CES is the first major trade show of 2009 and we wanted to catch up with Aaron Greenberg, Microsoft's Group Product Manager for Xbox 360, to talk about 2008 as well as what they have planned for the 360 in 2009.
We asked about the Xbox 360's holiday performance and found out where Microsoft sees its console's position with regard to the Wii and PS3. We learned some interesting things about Microsoft's recent push in Europe, which led to a lead over the PS3 in the region.
Even though Microsoft hasn't announced too many big, exclusive games for 2009, Greenberg explains that Microsoft is looking to take a different approach to hyping up games. There's a lot of great info about the New Xbox Experience and what the future holds for the Dashboard as well as the console in general. Hint: We might not be seeing the next console from Microsoft anytime soon as the Xbox 360 has a "very long life ahead."
Aaron chats about Sony's Home, the chances of a PS3 price-drop in 2009, the differences between both company's digital distribution strategies and much more in our in-depth CES 2009 interview.
G4: Before we get into the future, could you wrap up the Xbox 360's performance in 2008?
Aaron Greenberg: A lot of people have asked us how 2008 went, and there was a lot of anxiety about the economy retail spending and all that. We saw reports of the worst holiday spending in six years. What’s very fortuitous for us is that, as a category, video games have done pretty well. It was growing year over year through November and all of our anecdotal things we’ve heard from retailers is that December was tremendous, which is great. So we think that we’re one of those industries that since consumers are staying in for entertainment, looking for gifts that the whole family can enjoy, we’ve benefited. “We” by the way - that’s us and Nintendo.
Both the Wii and the Xbox 360 are really the two big winners. Actually, the only two winners right now if you look at holiday sales year over year. We’re seeing record software sales. Obviously the November sales with Gears of War 2 at number 1 and then Call of Duty: World at War. We’ve heard that Call of Duty has continued to do really well, Gears has done well, Left 4 Dead is doing really well, so games - record attach rates and all that - and then at the same time we’re seeing this rapid transition to online and digital distribution that is taking off well beyond our expectations so we expected the Live community to grow and it has at a very steady pace. We added 7 million more members this year so we’re now at 17 million members.
G4: How many were during the holiday season alone, do you have that figure?
Greenberg: Yes, we added 3 million Live members since Tokyo Game Show in October. It’s mind blowing how fast that community is growing. Even though we’re now at the $199 price point we’re still seeing the majority of new buyers connecting to Live and we’re still seeing - of our 17 million - the majority are gold members. We’re still seeing record transactions. We saw year-over-year online consumer spending on Live grow 84%, well outpacing any other segment. And that’s a business that we already said at E3 in three years had achieved a billion dollars since we launched. So you know it’s sort of this silent phenomenon because NPD doesn’t report it, retailers don’t talk about it, but we know, and our 3rd party partners know, and they’ve been talking about it in their earnings. But it really is happening at a pretty impressive speed.
Plus the fact we ended the year at 28 million Xbox 360s driven by tremendous global success, our top priority market this last holiday and for 2008 was Europe. That was where we significantly overinvested. We had two price drops there. We did launch level marketing, and we had our largest marketing campaign in the history of the company. I can tell you I spent a couple weeks in Europe, and you couldn’t watch 5 minutes of TV without seeing 3 Xbox ads. You couldn’t open the newspaper... it was everywhere. And it paid off.
While we had a pretty large lead - around 5 million plus in the US over PS3 - we were very neck and neck with Sony heading into this year in Europe. Now, we ended the year with more than a million unit lead over PS3 in Europe, conservatively an 8 million units global lead, so that was a big focus for this year - so we feel good how the year ended. We think now, going into 2009 with mass market price points for the full year to be able to add more value to our offerings, more entertainment content, more games, we’re starting to hit that sweet spot of the generation where Sony was with the PS2 and sold 75% of their consoles, right? The strategy is: deliver great games for the core and then continue to broaden the variety of games and entertainment that bring in new buyers that are looking for that value, and so that’s our big focus and we feel good about 2009.
G4: Can you just quickly clarify the 1 million lead over PS3 in Europe, is that the install base or sales during 2008?
Greenberg: Install base. In Europe we get weekly sell-through data from Chart Track and GFK and so we’re actually able to, across Europe, verify that is a 1 million unit lead [ed: over the PS3].
Xbox 360 Display at Microsoft's CES 2009 Booth
G4: Nintendo’s obviously shipping way more hardware with the Wii and DS, but you guys have the attach rate. Do you think that’s enough? Or is there still a focus on moving a lot more hardware?
Greenberg: Well, I think Xbox 360 delivers more games and entertainment at a great value than any other device out there. So I think if you think about retail games, Xbox Live Arcade games, now Community Games, movies, TV shows, music videos, Netflix, and all that, and we’ll continue to grow those offerings. With a console starting at $199, I think we feel like we have tremendous value in the market and what we’re seeing is that both the Wii and the Xbox 360 are seeing a lot of success as a result of that. Obviously we’re delivering uniquely different experiences and we’ve focused on delivering the broader experience of games and entertainment and at the same time building an online social networking community. I feel we’ve invested in the right areas. I think what’s interesting about this business is there seems to be this perception sometimes that there can only be one winner. I look at retail outlets and car companies and airlines… you know there’s more than one. I think what we’re finding is that there are two platforms that are clearly having success. Xbox had it’s biggest year ever. We’re selling a lot of hardware, now well north of the original Xbox. And we’re the platform that sells the games and that’s where 3rd parties make all their money. And then online is now becoming a major part of our business.
G4: As far as games, the two big exclusives that we know about for 2009, are both Halo related. We get Halo Wars early and then we got Halo 3: ODST later. What are some of the other big exclusives we’re looking at for 2009?
Greenberg: We think the Grand Theft Auto 4 downloadable content will be huge for us in the Spring. We've also got Xbox Live Primetime which is something that we’re really excited to launch and that’s going to be a really big. It’s an entirely new category of gaming. Yes, it's a big year for Halo fans starting with Halo Wars and then Halo 3: ODST, but if you look back at January 2008 when we started the year you'll see that as a company, our philosophy is that we try to under promise and over deliver. We tend to save things until they’re much closer to being ready to be brought to market, and I think that that is a little different than traditionally how this industry has worked. Not just Sony, but how 3rd-party publishers work, how this industry historically has worked. People tend to like to talk about games for years. I mean we’ve been waiting for games you know for four, five, or six years to come to market. Take the NXE for example. We showed it at E3 and a few months later we launched. We announced a lot of games at E3 that came at holiday – Lips, You're in the Movies, Scene It. We have a lot planned for 2009, but we absolutely have not shared what our lineup looks like.
Grand Theft Auto IV: The Lost and Damned Trailer
G4: We've got two big exclusive DLC offerings coming to the Xbox 360 with GTA IV: The Lost and Damned and the Fallout 3 content. Is that going to be a big strategy for Microsoft going forward?
Greenberg: Yes. What we have focused on is making sure that we have the biggest and broadest 3rd party games lineup and that we have as many exclusive games and exclusive content as possible. So as part of that, if you think about this generation, is that we never had a Resident Evil game so we wanted to have that. We never had Grand Theft Auto day-and-date. We didn’t have Final Fantasy. So we’ve added all the biggest franchises, such as Tekken. These are franchises that were frankly, built on the PlayStation platform. Making sure that we have all those games on our system is important. Then, we went out and secured a number of titles that were exclusive to us, and then because of digital distribution and Live, we’re the ideal platform for them to exclusively develop DLC. I mean it’s a great deal for us because then you get exclusive GTA content and you get exclusive Fallout content. It also makes a lot of sense for the developers because they can focus on one version and make DLC for one platform. Most developers will tell you that we’re the easiest platform to develop for, and it’s where 80 percent of the sales are happening. Talk to the music game publishers. We know that 80 percent of all game-music downloads are happening on our platform. I think that’s probably pretty indicative of the way the market’s split up today.
G4: Do you think Sony’s going to have to look at a price drop early in ‘09 for the PS3?
Greenberg: We expect Sony will have to drop price in order to remain competitive in the market. I think they obviously struggled this holiday. I think we saw it in the November sales results, and I think we’ll see it again. We’ve heard December very much mirrored the type of gap between the platforms. You know in the current economy trying to sell a console twice the price of your competitors is tough. Especially when you’re not really able to differentiate in value, if you don’t have more games, and if you don’t have the bigger online community. So if you struggle with the perceived value and I think that does make it tough for them. So yeah, I wouldn’t want to trade places with them, but who knows what they will do. Our belief is that they will be forced to drop the price of the PS3 sooner, rather than later, in order to remain competitive.
G4: What about Sony’s Home? At Howard Stringer's keynote here at CES, Sony just announced that they’ve done $1 million in microtransactions. Where does Microsoft see Home as a competitor?
Greenberg: How would I describe it? It’s not an online service. It’s an application. I think my first impression was that it was kind of a Second Life for hardcore gamers, and so I think that people that have gone online and experienced it, the general consensus of it, and the pros and cons of that. I think it’s hard to build a community there if it’s not integrated into the platform. If it’s not integrated into the games. That’s what we did with Xbox Live being built in with the guide. You’re always connected to your friends. You have access to the guide in every experience, whether you’re watching a movie, a TV show, or playing a game. You don’t have to go somewhere and find people, you don’t have to walk a mile to go see a movie, you don’t have to do any of that. You don’t have to wait in line to play an arcade game... any of the pains of our real world.
We’re trying to bring the convenience of technology into the virtual world. I think we’ve taken very different approaches. You know, at the end of the day we made a bet, and we believe that was the right bet. But consumers decide, right? They vote with numbers, with dollars, and so they ultimately determine where they spend their money on games, which console they buy, and where they grow and build their online community. We’ve been very fortunate for the great support that we’ve had from our community, and our consumers have been very loyal with their support and that’s what motivates us to deliver and push to bring new experiences.
G4: Speaking of new experiences, let's talk about the New Xbox Experience. Obviously a very successful launch, and we’ve seen the numbers about how downloads are way up. What has been the reception amongst gamers and non-gamers, the families who are using for casual games, Netflix, and the Video Marketplace?
Greenberg: Well, we know from the gamers because we have this two-way dialogue with them. We hear from them, we read the forums. They are everywhere, right? All the sites like G4TV.com. So they’re very vocal. I would say gamers may be the most vocal. They may even be more vocal than movie fans and music fans. We actually do listen to them and it is part of the reason why a lot of the features we have today are there. It’s because they’ve asked for them and many times things that weren’t even on our radar they’ve beaten on our door and said, "We want this" and so we’ve added it. Live Parties are a great example of that. We’ve heard good feedback. People are loving Avatars. People are asking us all the time, "How do I get more clothes? I want more, more, more!" So it’s great. So I think the response has been really strong.
It is surprising that basically by having an entirely new interface that sales would jump as dramatically as they did. A lot of people have said to me, “You added all this new content to Xbox” and it’s like “Well, I mean sure we added some new content, but for the most part we took what was there and helped you find it and brought it to the front.” You turn on your TV a lot of times and you’re like, "I just want to watch TV. I just want to see what’s on." The Xbox 360 wasn’t that type of experience before, and so now you turn on your Xbox and all this stuff is right there at your fingertips. Before, you didn't even realize that we have the Wall-E movie. I was looking at top movies and I was like I didn’t know Tropic Thunder and Dark Knight were available. Those are absolutely movies I want to watch. I think making it a lot easier to discover content, not just for core gamers, but also for everyone else in the household was a big part of the strategy of the NXE and it definitely appears to be paying off.
G4: Speaking of The Dark Knight, it has obviously been the landmark Blu-Ray that people are looking at as the beginning of Blu-Ray's acceptance into the mainstream. How have The Dark Knight sales been on Video Marketplace?
Greenberg: It was our number one movie over the holidays. Dark Knight was a big movie and I think that what we’re seeing now is that there are a variety of ways that you can experience content, right? So you can go to the movie theater. You can buy the DVD, you can buy the Blu-Ray, you can digitally download it, you can stream it, and you can digitally access it in HD. There are a bunch of different ways you can get it. Digital distribution is the most convenient, and probably the best value versus having to spend 30 bucks on a disc. We’ve invested heavily in digital distribution as a platform and we believe that is where the we see the future of content.
G4: Back to the NXE. I know my reaction was, "I feel like I just got a new console. This is new. It’s the same games, but it’s new."
Greenberg: I think we essentially relaunched the console through software and I don’t think that’s ever really been done to this scale before for any consumer electronics product. Netflix has quickly become one of the most popular things on our entire service. These are the benefits of digital distribution: the convenience is great, but what’s great about Netflix is that there’s a huge value benefit, right? So the all-you-can-eat idea of, "I’m a Netflix member and I’m a Live member with 12 thousand movies and TV shows with unlimited viewing.” I see a lot of my friends now are doing that and I’m watching more Netflix stuff. Nobody wants to wait for a disc in the mail anymore if you can just watch them instantly. Now some content is even in HD, which is awesome. The growth of sort of digital distribution is definitely happening at a pretty fast pace.
G4: Since the Netflix service is so popular, have you seen a drop in the Video Marketplace sales? Are people shying away because they may already have Netflix?
Greenberg: No, actually Video Marketplace sales shot up. We saw double-digit growth of movies, TV shows, and Arcade games after we launched NXE with Netflix. So a lot of people asked us about that at E3 when we announced Netflix, “What would be the impact?" But they’re somewhat complementary because Netflix obviously has a lot of TV shows and movies, but the newer releases come through the Video Store and you can also download-to-own HD content through the Marketplace.
G4: What about digital distribution for games even above the Arcade games? On the PlayStation 3 you can download a game like Grand Turismo 5: Prologue or SOCOM. You can get a full game. Are there plans to start offering a service like this for full Xbox 360 titles?
Greenberg: It’s a good question, but right now we’ve obviously focused digital distribution on entertainment, Arcade games, and then even community games. We have great relationships today with our retail partners and so you think about – it’s where you buy your console, it’s where you buy your accessories, it’s where you buy games when you buy your system. And we do think that there’s a benefit to people going into their local game retailer. I think there are benefits to digital distribution and who knows how fast that will accelerate, but I personally still like going in to retail, buying the box, having the disc, and those games are large in size. Sending 6 gigs through the pipe doesn’t come fast.
G4: Is the plan to return to the Spring and Fall updates, or sort of hold for more big updates like the NXE?
Greenberg: The idea with the NXE is it would enable us to do more-regular updates so I think that’s generally the direction that we’re going. With that said, we may group things together and do some bigger updates, but we haven’t committed to a schedule at this point. I would expect to see more regular updates throughout the year.
G4: So what features come next? All the hardcore Halo 3 players love making MLG Pro videos, but they've got to go out and get capture equipment or point a camera at their TV. I know a lot of the EA games will upload a flash file directly to their website, but are there any plans to build this type of functionality directly into the Xbox 360?
Greenberg: Right now you’re right. It’s done through games. I mean even You’re In The Movies allows you to upload your clips and EA does a lot of that stuff, so that’s the way it’s being done today. We have a massive team invested in innovating with Live. This was the team that delivered the New Xbox Experience. They are working on a whole slew of things. So a lot more is to come. Obviously we can’t confirm or deny specific features yet, but there’s a lot of very creative ideas out there that we’ll continue to explore. The great thing is that if you’re an Xbox 360 owner you’re going to continue to get new features, new functionality, new partners, and new content for free by being an owner. We’ll continue to deliver it digitally to you so we can add more value to the system over time. That’s a big focus for us this year.
G4: Speaking of adding value to a console over time, the average life of a console is about 5 years. We’re hitting year 4 for the Xbox 360. Do you think the 360 will outlast that 5 year average or are we going to see the next console soon?
Greenberg: I think we absolutely have a very long life ahead of us. I think what we’re seeing this generation is that we have a console that is no longer limited by hardware. We’re delivering Hi-Definition experiences. We have storage. We have high-speed connectivity. So you know we’re not limited by the hardware at all. We see a very, very long future ahead of us as we think about the platform and we’re not even thinking about the next generation at this point. I think that what we did with the New Xbox Experience, and many people said that it was essentially like launching a new console and we did that through the power of software. When we designed the Xbox 360 the strategy was, “What if we could make a console that we could continuously update over time?" Last generation we couldn’t do that because we only had 10 percent of our owners connected to Live. But now the majority of people that own a console are connected. We’ve got 17 million people connected. We can always add new features and new functionality and so we’ll continue to do that without requiring them to buy new hardware.
G4: Microsoft, especially at CES this year, is really big on connectivity and everything working together. How is Xbox 360 going to play into that strategy? Are we going to see IPTV? Are we gonna see mobile phone integration? What else is planned?
Greenberg: We don't sell IPTV directly to consumers. We offer it to other businesses. Microsoft, as a company, has their media room product, which runs IPTV software. As part of that, they offer them the option, those providers, to use the Xbox as the set top box. We have a number of folks around the world, including British Telecom in the UK, that use this service. I know there’s some partners around the world that are working on bringing that to market. That obviously brings a very enhanced level of connectivity. But for today, I think we saw some of the stuff that you can do with Windows 7 and some of the great benefits that we’re putting into that operating system - being able to access your content no matter where you are. Microsoft is also going to completely redo the Windows Media Center as part of Windows 7, which is already a best in class user interface. A lot of people were always telling us how much they loved using that and so I think we’ll continue to grow and enhance the connectivity of devices. The home server. That’s sort of the nature of Microsoft as a software company.