Earlier this week Microsoft announced that Xbox 360's Kinect control system would launch in Europe on 10th November. We already knew that it would cost a plump £129.99 for a bundle that includes launch title Kinect Adventures.
At gamescom on Tuesday we sat down with Chris Lewis, Microsoft's vice president of interactive entertainment, to talk over the launch, the thinking behind the unexpectedly high price, and whether Xbox 360 still offers value to core consumers now that Microsoft has set its sights on a broader audience.
Eurogamer: You announced the price a little while ago and you've probably had time to gauge the reaction to it. How do you feel about that reaction and how do you feel about the price in hindsight?
Chris Lewis: As you can imagine we've done a ton of research on this anyway. We are a high research organisation, we do a lot of testing not only of the technology but also of the marketing and of the price. So it was clear to us coming out of that research that we had a good sweet spot price for Europe.
We announced it the other week, and the reaction to that we're happy with. Inevitably there will be those that love it and those that don't, but generally we're very happy with the reaction that we have had. The pent-up demand already - the pre-order or pre-interest type activity is really building, and we're confident we're in a good place.
We're confident it's good value, particularly given you've got Kinect Adventures in there - deep, broad, it's not some sort of vignette of another game, it's a full-blown, pure Kinect for 360 game that comes with it. And at that price point we're very confident we represent great value.
Eurogamer: Do you make money on those units at that price?
Chris Lewis: We're not specific about which components of the business we make money on. Overall I will tell you a couple of things. There is no tolerance to not be profitable. We've been consistently profitable now for a couple of years. The interactive entertainment business is reported as a standalone part of the earnings release schedule. So it's not a question of us being anything other than transparent about our profitability.
And the economic model is good. We attach more games than anybody else. Right now that's the case and I believe that will continue to grow. We're excited about the year ahead for lots of reasons, not least of which is that Kinect for 360 is going to add a new dimension to what we're doing with 360.
We've seen huge take-up of the new 250GB SKU - our sales went up 700 per cent week over week, 84 per cent market share in the UK. Some great stats that prove there's an awful lot of pent-up and ongoing demand for 360, and as you can see here today there's a ton of euphoria around what we're doing with 360.
Eurogamer: You said recently about 3D that it needs an installed base before it's a viable thing for people to get into.
Chris Lewis: I did.
Eurogamer: Given that you also need an installed base for Kinect, why not loss-lead on it and sell it for a pittance to get the numbers up?
Chris Lewis: Well, yes I certainly did say that about 3D and I think that is the case about 3D. Where I think this is different is the immediacy and the sheer natural interface that your body has isn't predicated on an installed base of a certain technology the way 3D is. But to your question as to how we bring these models to market, we research them fully, and we feel great about the price.
I think there's also something called perceived value, which I think is important in the consumer space as well. This is a very high-quality, deep technology device, which is very powerful as you've seen. And clearly that is something that we need to reflect in the price point while reflecting good value. I think the balance we've achieved with the prices we've announced is exactly where it needs to be.
Eurogamer: Speaking of perceived value, a lot of Kinect games appear to cost less than regular 360 games...
Chris Lewis: I think there will always be a portfolio of prices. If we take non-Kinect games, for example, there will always be and I believe there is always room for different price points for different titles.
Eurogamer: You don't worry that in the eyes of the consumer you're saying a Kinect game is a less significant proposition?
Chris Lewis: Not at all. In fact I would go so far as to say you will see Kinect for 360 games at the same sort of ARPs as we see for Xbox 360 games. The games that you're seeing here and the games you will see from our own studios and third parties are deep, full, built from the ground up Kinect for 360 games. These aren't ported experiences from other platforms - we have no tolerance for that. I think the prices will reflect that depth and breadth.
Eurogamer: Recently Peter Molyneux said that core gamers may enjoy this line-up of games, but may find that the second wave of games, when developers have a greater handle on Kinect, will be more to their liking.
Chris Lewis: I think there's definitely some truth in that. I think Peter's hit on a great point there. Two things I'd add to that. One is, I believe a large slug of the core community will love Kinect for 360. They'll love the navigating round their 360 via hand gestures. They'll love that they can jump into a game like Joy Ride, which should really appeal to the hardcore community.
We're very committed to that hardcore community - it defined us. We'll keep bringing the Fable IIIs and the Halo: Reaches and the Gears of Wars to that community. But at the same time we'll target breadth, and I think over time you'll see different types of Kinect for 360 games come along that may appeal to both communities in different ways. There may be hybrid experiences where you've got gestures and physical movements that enhance what is otherwise a controller-based experiences. Those things will probably come.
Eurogamer: The 40-odd million people who bought Xbox 360 bought it on the basis of those core experiences, so are they still getting a good deal now you're diverting resources to make games that don't appeal to them?
Chris Lewis: When you think about our studios, clearly we do have dedicated teams that focus and are deliberately not distracted until they deliver high-quality experiences. There will be a whole catalogue of mature, hardcore, blockbuster games coming for that audience.
Xbox Live continues to develop - the services on that, whether that be social networking, music, all the things you're familiar with, that's very central to the desires of the core audience as well. So I think the value continues to grow, the quality bar goes up. Consumers are very savvy, they demand a lot from us and our competitors, and that keeps the development cycles high and the quality even higher.
Eurogamer: How do you feel about PlayStation Move coming out two months before Kinect? Is that a concern?
Chris Lewis: We dance to our own rhythm. We have a plan that's based on what we think is important to our consumer market. I also would say Kinect for 360 is innovation, it's not a derivative technology.
We looked at technology that uses devices. Over our history we've been first to market with many things - high-definition, online streaming, the choices we give our consumers - and Kinect for 360 is this innovative step where you're not putting bits of plastic in people's hands in order to control the experience.
Eurogamer: So you're saying PlayStation Move is a derivative experience?
Chris Lewis: Well, I'm saying I think it's important to keep innovating. I'm saying we did look at that technology. And I'm saying we're excited about what Kinect does - taking consumers to a new dimension. Also I think with Kinect for 360 we extend the lifecycle of Xbox 360 to a point where I'd say we're almost halfway through now, rather than necessarily at the back end of the cycle. I think that's great for the industry, it's great for third-party developers, and we're in a good place.
Eurogamer: Do you expect the number of 360s you sell to be consistent now over the next five years? Can you hit 80 or 90 million?
Chris Lewis: I think it will grow. Our plan this fiscal year, starting 1st July, we'll sell more consoles this year than we did last, for sure. We have high targets for that. You've seen already the spike of sales we've enjoyed with the 250GB product. That's just the start.
I think what Kinect does is continue to extend that. There's 40 million people in Europe that we see as an opportunity to sell Xbox and Kinect 360s into that space - a new, broad, younger, more family-orientated audience. So our targets are high, our ambitions are high, our sales will grow this year and we'll continue to attach more games and experiences than anybody else does.
Eurogamer: Sony has said it's already looking ahead in R&D terms to what it will be doing when this elongated lifecycle does finally end. Are you?
Chris Lewis: We're pretty focused on Xbox 360 and Kinect for 360 at the moment of course. Do we constantly look ahead? Do we spend more money on R&D than anybody else out there? Of course. Yes there are people working on the future all the time, but we don't distract those who are building great experiences for the present and the near term. I think you've got to get that balance right. I think the minute you get too orientated to one or the other, you stop offering a great experience to the consumers that you need now.
Eurogamer: Are you doing Kinect for Windows?
Chris Lewis: Nothing to announce. Right now we're focused on that technology and what it means in the living room for Xbox 360. But we'll listen to what our consumers want and their appetite for that technology and we'll look at that in the future if it's appropriate.
Chris Lewis is vice president of interactive entertainment for Microsoft in Europe.