Spanish Inquisition

What you've just said is the key, he's not interested in games. And what he means is he's not interested in the current definition of what games have been in the past.

He's one of these guys that sometimes, and he'll tell you this, has difficultly saying in a coherent way what it is that he's doing. But you know in that brain that he's simply figuring out what all this is about and then applying the brilliance of who he is to this medium. And when we look at what needs to happen in the future, we need to progress the medium. He is the master of that - he revolutionised filmmaking.

What Peter's been working on is really fact-finding and absorbing what the business is. It helps that he's a very passionate gamer. He's more interested in game releases than movie releases. And believe me who knows what games are coming out.

So it may be frustrating that he couldn't put it in a box, but what you heard last night was that we're going to work with Microsoft Games Studios and Wingnut Films to develop Wingnut Interactive. The great advantage he has down there as well is that a lot of those guys are hardcore gamers.

I think an evolution of the medium is what's going to happen, and it's going to evolve over time as to how we roll out what's going on.

If you will describe them when they come out as the format we now right know as videogames, yes. You've got an extension to the Halo universe - he's a voracious absorber of all things Halo and he will be working with Bungie on a new game experience that is Halo. And then there will be new intellectual property that he'll be trying to develop.

Wingnut Interactive is a partnership that is a sharing of ideas, a sharing of resources, both human and fiscal. We've made a commitment to each other to get this thing going and get it going immediately.

We feel even better about that after last night. Certainly reading what you guys said - it felt like we were doing our job, given the content and the reasons for people to buy. We'll continue to deliver on our commitments; inventory is flowing into the markets. The other thing people forget is that we continue to open up new markets.

We open up in India this weekend, and while it's still an evolving economy, it's a billion people. And I was very impressed to be in New Delhi and see how things have grown. Retail malls are growing middle-class, and these are economies we never engaged with in previous generations of videogames. And we haven't even touched places like China and Russia which eventually will evolve into consumer markets. So yeah, we feel real good about our numbers.

We recognise that what we call the Family Funster stuff, if it's a category, is something we need to do better on. I will say that we do a lot of research on who's playing Xbox Live Arcade, and you may think that's still just gamers. But when you really dig deep down into research in households, more and more people are getting engaged in Arcade games.

Now we're hearing a lot of research that dad loves playing Pac-Man, Galaga, Street Fighter.... That is a demographic that's maybe not interested in Fable 2. And Sensible Soccer is something they remember with great glee. Arcade is certainly a platform to have better experiences on.

The camera opens up all types of possibilities not just with video chat but interesting ways to interact with the game.

Well, it's not a huge number, but there are now people forming focus groups who have gone out and bought an Xbox 360 purely for Arcade. They're not hundreds of thousands, but we are seeing that. Now what that does to our attach rate, I don't know. But you are seeing people who are used to downloading things, and this is a digital distribution model, who quite frankly may never buy a disc. And I'm not sure what I think about that.

But I recognise it's still something we need to do. With Viva Pinata there's this interesting concept of building an animated series - this is Microsoft doing children's television, creating IP, working with 4Kids who've been very, very good with us in collaborating with Rare.

And there's a lot more in the future of how we'll bring Viva Pinata to market, obviously for a younger demographic - we're looking at 8-12 year olds, and we're going to take them online in a safe way.

If we'd said two years ago we'll have stuff for 8-12 year olds on Xbox Live I'm sure you'd have given me a slightly puzzled look. But I recognise that and we are doing a lot of stuff, we're just not ready to announce it yet.

Oh yeah. And it's more than just games. Buzz, Singstar, Guitar Hero - there are peripherals and stuff of that nature. Things that in some instances take the controller away and give you things you feel more comfortable with.

You make a good point that, in the traditional sense, we're checking the boxes of a lot of genres and that's important. I think people feel real good about seeing Banjo back. Blue Dragon is something that's a risk, but I so believe in that game. I have every intention of localising that game and it's a unique game experience.

Is it always a risk because it's too Japanese? Well I don't believe in that. I think great games are great games. These are the great storytellers from Japan, from anime, manga and of course games. If you're going to hit 100 million you need to address that market. We're still finding ways to be able to do that, but we will. I absolutely guarantee that we will.

It's about getting people to interact with the games console, regardless of whether they do it for 30 hours a week or ten hours a week, whether it's my mum or my sister or my daughter. Those are the people we need to get.

We're not going to give specific numbers. These are early days for the HD-DVD player. Our goal is to provide choice, as I said ad nauseam last night - when we look at what gamers are looking to spend their money on right now, some of them are fortunate enough to have 50-inch TVs, and those are the ones who'll say that for £129 this is a great deal.

You've got to remember with the Xbox 360 that a lot of the heavy lifting's already done - as you now know we natively output in 1080p, so for the player that attaches in it's a nice extension to their entertainment centre. But it's probably not for the majority of people right now. And the HD-DVD versus the other guy format 'wars' are still far from being resolved. But it was very important to us that we're able to provide a choice to that consumer.

So if you take the model that you still need bits of plastic for data and streaming, using your words, fine. I don't think that's the model going forward. It's our view right now - consumers are telling us more and more as memory is becoming cheaper and HDDs are becoming bigger and the ability to store things... I have what I think is the optimal set-up. I have a Media Centre PC with a 250Gb hard drive connected to my Xbox 360. If you think you have to have huge optical disc storage formats, fine. I tell you what, Gears of War looked pretty good on DVD9 last night.

And the ability for Rockstar to deliver extra content, hours of extra gameplay, exclusively for 360 doesn't require huge optical disc storage. Call it PR or not - it's our messaging and that would be PR, and there's nothing wrong with PR [gestures to PR in the room and laughs]. But it's a fact. We've got to be cognisant that not everyone wants to fork out that kind of money.

We learned our lesson very much with the original Xbox - building a hard drive into every box, ahead of what consumers were looking for in that particular experience. You don't want to burden the box. That's the balance you have to have in this world of consumer devices - you've got to have enough to make it attractive as a value-for-money proposition.

The thing I'd say is that Sony Corporation is almost on the brink of betting the company on Blu-ray. And that's just paraphrasing from analyst reports and as a consumer. And we are not in the business of closed formats. The ability for consumers to make that choice is important to us.

First and foremost it's a games console. I talked about it last night. At the core is your games, the next thing we worry about is your friends, then finally the outside layer is lifestyle. And I would argue that maybe Sony has that reversed. It's as simple as that. If I look at lifestyle and friends - I'm sure there's going to be a PS3 online service - and then games seems to be on the outer core. That's just my opinion.

We're very clear on what we're building here and that's a superior games experience and not a blunt object to win a high-definition movie war. Sony is mired in the past of technical devices.