A Nice Chat with Peter Moore

Peter Moore is a lifelong fan of English soccer club Liverpool F.C. At half time in last May's European Cup Final, his team was 3-0 behind Italian giants AC Milan. The unfancied English team came back to win; an improbable victory of self-belief and indomitable will, with a dash of Fortune's favor.

Moore has a similar challenge in trying to win the console war, except his deficit isn't counted in three goals, it's counted in billions of dollars. His deadline is not the whistle of a referee, but the curdling patience of Microsoft's investors, those beetle-browed frowners, gazing intently into the blackness of Microsoft's ambitions to be an entertainment company.

His view is that, while there's a long way to go, Microsoft has already confounded many of its doubters. I ask him if there will come a time when the bosses say 'enough'. "No," he says. "We are all very committed to the investment. Gaming is at the forefront of what Microsoft believes entertainment will be and I think we add value to the gaming ecosystem."

Confounding the Doubters

He points out that Xbox, the company's first play in this market, took a 25% to 30% market-share "depending on where you are in the world". And he indicates other big successes such as the Halo franchise, Xbox Live, Xbox Live Arcade and the demand for Xbox 360.

He adds, "I looked at a story today from back in 2001, predicting that Microsoft would be out of the game business by 2003; that the Trojan Horse would come up lame. We've proven all that wrong."

But what about all those billions? "It's not inexpensive but it's indicative of what Microsoft does - we're fortunate that we have the resources to invest - we've done that and we'll continue to do that. Whether it's Halo, Fable or Project Gotham or Xbox Live we brought innovations that changed the world. And the others are the ones that are having to react."

Ah yes; the others. How to deal with the big bang that cometh next week - PlayStation 3 and (ahem) Wii?

The E3 Ego-Contest

Moore is a showman by instinct, a gregarian who is comfortable in the media glare. This interview with Next Generation was requested by Microsoft; a rarity among big game companies which usually protect time with their execs like Biblical misers at a table of denarii.

He is chatty, chucklesome, affable and given to warming self-mockery. "Winning E3 is overrated," he says, despite the self-evidence of his attempts not to let anyone else win it too well. "I won it at Sega in '99 and 2000 with Dreamcast and see where that got me! This idea that you must win E3 is fine but the majority of consumers want to see more substance. It lasts for a few weeks and that's it."

Maybe, but Moore recognizes the conflict here — this E3 won't be about Xbox 360, even though it's selling decent numbers, attracting good games, and breaking new ground in online gaming. After a year of trips and stumbles, Microsoft has some reasons to be fairly self-congratulatory; I say fairly because there are still things that aren't going so well. More on those, later.

Some Good News

But first, the good news; the message from Microsoft. "There's a lot of excitement for the other guys and deservedly so, they are launching their hardware," he says. "The key for us is to be able to drive supply. We have demand and everyone can see that we are catching up with supply. The games are coming along famously.

"Our attach rate in the U.S. is now at 4.5 which is phenomenal. Even peripherals is at 3.0.  It's unprecedented in the industry.  March titles like Ghost Recon and Oblivion have drawn huge numbers.

"We're now up and running in 28 countries and demand is incredibly strong. Our goal is to meet demand. There is nothing more important to us than to be able to take this window of opportunity and drive hard.

"We'll have 160 games out by the holidays between the console itself and Arcade which is an important part of our message. We're delivering the goods."

Those shortages were miserable, impacting everyone's business, potentially ruining Microsoft's careful plan to wrong-foot Sony. But they have passed.

Moore explains, "We're delivering large quantities now because we've been able to wean ourselves off air-freight and move onto boats which allows you a more consistent delivery schedule as well as larger volumes. You can only put so many boxes on a plane but 40 foot containers carry a lot of consoles."


Xbox 360 is beginning to deliver the required numbers, even if it won't hit some of Microsoft's own fairy-tale targets. "If you pick up the papers on Sunday mornings you can see that more and more retailers are comfortable with the supply chain that they are able to advertise in the flyers. The numbers bear that out. The sales are strong. Retailers are happy," says Moore.

Last year at E3, we were told about that infamous Billion number; the teeming masses who would come to Xbox's shores, grateful for the chance to play Geometry Wars against Lucy, 22, a medical student from Indianapolis or Graham, 54, who digs The O.C. and pecan-banana frozen yogurt

That word, that Billion word, is used carefully now. "We've got to broaden our demographic, and maybe touch those billion consumers," says Moore. Touch?

He concedes that at the present point in Xbox 360's life, the wider audience is a projection and not a reality. "It's only six months since we launched the platform and we are still getting to that early adopter, but as much as we all love that particular consumer we need to grow past that, and get to the larger numbers that we need. The stakes are higher than ever."

About Xbox Live

Microsoft's biggest success, its biggest contribution to gaming, is Xbox Live. Nobody can take that away; not even Sony.

"That is the biggest deal for us. We are now looking at a connection rate approaching 60% and when you compare that with the 10% achieved in the previous generation, it's phenomenal."

He adds, "We want people to communicate and play with each other. It's a better experience for the consumer and it opens up new business models and revenue streams for us and for the industry. The ability to get as many people as we can to connect to Xbox Live, and as broad a demographic as possible, that's got to be the key message."

Xbox Live Arcade is digital distribution in the console made flesh. Whatever games get shown next week, it's still the most exciting thing this business has produced in the last ten years. "We've seen 4 million arcade downloads which is huge," says Moore. "The conversion rates are anywhere between 20% and 38% to actual game purchase. Things like Geometry Wars and Mutant Storm and Zuma and even Bejewelled — these titles are really changing the way people think."

It's not 'Online' Gaming

Microsoft has clearly been having a few brain-storming sessions. It turns out the term 'online gaming' is passe and vulgar. "I won't call it online gaming any more," says Moore, almost convincing me that the idea just came into his head. "It makes it seem like a hardcore pastime. I'm going to start calling it connected gaming from right now. Online gaming still has this feeling of MMOs and RPGs. It was linked to the PC and I think that is off-putting for a lot of people and quite frankly seems kinds geeky."

He stresses that there's nothing wrong with MMOs and RPGs, just that they don't signify the whole universe of online — sorry — connected gaming.

So what about the less-than-auspicious aspects of Xbox 360? Having dealt with shortages, the word that comes to mind most forcefully is Japan.

Sakaguchi the Savior

"I've been over there a lot," says Moore. "It's a long haul". He means the wearying, intransigent Japanese market, not the trans-Pacific flight. "We had some success with 99 Nights which sold very well; and gave us a good blip in hardware sales. The real proof will be when Sakaguchi-san's titles ship which we'll be looking at next week. Blue Dragon in the Holidays and in 2007 Lost Odyssey. But it's too early to call. We've had a solid if unspectacular start."

Unspectacularity would be a fair description, especially when compared with the spectacularity of original Xbox's failures in Japan. But there is no doubt that the machine is attracting much less scorn in Japan than its predecessor.

About Rivals

So we get around to talking about Sony and Nintendo. Moore is not about to go off on a mad bloody rampage on his rivals, just for my benefit. But he is happy to worry a few potential weakspots.

Blu-ray? "You can over burden the features [of a console] and therefore offer features that the consumer is not particularly interested in. Case in point, look at the PSX in Japan that Sony launched — with PVR plus PS2 for $700 — it disappeared because the pricepoint did not deliver. It's a very delicate balance between features and price and the difference between good enough and great.

"People talk about PlayStation 2 and the DVD drive but it's not the same at all. DVD had been around for a few years when PS2 arrived, and the drives were not so expensive. It was also a solid change from video tape to disks, which is not the case now."

Clearly, Microsoft sees price as a problem for Sony. "With Xbox 360, we wanted to be able to be able to reduce the cost of the box over a period of time. We want to bring the price down so we can drive mass market adoption."

Nintendo? Microsoft is not convinced by the controller's claims to innovation of the year. "If the controller is different and innovative; fine. But I would say that Xbox Live is the bigger innovation. It depends on your definition of innovative. If having a DVD style controller defines innovation; great. I would argue that talking millions of gamers and connecting them with friends and strangers around the world... I'd call that pretty innovative."

So, that leaves one question — the game that may or may not be called Halo 3? Will we see it next week? " I don't know what you'll see. You'll just have to show up," he says, about as helpfully as I might have reasonably expected. "The important thing is that we have a strong message, and that it's the other guys who are launching their hardware turn to put up or shut up."

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