Tables turning for gaming rivals

LOS ANGELES — Xbox chief Peter Moore is a veteran of the Electronics Entertainment Expo, but this year's conference might be particularly memorable for him.

He has the only next-generation console on the shelves; systems from Sony and Nintendo are due out later this year. He's been sporting a fake tattoo of "Grand Theft Auto 4," a marquee game that will be available on the Xbox 360 the first day it goes on sale next year. He shared the stage during a Monday press briefing with Chairman Bill Gates during Gates' first trip to E3.

Moore touched on these subjects in an interview Thursday.

Q: The HD-DVD high-definition player coming out this year for the Xbox 360 will only play movies. Will it hurt Xbox not to have HD-DVD format games?

A: We're already doing high-definition games in the current format. It's a games machine, and if you want to do movie playback as well we're making an HD-DVD movie player available this holiday.

But it's really focused on games. We looked at the pricing curve that we believe needs to be presented to the consumer to make this a mass market device. Scaling in this business is very important and pricing is so, so sensitive. Not so much here in the U.S., but when we look at the global business that we're getting into.

Q: Do you think games will get to the point where, in terms of capacity, they'll need to be bigger than the standard DVD?

A: You look at "Gears of War," you look at what we're doing right now with "Halo 3." We've got no complaints whatsoever from consumers. What we prefer to look at is if you need to refresh that experience or have a bigger experience we think of downloadable content.

Q: So is it up to Microsoft to sell HD-DVD, since you're not in the movie business?

A: There are three things we're focusing on. Your games are right in the middle. Your friends, which is Xbox Live and Live Anywhere, which Bill [Gates] took everybody through. And then on the outside is your lifestyle: music, movies, video, television. This is a games machine.

I'll buy — or many they'll give me one — an HD-DVD player because my primary function is to play games, but if I want to watch a movie, I'll pull it out, I'll pop it in and I'm good to go.

Q: What's the most surprising thing you've seen here at the show?

A: I haven't seen much yet. I want to go over to Nintendo and see my friends there. I haven't gotten the (Wii) controller in my hand yet. I don't think anything has surprised me.

Q: Were you surprised by Sony announcing two retail versions, or SKUs [stock-keeping units], of the PlayStation 3 and the pricing levels there?

A: We got a lot of abuse doing two SKUs,. We got a lot of abuse for doing a global launch in November and we got a lot of abuse for our pricing, if you remember. "$399? Geez!"

We've invested a lot in online. We believed in that years ago, and I like to think imitation is the most sincere form of flattery. When I look at what Sony's doing it just is following in our footsteps rather than going off and creating a path of their own.

Q: Do you feel any pressure to make a motion-sensitive controller?

A: No. We did that many years ago. I think Sony felt pressurized to react to what Nintendo was doing. I think it's a big mistake to take force feedback out of the control.

Q: That's the vibration/rumble feature that Sony is taking out of the PS3 controller.

A: Yeah. I'm one of those guys, if I drive or if I get shot in a game, that rumble that goes in there is important. Maybe because I'm old and I need stimulation from both sides. That is a big deal, and I'm surprised that happened. I think Nintendo's been innovative and Sony really is trying to react to some innovation. We're not concerned about that at all.

Q: Microsoft will sell "Grand Theft Auto 4" at the same time as Sony when the next game in the series comes out next year. Sony previously had an exclusive window to sell the game. Does this say more about Microsoft or Sony or more about the economic realities for game publishers?

A: It's a number of things. I read your interview with Kaz and while he dismissed "Grand Theft Auto," I think he wasn't doing the game justice in what it meant for PlayStation 2. The game is such a phenomenal game, it's a cultural icon in our industry. We have built a great relationship with the guys at [game producer] Rockstar over the years, and we wished seven or eight years ago we would have been able to build that relationship, but we're relative neophytes in this business.

We would actually say a lot more than Kaz did about what the recent "Grand Theft Auto" games meant to the PlayStation 2. We sat down with [Rockstar] a while back now and came to an agreement. Quite frankly it neutralizes what I think is one of the bigger advantages.

Q: Are we going to see fewer exclusives from independent third-party publishers moving forward?

A: You're going to see some third-party exclusives. The economics of the business are with us having a 10 million unit lead [by November] as we said, for a developer not to develop for the Xbox 360 becomes a very expensive proposition.

If Sony wants to try and get exclusive third-party titles, that opportunity cost of 10 million has to be reimbursed, so big checks have to be written. We've been on the flip side of this. The table has turned now.

Q: In my interview, Hirai seemed to express doubt that you'd hit the 10 million figure. Is that a solid number?

A: Kaz said the proof will be in the pudding and he's right. When we look at our supply chain management and the demand for these things, we're bringing new countries online. I think he underestimates the value of now expanding our industry. We have operations already in place in these countries. It's very easy to do business everywhere in the world.

The demand that we see, it's unabated in the U.S. in particular. We feel good, we're going to get there, assuming that Sony does ship in November. I think they should focus more on living up to their numbers, which is 6 million [through March 2007], and is not going to be easy.

Q: Microsoft recently acquired in-game advertising company Massive. Are we going to see a lot of advertising in Xbox games?

A: Only where it's relevant and only when it adds to the game experience. Massive has built this great platform. We're going to go out and sell it. We're talking to Coca-Cola and Ford and GM every day. You build the hooks into your games and we'll find ways to defray your development costs through driving incremental advertising revenue.

But you can't jar the game experience. Don't look for McDonald's in "Halo 3." But in "Project Gotham Racing 4," in "Crackdown," maybe, which has an urban, gritty environment; gamers say, "Rather than 'Fred's Cola,' I want to see Coca-Cola:"

Q: Fast forward to December of this year. Where do you see the business playing out?

A: Our mantra is going to be supply now. We're starting to see more retailers advertising on Sunday, which means they feel real comfortable about inventory levels. We're opening up in new markets, we're building up our data centers around the world.

I think we'll be at the upper end of our projections by the end of the year.

Kim Peterson: 206-464-2360 or kpeterson@seattletimes.com