After last night’s big announcements on the Xbox front, Microsoft’s (NSDQ: MSFT) Robbie Bach, President of the Entertainment & Services division, faced financial analysts eager to get some red meat on how the unit is doing. However, coming a few weeks before Microsoft’s next quarterly announcement (Jan. 24), Bach wasn’t in a position to delve too deeply into numbers. After a brief recap of the announcements made yesterday, the event was handed over to analysts for Q&A:
— Xbox Live: Revenue from Xbox Live is starting to become meaningful: The company has 10 million customers, many on a $49/year plan. For the time being, subscription revenue will be the most significant part of the business. But paid downloads and advertising are also part of the mix. At this point, paid downloads and advertising are mainly used as a way to make money on customers that aren’t interested in the full, multi-player gaming experience at Xbox Live — casual gamers, basicaly. As for how the company got to 10 million customers, Bach cited the ‘triple play': price cuts, Halo III, and strong growth over the holiday driven by content. Later on, Bach suggested that a lot more would be done on the advertising side of the business and that, perhaps, the company has missed some opportunities in this area.
— Portable gaming: Mobile gaming isn’t a a priority right now for the unit, in part because of the challenge making money in that area. And the company isn’t likely to make a big play against the Nintendo DS or the Sony (NYSE: SNE) PSP, because it’s not trivial to port Xbox games over to the portable environment. Such a move would require a major initiative in a space with top quality competitors. Games for the Zune are possible, but again, this isn’t likely to be a big area of interest right now. “The Zune team if super-focused around music.”
— Web browsing: Right now, there are no direct plans to bring web-browsing to the Xbox. It’s something the company thinks about, according to Bach, but there are advantages to keeping the platform simple and controlled. The company’s view is that consumers like the simplicity of Xbox Live and aren’t interested in using it for general internet access. Another advantage is that the controlled environment is more secure.Company has thought about web browsing, but people like the fact that it’s a managed interface. A tighter, closed interface is also more secure. Network-ready TVs will prove more important in terms of getting web content to the TV.
— Economy: Video games historically have been resistant to recession. Bach believes this is because video gaming is an in-home activity that’s cheaper than other entertainment alternatives, such as travel. Whatever the reason, so far it hasn’t seen much impact from the economy. It is possible that the holiday and the secular growth of the industry have masked recent weakness.
— Zune: There wasn’t much Zune talk, but when asked, Bach claimed he sees “The Zune business as having done exactly what we expected it to do.” On the specs, the Zune is competitive with the iPod. The goal is to make an experience out of music (“more than just a track”), as Xbox Live has made an experience out of games.
— Acquisitions: The unit is not likely to be very active on the acquisition side. Rather than buying out companies, it’s more interested in partnerships for now. After working with a given team of developers for some time, an acquisition becomes more appealing.
— HD-DVD vs. Blu-Ray: Just as you would expect, Bach claimed to be fairly unconcerned about the growing sense that the HD-DVD format is on the ropes. At least on the Xbox side, he made the argument that HD-DVD has always been an add-on, as opposed to something intrinsic to the service (unlike PSIII and the Blu-Ray). He added that Microsoft’s primary interest in HD-DVD comes from its support of the technology that makes it interactive, but that Microsoft is more interested on digital distribution anyway, because it’s a more software-intensive proposition.. Again, what else would he say at this point?
— Halo: The message: don’t get preoccupied about Bungee, Halo’s studio, going independent. “Halo didn’t go away… you should think about it being a great business.” So why did they go independent? Bungee wanted more freedom to work on other things, is the official line. And Microsoft is always thinking about what games it can move in and out of its portfolio.
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