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.