has sold more than 1.3 million copies since its launch on Sept. 14. "Fable" was awarded "Best Role-Playing Game" at last month’s Spike TV’s second annual Video Game Awards. And of course, Halo 2 mania continues. Halo 2 drove astounding retail performance, with worldwide sales of 6.3 million copies since its launch, and we expect strong sales momentum to continue throughout the year. The "Halo" franchise, which includes predecessor "Halo: Combat Evolved" for the PC and Xbox, has now sold a collective.7 million copies in just three years’ time. "Halo 2" was also awarded two awards at Spike TV’s ceremony last month "Best First Person Action" game and "Designer of the Year." At least part of the success of "Halo 2" can be attributed to its Xbox Live features, and holiday data indicates that new customers flocked to the service in unprecedented numbers. By the end of December, more than one million unique Xbox Live users were playing online matches of "Halo 2," with gamers logging a collective 69 million hours of gameplay. The year ahead promises continued excitement for Xbox gamers, with highly-anticipated upcoming releases that include Microsoft Game Studios’ Forza Motorsport, BioWare’s Jade Empire and Rare’s Conker: Live and Reloaded. A few weeks ago, Game Informer Online included these three titles in their "Ten Games to Watch 2005 List," while also acknowledging that "Microsoft was a force to be reckoned with" in 2004. Our third-party partners will launch other long-awaited titles including LucasArts’ Star Wars: Republic Commando and id Software’s Doom 3. Delighting legions of Xbox gamers, Rockstar Games announced just before Christmas that the hit Grand Theft Auto: San Andreas will be available this coming June. For younger gamers, the consistently popular, value-oriented Platinum Family Hits series recently added Konami’s Teenage Mutant Ninja Turtles to the line-up, and Xbox Live Arcade offers a variety of casual and classic arcade games for download, including "Bejeweled" and "Ms. Pac Man." With an incredible holiday season behind us, we continue to prove that the diverse games portfolio on Xbox and our thriving Xbox Live community are driving strong sales momentum into the New Year. We will exceed growing consumer expectations in the thriving video game sector for 2005 and beyond. I hope you have a happy and prosperous new year. ** CANADIAN ACCOMPLISHMENTS ** Xbox was a top holiday seller in Canada with exclusive offers such as the Xbox Crystal Edition gift pack and the Xbox Holiday pack. Based on ACNielsen data for November 2004, Xbox captured the number one market position with 39% share of unit sales. In addition, Xbox grew its year-over-year console sales by 53%, driving market share to 37% (based on ACNielsen data from January-November 2004). At the same time, total console sales in the industry grew by only 19%. Xbox Live continues to host the largest online console gaming community in Canada with new customers flocking to join the service -- early data indicates that the total Xbox Live subscriber base virtually doubled in year-over-year growth for 2004 (96%). Halo 2 was the biggest 2004 game launch in Canada; in a comparison of first-week unit sales, Halo 2 outsold every other video game by at least 60 per cent, according to information from ACNielsen.

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