Retro Meets High Tech on Xbox 360

Mix one part classic retro titles, with one part fresh & original content, and combine that with next-gen hardware and a tightly managed online network, and you get Xbox Live Arcade for the Xbox 360. Live Arcade has come a long way since its inception. We speak with Greg Canessa, Group Manager of the Xbox Live Arcade business, about the company's Arcade strategy.

GameDAILY BIZ: Since the released list of Xbox Live Arcade developers, many gamers have been quick to list classic titles that they'd like to see revived on Arcade. Will these developers be focusing more on new software or classic titles?

Greg Canessa: It's going to be both actually. At launch we're going to have a nice mix of the retro coin-op, classic stuff and titles that maybe have existed on other platforms and have been upgraded for 360, and completely new and original content. So we really have a nice offering, and you're going to actually see that on Xbox Live Arcade going forward. That's really the vision for Arcade, to have that central destination for small, downloadable games of all types in your Xbox 360 dash. We consider both [types of games] to be huge opportunities; and since retro coin-op games are small, downloadable games, they fit, as well as originally developed content from smaller developers and larger publishers.

With regard to the coin-op opportunity specifically you see that we have relationships we announced with every major IP owner of all retro coin-op stuff, so you've got Capcom, Konami, Sega, Namco, Midway, Atari -- they're all there. At launch we announced four titles from Midway. We're going to have Joust, Robotron, Gauntlet and SmashTV all there at launch. And what we're trying to do with the retro coin-op games is we're trying to take them a half step further. We're trying to innovate even on the retro coin-op stuff, give it a nice twist and provide a lot of extra value for the 360 customer, especially since we are on 360 and have these awesome online capabilities.

So what we've done is two quick things to those games. The first thing we did is we actually tweaked the graphics a little bit; we "up-resed" them for high definition. So it's pretty cool in a minor way. If you look at Joust, the little guys are "up-resed" a little bit so they're not blocky, the little jousters. And if you don't want that, you want total old-school and you're a purist, you can actually turn that off in the options menu in real-time and go back to the original graphics. We also actually added a little bit of a hi-res background behind Joust and we've done the same thing with a lot of the different coin-op games.

The second thing we've done and the really cool innovation is -- and this has been kind of under publicized... and I think the gamers will be pretty happy when they download it -- we've cracked the original ROM code for all these games. And for the first time in 20-25 years in the history of these games, we've added full Xbox Live multiplayer support. So you're going to be able to play Joust or Gauntlet, which is awesome 4-way over Live in real-time with a headset.

BIZ: That was actually one of my questions, if games like Gauntlet supported 4-player online and apparently the answer is, yes.

GC: Absolutely! And let me tell you it is a freakin' blast! When you get your hands on it, old-school Gauntlet playing with your buddies over Live just kicks ass. I'm a total old-school fan.

BIZ: Midway, Namco, Capcom and several other publishers have already released classic collections on the Xbox. The main issue we've seen with these is generally in the quality of the port. Will Xbox Live Arcade games be emulated titles like many of the other compilation discs and what kind of quality assurance does Microsoft have in place for Arcade?

GC: Every Xbox Live Arcade game is a full Xbox 360 game, by TCRs and requirements and the certification process that all Xbox 360 games go through. For quality assurance Xbox Live Arcade games will go through the exact same process. So from a quality assurance standpoint we test the heck out of these things as much as a Project Gotham Racing or a PDZ or a Kameo would be tested. It goes through the exact same team, and so to your point there are some of these retro coin-op games that have maybe small problems with them and that gets corrected.

We actually take a look and we say, "Is that a glitch in the game that clearly provides a bad customer experience or is it something like in the case of Joust, for example, or Ms. Pac-Man (as a theoretical example -- we haven't announced Ms. Pac-Man yet)?" The old-school games have like "cheats" in them or glitches in them that were actually part of the design that the guys in the coin-ops in the '80s actually figured out how to exploit; we've actually maintained those in the games, and you can toggle them to turn them on or off. We want them to be true to the old-school purists, if you really want to play with the "cheat" mode on, but if you want to turn it off and be clean you can do that too. So there's a nice balance for everyone that loves these coin-op games.

BIZ: So you've mentioned some of the big guys like Namco and Midway, but it seems like Xbox Live Arcade is starting to attract a lot of indie devs who might have trouble getting their games noticed at retail. Why do you think this has become so appealing for many independent developers?

GC: It's one of the things that I'm most excited about; it's one of the ideas behind me incubating Live Arcade in the first place. I'm a huge fan of the indie game developer community and personally I feel like if you take a couple steps back and you look at why Arcade was created in the first place -- we looked at the market a couple years ago and we saw a number of trends going on in the market place. Games are getting more and more expensive to produce; the console games are $15-20 million bucks a pop. And what that's leading to is it's sort of like the Hollywood summer blockbuster phenomenon. Games get more and more expensive and the bar goes up and up and up -- everything has to be in hi-def and play length is a big issue and what that's leading to is a lot of the larger publishers are saying, "We're not going to take the risk on any sort of innovation because it's not proven and if it falls flat we're screwed."

And so there's been kind of a dearth of innovation and there's really been a lot of "sequelitis." So as hardcore gamers, we probably nod our heads at a lot of that. At the same time, you have this indie game development movement that has spawned largely because of the PC downloads phenomenon... They don't have to worry about large publisher economics and overhead of Electronic Arts or whatever -- we love EA, they're a great partner, and we have that same sort of cost structure here -- and these guys are like 3 guys in a garage and it costs them like $100,000-$200,000 to develop a title. And so they can innovate and try stuff out; they can create niche products and the economics just work because (assuming a frictionless distribution system like online) they don't have to deal with all that overhead, so they can innovate and the gamer wins.

At the same time you marry that with a couple of other industry phenomena like digital distribution becoming legitimate, like iTunes and the casual games download business and stuff, and [Valve's] Steam, and then you marry that with the fact that there's been publisher consolidation so it's harder and harder to get games published with fewer and fewer large console publishers and you have developers kind of itching for something to do between their long three-year development cycles and they want an expression of their creativity with a smaller idea, AND you marry that with the decreasing shelf space and increasing number of titles at retail and the disappearance of a lot of really cool genres that we all grew up with that are still cool genres but no one can make any money off them anymore, like shoot 'em ups and side-scrolling platformers and 2D platformers and stuff like that.

You combine all those things together and it's like "Well, crap, there is a huge market opportunity for someone here to come along and say, 'Wow, let's create a destination in the next console for people to get all of those cool, innovative smaller games of all types for low cost.'" So that was the genesis behind Xbox Live Arcade, and to get back to your point -- sorry I'm being kind of long-winded here, but it provides context -- this is where I'm so excited about the indie game developer opportunity, and why you've seen me talk a lot about it, and this is the future. In my opinion, this is the Sundance Film Festival. This is the way for us to reach, and finally in the console business, for us to finally have some way to get indie developers on a console (some genres just work better on a console) in the living room and get people to see these on a mass market scale. I'm super excited about that.

BIZ: It also seems like it could be something that gives MS an advantage. Obviously we have a ways to go before the PS3 launches, but Sony doesn't seem to have any plans like this... not yet, at least.

GC: [laughs] Well right, not yet. I don't know what Sony is doing over there but they don't even have a competitor to Live yet, so maybe when they get a competitor to Live, then they can think about those kinds of problems.

BIZ: Many of the titles that gamers are hoping to see on Arcade could exceed the 64 MB limitation of the Xbox 360 memory units. How does not having a hard drive in every console affect which titles can be ported over to Arcade?

GC: I think that's a great question and I'll tell you a couple things. First of all, our design goal with Xbox Live Arcade is to create a marketplace for those small downloadable games of all kinds -- games without retail components, games that sort of need that digital distribution. And so there are a couple components to that. File size is part of it; download time is part of it because you want these games to be quickly downloadable without having to sit and keep your 360 tied up for 12 hours while you're downloading some 4 GB file. You know, that's not really practical either, given broadband speeds today.

And the memory unit was a great factor for us to consider in this because we wanted Xbox Live Arcade (because it has broad appeal in a lot of ways) to be able to reach the entire Xbox 360 audience, especially with the core system not having a hard drive. What we did is we decided that games for now, in Arcade, will all fit on the memory unit. So all the games are 50 megs or less... and most of the games in reality are actually 25 MB or less, so you can fit two per memory unit and still have a little space left over for a save game [file] or something.

So we were smart about that and all the games at launch will fit that parameter; and then going forward, were I to ever make an exception if some super cool game came along that was just a really killer landmark title that fit sort of the other characteristics of Arcade games, in that they're small and 15 minutes of fun guaranteed and no instructions required sort of experience, but it was 75 meg and from some really cool, awesome developer -- I don't know -- we might do that. I'm not necessarily going to close the door to do that, but the goal is to provide as much accessibility as possible. So we're going to try to really push that 50 meg requirement as much as possible, at least until we have larger size memory units and then we can experiment a little bit further.

The other thing I want to mention about memory units is we were actually really smart about roaming; so you can not only actually take those memory units and save games on them if you have a core system, but you can also take them over to a buddy's house and if you own the fully unlocked version on your memory unit, you can stick it into his [360] and soon as you log into your Live account over your friend's house, we can verify that you have the full version and you can play the full version at your friend's house... Likewise if you want to leave it over your friend's house on his hard drive it will revert to the free-trial version.

BIZ: That, in addition to the free-trial stuff, sounds like a good way of marketing the Live Arcade offerings...

GC: Yeah, exactly. You get 'em hooked and then you can save the download time. He doesn't have to download it again because you've already given it to him. And, if you actually accidentally (or intentionally) delete the game or lose your memory card or whatever, you can actually download the full version for free again off of Arcade. So we don't make you pay for it again if you lose the game and it's on a memory unit. We were pretty smart about how we did all that management, security and stuff.

BIZ: Getting back to the file size question for a minute...With today's compression technology, how do the size limitations of Xbox Live Arcade titles compare to the original size of older arcade games? Would a game like Killer Instinct that used a hard drive in its arcade cabinet be possible on XBL Arcade?

GC: Well I'm not super familiar with the Killer Instinct technical architecture specifically, so I won't comment directly on that, but I will say in general -- a more general comment, which I think will answer your question -- those games, you'd be surprised when you look back at games in that sort of Killer Instinct, NBA Jam era (early '90s), those games that needed a hard drive and needed "a lot of storage" a long time ago actually require very little now and 64 meg is massive compared to what those things actually were back then. So we found that you can actually do a lot of those games in the Xbox Live Arcade architecture and have the full experience plus, plus, and without a problem. The thing I'll tell you is that if you actually look at the core game files of a lot of these games, I mean even the retail games, if you strip out all the music and you strip out the video, the core games files for 95% of games out there is less than 100 megs. So it doesn't take a lot of code for the actual architecture of a game -- well, if you're doing a 3D engine that takes up a lot of space, like the Unreal Engine or something -- but the music and sound and video clips are what take up the bulk of the storage on the DVD.

So we can provide really cool, awesome experiences by getting creative with some music compression and other things and then taking out the video, and then have it in a very bite size sort of way for the Arcade games without a problem for the vast majority of titles.

BIZ: A number of publishers have released classic compilations for Xbox at retail, so will we see any compilations available via XBL Arcade or will everything be limited to single title downloads?

GC: So the answer is, "Yes, we can do those." If you looked at Xbox Live Arcade 1, the one we did for the original Xbox, which was kind of our dress rehearsal for the true vision (which is the 360 version), we actually did some experimentation around compilations with the Namco pack. We did something called Namco Vintage and then had a three-pack of Pole Position, Dig Dug and Galaga. And so, yes we can do that technically, and we can do what we call "hard bundles," which are preprogrammed by us sort of compilations, which we sell for a different price. We don't have any of those at launch, but that's something definitely that we can do. One of the things we wanted to do with the coin-op stuff -- not to blow up too much on the coin-op stuff again -- what we wanted to do with this generation is (we got some feedback, and that was 3 games for 15 bucks in the old version) to make sure people had the capability of buying those games 'a la carte' if they wanted to for a lower cost. And so in the 360 version we broke them apart and you can buy Joust and Gauntlet individually for the equivalent of around $5.

BIZ: It's been stated that Xbox Live Arcade games will average around $10 per title. How much will this price fluctuate? What are the highest and lowest prices we're likely to see for Arcade titles?

GC: We haven't announced pricing for specific titles of course, yet. We will be doing so in the next few days leading up until launch [Note: check out our news section for the latest on Xbox Live point assignments for the initial lineup - Ed.]. There will be an upcoming announcement telling you title by title that we've announced for Arcade, exactly what price we will be charging for them. I can tell you for now, what I can say is the Arcade games will be valued at approximately $5 to $10 and I can tell you that will be the vast, vast majority of the portfolio (95% of the portfolio will be in that range), with simpler games -- individual retro games and games like Spades and Hearts and Backgammon -- games like that more at a $5 range. And kind of the center of gravity of Arcade pricing will be at around $10 for sort of your whole meal deal Arcade game, which is your 360 game that's just been shrunk down and is still a really cool experience, just on a smaller scale.

In terms of fluctuation, will we go any cheaper than $5? I don't know. We'll have to see. Will we go any more than $10? Maybe we might do a little bit of that if there's some game that's so kick ass that we feel maybe we could get 15 bucks out of it or something. But to address your point straight on, they're valued at between $5 and $10; that's where you're going to be seeing Arcade at launch and for the foreseeable future. We actually listened to the enthusiast community...the first gen of Arcade, the consumer press loved it and enthusiast press said, "Really cool idea, but the pricing is too expensive." So we listened to the enthusiast press and said, "Where's really the center of gravity here? What are these games really worth?" We went back and reconstructed the financial model to make the $5 to $10 price point a reality. Then we integrated in, so we'll have such a greater volume of people that it will make sense economically for the developers.

BIZ: That brings me to my next point. With cost of development going up for making next-gen titles, these Arcade offerings would seem to offer new revenue streams for game companies to help offset some costs. How much do you think this will be a factor?

GC: That's actually another great question; I haven't been asked that one before. You know it is, it is. Over time I think it will be a greater and greater factor. When you look at the larger publisher piece of the equation, we have everyone of course from EA to GarageGames making games for Arcade, and if you look at the larger publishers for a second (the EA, Ubisoft, Activision guys) one of the key opportunities we think for them is brand extension of their IP. So going out there, and they've got three to four years between development cycles for their major hit franchises, you know, pumping out a quick Arcade game to keep the brand fresh and the IP fresh in between cycles and also earning a little revenue along the way (or more than a little revenue along the way [laughs]) towards that franchise is something that we think is a huge opportunity for Arcade. That's something we're working with a number of different publishers and developers on right now.

One of the benefits financially, if you look at the economic model of Arcade, without going into tons of detail here in the interest of time, it's so much more cost effective on a relative basis than the traditional retail market on a comparative basis. With the retail market, you have to deal not only with your overhead but also the retail channel and paying them a percentage, and you have to deal with the publisher and developer and they each take a cut...and blah, blah, blah. In the Arcade world, a lot of that goes away. Very simple. It's a revenue share based on what's sold. You don't have to deal with any advance guarantees and inventory risk and all that stuff. It's going on what's sold; there's a developer and there's Microsoft and there's a revenue split. You know, if there's an IP holder they get a little bit too.

But even though the cost, the number of dollars that we're charging is lower, the volume could be potentially huge because we built it into the dash, you don't need a credit card anymore to buy the games; we've lowered all those barriers to entry. You don't have to have a paying Live subscription anymore with Xbox Live Silver; you can access all of Arcade with Silver. So you can make up huge volume, and I'll reference you to the casual games download business, which has gone from nothing to a multi-hundred million dollar business in a couple of years, and it's said to be a multi-billion dollar business in the next three years. It's a tremendously high margin, great financial opportunity for developers and publishers. It's frictionless distribution.

BIZ: Some older arcade titles used extra peripherals like a light gun for Area-51. Could we perhaps see Xbox Live Arcade titles with accessibility to peripherals such as light guns or racing wheels on Xbox 360?

GC: That's a great question; I've been asked that question before [either]. That's a great idea. The short answer is, it's possible. Every Xbox 360 Arcade game is a full Xbox 360 game, as I mentioned to you. That means that we support -- I forgot to mention this to you -- we support obviously high-definition, we support all the around the game features, leaderboards, achievements...multiplayer, custom soundtracks, we support all of it. So in every other way we're sort of an Xbox 360 game, and to address controllers, those controllers map to a standard Xbox 360 controller in some way. So to the extent that they do, say you have a joystick for instance (a six-button joystick that had a cool Street Fighter-like configuration), those buttons and those joysticks map to the regular controller. Well, then you could use that stick with any Arcade game. But it's not designed for that stick.

Now for really specialized controllers like a light gun or a dance pad or something like that, you have to have actually specialized protocols to talk to those devices. And the answer is, yes it's possible; we'd have to figure out the economic of how you'd get -- because one of the benefits of Arcade is you don't have to go to retail, right. Because if you have to go to retail to buy this thing, then you're kind of breaking it [the Live Arcade model]. But there may be a capability of doing that in the future...maybe we'll come up with a peripheral and mail it to you. There's all sorts of possibilities around there, but the sky's the limit. Technically, it's not impossible to do; we definitely can do it but we don't have any immediate plans to do that.

BIZ: Finally, Xbox Live Arcade has obviously evolved a great deal from the original Xbox to the Xbox 360. What's the next step for Arcade after launch and how will it evolve over time?

GC: I really see there's a couple of components to that. There is games, games and games. You know, making sure we continue the flow of games and the stream of quality games. I think you will be fairly impressed with the quality level of the launch portfolio in terms of the average quality of the title considering their size, and we want to maintain that high quality bar. While at the same time, we say "games, games, games," we want to make sure that we're managing the portfolio in Arcade appropriately, so we're not just opening the flood gates to everyone who wants to publish in here. We're accepting submissions from everybody, but we want to make sure there's not too much content in there. To use the cell phone games analogy that I like to use a lot, when the cell phone games got big a few years ago, at first Verizon and Sprint and stuff didn't really monitor their portfolio; they just let everyone go on there and you had like 9 Blackjack games and 8 Hearts games and stuff. It was left up to the consumer to wade through all that stuff and pick which game sucked and which game was cool, and that's terrible. That's a bad user experience.

So we're going to monitor that portfolio to make sure we have the right mix of games and the right quantity of games. We don't want so many games that no developer gets paid. And we don't want so few that people don't have enough to play. So monitoring that portfolio is a key next step for us. Producing high quality games is another big step. And then the third one is evolving the Arcade platform. We've just begun to scratch the surface, I think, of what's possible from an implementation perspective on the platform. If you look inside of Arcade, we've done a lot of cool things...Arcade achievement book and friends' leaderboards and stuff like that that we actually push out into the Arcade interface. And we have a lot more we want to do there. We eventually want to go into tournaments and have arcade tournaments and events and dynamic badge challenges to collect badges. We have a whole lot of things we want to do in the future around Arcade.

So that's the third thing, and the fourth thing would be just listening to the community and so we want to understand what gamers like, what they don't like, what preferences they have, which games sell; frankly, which games are more popular than others, especially early on it's going to be the enthusiast crowd and then later on it's going to be sort of broader. We have to make sure we have that right balance hit, so we have a lot of cool content for hardcore gamers. You're going to see 70% of our portfolio at launch probably appealing to hardcore gamers. We emphasize that because we knew that the first units that were going to sell were obviously more hardcore gamers. But really to address that point, just a general point, is in listening to the community and making sure that we know what types of games they want to play and which games are popular by looking at our sales volumes and determining a lot about the future of Arcade from there.

Before it's here, it's on the Bloomberg Terminal.