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E3: Superkonsolien pelipomot juttusilla

E3-messujen pääpuhujien välinen keskustelu löytyy kokonaisuudessaan E3-messusaitilta. Koska se on todella hidas, tässä teksti PS2FINin lukjoille. Erityisesti KH:n eli Sonyn Kazuo Hirain sanomisiin kannattaa kiinnittää huomiota.

E3 Keynote Transcript
“The Future of Console Gaming,” brought together three console-gaming titans for a mannerly chat.

Presented by Doug Lowenstien of the IDSA and moderated by John Taylor, the Keynote brought together Kazuo Hirai of Sony, Peter Main of Nintendo and Robert Bach of Microsoft. Read their chat below:

DL = Doug Lowenstien,

JT = John Taylor,

PM = Peter T. Main,

KH = Kazuo Hirai,

RB = Robert J. Bach

DL: Good morning. I'm Doug Lowenstein, president of the IDSA and thank you for all joining us for this exciting panel discussion on the future of console gaming. I'm just going to take a minute here to set the stage. This next generation of video game consoles, many analysts forecast will enter as many as 70 million households by the year 2005. This would make it one of the most successful consumer electronics products in the history of this country. As many of you know and have heard, the demographic for gaming has broadened dramatically beyond the traditional teenage boy audience. Now 70 percent of the most frequent players of video games are over 18 and 56 percent of the most frequent players of console games are over 18, so this industry is appealing to people of all ages and all tastes.

Many analysts are forecasting that this next generation of video games will generate revenues into the tens and even $15 billion over the next five years in software in the United States alone. Clearly this industry is poised to once and for all, move past the motion picture box office in terms of its impact on entertainment revenue in this country, so it is a real privilege for me to introduce briefly our panelists and our moderator this morning. Our moderator, John Taylor, is the president of Arcadia investment corporation. He is one of the leading video game analysts in the United States and the world, and we are honored that he has been able to join us this morning. Of course you all know our panelists, Kazuo Hirai, president of Sony Computer Entertainment of America, Robert Bach, chief Xbox officer for Microsoft, and Peter Main, executive vice-president of Nintendo. Enjoy the panel and thank you again for coming.

JT: Good morning. Thank you for coming and welcome to E3Expo. The format this morning is going to be pretty simple. We are going to start with three minute position statements from each of my colleagues over here, and they will lay out where they are going and what their key priorities are. The idea is to get these guys to compare and contrast where they are, so we can get a clear understanding of what this is going to look like. We have several questions we are going to go over. In formulating them, I didn't know what role I was going to play, whether this was going to be like a presidential debate, or whether it was going to be a WWF referee type thing, or a tribal council or something. We are going to start with Peter Main or Nintendo and then we'll go to Kazuo and Robbie.

PM: Thank you, John, and good morning everyone. We are all obviously competitors, but I think we agree on one thing, and that is we are about to kick off one of the most exciting E3EXPO shows in history. You heard earlier this morning that the business is on the uptick, the total industry retail revenues in the US is already up 19 percent year on year. Players are obviously very anxious for all the new thrills that all of our new systems are going to bring to the market place. Surely when you leave this room and step on to the show floor this morning you are going to see some absolutely beautiful work for all three systems.

In reality we suggest that pretty graphics and other cosmetics are now just the ante to get into this business. If they were an end unto themselves, I would suggest there would have been some other former hardware manufacturers still up here today. In fact, horsepower is what makes us all the same, but today's video game players are focused on what makes us different right now. In that spirit, let me offer a couple of thoughts on what truly makes Nintendo unique. There is no one anywhere that is going to deny that Sony is a world class hardware company, and certainly no one is going to deny that Microsoft is a world class computer software company, but in truth Nintendo inspires to be neither one of those things, because we have built our company and conducted our business everyday for more than twenty years, neither as a hardware company nor as a software company, but as an entertainment company and I think that makes us different in a couple of ways. First we put our game creators in the drivers seat in our company, not our engineers, and certainly not our marketers. For example, it was our game developers who demanded redesign for the processor of Gameboy Advance, and it was our developers who conceived the basic architecture which makes Nintendo Game Cube the easiest console ever for game development. Second, when Nintendo talks about entertainment we put our money where our mouth is and the result of our significant investments in first and second party game makers means that we now have far more proven in house design talent than anybody else in the business, and the work of these teams is exclusive to Nintendo. These people are creating must have hits, and when must have games play on only one brand of system, they in turn create must have hardware. Third, we found Nintendo's profitability is innovation. Not just new idea, but better products. How about Gameboy linked to a digital camera or linked to a cell phone.

This week we are introducing a unique wireless RF controller and soon you are going to be seeing software that spans play between Gameboy Advance and Nintendo Game Cube. Speaking of games, let me remind you that that incredible innovation called Pokemon which last year sold more than ten million pieces of software all by itself in America. Finally I submit that no other manufacturer cares more about video games or is more focused on video games than Nintendo. That is because to us it is not an experiment or another division, or a new profit center, it is our entire business. Nintendo is games.

You are going to be seeing a lot of great ones beginning today, and then at Spaceworld in Tokyo in August, and for years beyond this launch. In summary, we submit that it is all about plug and play and enjoying something unique and fun right now, with endless ways to expand upon that in the future. It is neither rocket science nor is it evolutionary, it is just the same pragmatic approach that we have followed for these last twenty years in allowing us to sell over 200 million pieces of hardware and 1.5 billion pieces of software, and I am here to tell you that Gameboy Advance and the Nintendo Game Cube are going to add millions to that. Thank you.

JT: Second up is Kazuo Hirai, chief operating officer of Sony.

KH: Last year we made a promise and we delivered on that promise. Thank you JT, and it is really exciting for me to be here and to be able to share with you our vision for computer entertainment at this fantastic venue called E3EXPO. Despite an uncertain economy, and some clouds looming over the economic outlook for the next year or so, this industry as Peter mentioned, continues to be an innovative and very exciting industry to be in with the fantastic array of software that is being provided by many companies that are involved in this industry. Certainly at Sony, we definitely do our part. As you know through innovative content that has revolutionized the business, we have been able to deliver compelling exciting content on a constant basis to all the consumers, not just here in North American, but also in Japan, and also in Europe.

The original Playstation that was launched in 1994 in Japan, and in 1995 here in North America, has now grown worldwide to an install base of more than 80 million units. And of course the excitement continues with the PSOne console. With the Playstation 2, we are now up to ten million units install base throughout the world with three million units here in North America alone. This year we are bringing another seven million units into the North American market to bring the install base in the North American market for the Playstation 2 to ten million units by the end of our fiscal year in March of next year. In a nutshell, I kind of agree with the critics and the analysts that say the real question for this year and for next year is who is going to be in the number two position.

I should actually say who is going to be in the number three position, because as I said the PSOne continues to be a very strong market for us as well. On the software side, with the tremendous support of our third party publishing partners, we were able to launch the Playstation 2 in October of last year and were able to quickly ramp up to fifty titles within a month of the release of the Playstation 2. We had 80 titles by the beginning of this year, and we have another whopping 200 titles that will be coming out again just in the North American market this year for a total of two hundred and eighty titles. We have received fabulous support from the third party publishing community, and we continue with our strong efforts to push the envelope as far as our first party development is concerned as well. Everybody is talking and very excited about the possibilities for online and online entertainment and at Sony we are a very consumer focused company and we will be in the forefront and the drivers seat of this new online revolution.

As you know, in the past several days we have made several announcements for strategic alliance partnerships with world class companies such as AOL, Macromedia, Real Networks, and Cisco, to help us build and bring the infrastructure for the online entertainment experience to the consumers in a very seamless and plug and play manner. We believe that the key focus for success of online entertainment will be a natural extension of the kind of dynamic and exciting immersive entertainment experience that people have gotten in the offline environment through the Playstation 2 console, and in the online environment, we will be there too. Another example of the consumer focus that the Sony Playstation, and the Playstation 2 brings to this market is our commitment to bringing value to our consumers.

Yesterday, we announced the exciting release of the GT3 Racing Pack which will have the most content defining and certainly one of the most sought after titles, bringing that together with the Playstation 2 and bringing that to the consumers at a value proposition of $329. Overall, a lot of exciting things are happening in the industry. Playstation and Playstation 2 is an integral part of that industry, in the driver's seat, in the leadership position, and you have my personal commitment that we will continue to deliver the most compelling and immersive entertainment in this exciting industry. Thank you.

JT: Next up is Robbie Bach, senior vice president of Instavision, and chief Xbox officer.

RB: Thank you and good morning. Certainly as a first time on the stage in a console discussion, it is certainly an honor me to be among all the people that have done such an amazing job creating a great industry and amazing games. I thought I would share with you today two or three principals that we believe in, in approaching this industry. The first of those principals is that we started to listen, and we came and talked to game developers, and designers, and creative artists, and we asked them what they wanted in the hardware.

We asked them what they wanted to see so that they could reach a creative vision, and so we could get the hardware out of the way and enable them to achieve the vision that they set out to achieve. We came and we talked to retailers, and asked them what they wanted in terms of a business model and in terms of the approach they took and in terms of how we brought the product to market. We most importantly talked to gamers, and we asked them what they wanted in terms of game play, in terms of franchises that they were used to playing, exclusive titles, and quality. We took all that feedback and we have developed something that we think is very exciting. The second principal that we have done is that we focused on gaming. Microsoft and Xbox is all about gaming. We talked to third party developers, and we have over two hundred developers doing games for Xbox and we think that is going to lead to the right products, to great coverage in all the key genres, to both depth and breadth that our product offers.

We have also invested in our first party studios to make sure that Microsoft is a significant participant in the marketplace and that we produce great console game. All of that is based on the fact, that we created a hardware platform that puts the power in the hands of the developers, and enables them to do what they need to do. None of that would have been very valuable if we didn't look to the future, and so we really have tried to focus on where the industry needs to go, and how we can help build something new in the future. We have taken two approaches to that.

The first is enabling the hardware to enable people to create environments and virtual worlds that people have never seen before, that creates a different game experience for people, and enables games to reach a new level. Secondly, we focus very much on the online space. Xbox is the only console designed from the ground up with all the things you need in the box to create a great online environment and with over 25 developers already creating online game components for Xbox, we think the Xbox online system is going to be a huge innovation in the industry, and really help drive things forward. I look forward to the next hour to share with you our idea on where we are going, and I think the key question is not who is going to be number on or number two this year, I think they key question as we look over the next five years of the console wars, who is going to be the secret to success and drive the industry forward, and we think we are looking forward to a great opportunity to do that. Thank you very much.

JT: We are in a situation here where we have three very powerful companies that are going after the golden ring in the video game business, and one of the neat things about this cycle is that each of the platforms has different kinds of hardware built into it. The first question that I want to explore is what are the unique aspects of your hardware configuration.

What do they bring to your ability to maximize an audience over a three to five year time frame. I want you to focus specifically on what you put in, and what you left out, and why? You each have two or three minutes to talk about that. Robbie, you guys have stirred things up by putting all kinds of stuff in your box. Why don't you talk about that.

RB: I think when you talk about hardware you have to talk about one basic concept, and you have to remember that the hardware itself isn't the thing to focus on. The thing to focus on is the games, and that is where we started. We wanted to make sure that whatever we put in the hardware was something that would help the game developers and game artist drive things forward and help them create new things, so in the end hardware is all about the games. What we have done in Xbox is try to remove the barriers for people.

We have put in a lot of extra memory. We have put in a very powerful CPU and graphic, and audio technology, so the artists and developers can create the visions that they want to create. We have added a hard disk for the first time which we think will help developers create traditional games and use it as additional memory, and places for people to save games. More importantly, it is the permanent storage that you need to do online gaming the way it needs to be done.

We have also added an ethernet port which we also think is critical to the future of broadband gaming, and we put four game ports on, because we think multiple players are important, and we think voice communication over time is going to be critical to the online environment, so we are coming out with a voice controller as well. Our hardware approach, while it certainly focuses on performance from a technical perspective isn't because we think performance itself is important. We want the hardware to be the thing that enables developers to create the amazing games that excite people, that are fun, and create new entertainment opportunities. That is why we have created Xbox the way we have.

JT: Would the ethernet connect, with the hard drive, with the massive uniform memory that is in the machine, which ones do you think are going to be unlocked first? What are the time frame for the real utility of the capability of the machine?

RB: I think what you are seeing initially and what you will see in the games on the show floor, is that the environments and worlds people are able to create on Xbox really take advantage of the memory, the graphics, and the CPU, that we have in the Box and we are seeing some amazing virtual worlds. Things like Dead or Alive 3 are just incredible in terms of what they are able to create, and what that does for game play so I think that is going to be the initial wave of things.

Starting late this year or next year, you'll start to see some exciting things taking advantage of the online scenarios and ethernet and the hard disk, and I think over time this is a five or six year business. Over time our platform has more head room for people to grow into and really explore and do amazing things, many of which we probably haven't anticipated today.

JT: Kazuo, why don't you talk about the hardware aspects. I'm not interested so much in polygons and that kinds of stuff. We want to know what this enables people to do.

RB: One of the important things that we have in our vision of this business is to provide computer entertainment, and obviously that connotes different idea in different people's minds. When we came out with the Playstation 2 last year, we focused on some of the entertainment experiences that people can experience right out of the box, so that included Playstation 2 software, the backwards playability with the Playstation 1 software, audio CDs, and DVD movie playback capability. We felt as a consumer centered company that right out of the box the Playstation 2 should be a console that offers compelling entertainment in a variety of forms to the consumers and I think that we are going to be able to deliver on that promise.

Going forward, online as I said before is a very exciting and also a market with a lot of potential, and that is why in addition to the capabilities that we have packed into the box in terms of the entertainment out of the box, we announced yesterday the network adapter, which again focuses on the analog conductivity as well as ethernet at a $39 value, and also a 40 gigabyte hard drive which can go into the bay for a variety of applications such as downloading, or perhaps surfing the net, and also storing information from your disk onto the hard disk drive as well.

We felt that it was important that these are removable or additional units mainly because consumers who want to go on to the online space should and can avail themselves to those peripherals. At the same time, consumers who are happy with the offline environment should be able to enjoy the potential and the maximum benefits that the console offers right out of the box, without additional peripherals that they may not actually require for their own entertainment experiences, who we have always focused on what it is the consumers can do right out of the box and then offer the additional peripherals and the requirements in terms of software and also on hardware to take the consumer experience to the online environment should they choose to do so.

JT: Your assumption is based upon the assumption that people are going to buy peripherals in order to be able to do this, so can you give us a sense of the timing of when you think you are going to have a game that is likely to really drive and motivate people to do that? Is that a 2002 event, 2003? Can you give us a sense of where that might fit in?

KH: Some of the online games that we have on display at our booth here at E3EXPO are online games or games that have online components, and those will be available as early as this fall. Given our strategic alliance that we just announced with AOL and also bringing the Netscape browser to the Playstation 2, that is definitely going to require a hard disk drive, and so we believe that both in terms of the games that are going to be available as well as some of the exciting things that consumers can do in an online environment that also requires a hard disk, this is something that is going to come into the hands of the consumers very quickly, and that is why we slated a November release for the hard disk drive as well as a network adapter.

This is not something that we are talking about happening next year, or sometime in 2003. This is something that is happening for the Playstation 2 this year.

JT: Okay, Peter. You have got the least stuff built into your box. Talk to us a little about why you did that, why you left things out, and what is really inside there.

PM: It is kind of like that Tiffany box, very small but very special. Like I said at the outset, we are about here and now, and first let me say that it is really interesting. I have been through a few platform changes and this is the first time that nobody is up here talking about their 128 bit processor or 64, or in fact maybe a 32 that is inside one of these, because that is all behind us. We are all now on level ground. Our graphics and our audio are virtually indistinguishable to the average consumer in the market place so that leads me back to what I said in my opening remarks and what drives Nintendo's philosophy behind hardware design and it is two things.

One is called simplicity, and one is called flexibility. The simplicity thing is absolutely critical in our mind in order to enable the game developers to avoid all the bottle necks that all those other add ones present as impediments to effective game development, because we are trying to promote innovation and not having to work around all kinds of down the road and around the corner future potential activities, to get in the way of making a better game right now. Then the architecture clearly addresses the moral. We can handle the 56k modem.

We have the ability for a broadband. We have all that built in, but we are not trying to cram that down any body's throat, developers or game players, until the products are there and ready to go. If you have been around this business for a while, you have seen an endless stream of great ideas, alliances, and announcements that have never made the light of day in terms of marketplace realities and that is what drives our company. Right now, right here, great games and that is what we designed our system to do, and bring it to the mass market of gamers and show them today, are we working on those other things? You bet, but we don't think it is relevant right now today for better gaming.

JT: Peter, when would you think the time frame might be when those would be relevant? How do you think about it in your planning?

PM: That is a different topic that you want to get at, but the networking thing, probably everybody in this audience forgets that we have been working on that since the eighties. In the 1980s with the eight bit NES we were in a joint venture with Nemura for online banking and stock trading. In the nineties we ran a global Tetris competition between Europe, North America, and Japan.

We are currently in another series of tests with cell phones. We are doing those kinds of things. We'll bring that into our product when we see a compelling game idea that really makes sense to gamers and secondly makes serious sense to our shareholders.

JT: We are going to come back to online gaming as a separate set of question in a little bit. Let's move on to software. Last year over 60 percent of the video game software dollars in the US were generated by third party publishers and the remainder from first party.

I want you to talk about your software strategy and how you are balancing first party market share needs with business deals that make sense for third parties, because you guys have been forward in embracing the third party community with PS 1 and obviously with PS 2 again, so why don't you start out with how you are doing that.

KH: As you mentioned, one of the very important factors for the success of the Playstation and also the Playstation 2, undoubtedly is software. I think that Peter and Robbie would agree that software is what drives this business and software is what drives the platforms. We always felt that together with a strong first party software studio, that it is very important for us to be able to also harness the power and the creativity that the third party publishing partners bring to the table as well.

We know as first party software development, we want to try to push the envelope to try to come up with innovative and creative games, new genres, to see what kind of direction the platform can take going forward. At the same time we need to rely on the creativity of the third party publishing partners, because no matter what kind of investments you make you are going to be limited as to how big you can make your development organization. With the Playstation and the Playstation 2, our first party to third party ratio remains at about thirty to seventy meaning about thirty percent of the software that is on the Playstation is first party.

The remaining 70 percent being third party. Again, that is a testament to the kind of support that we have gotten from the third party publishing partners and speaks a lot to the support that they have given us in terms of developing and increasing the install base for our platform. Going forward, I believe that the thirty seventy rule, has been a very successful formula. We know we can't do everything ourselves, and that is why we rely heavily on our third party partners and it has been a fantastic arrangement and relationship with our third party partners and that is something that we will keep as a strategy to continue forward.

JT: Peter, Nintendo has roughly a 50 percent share of first party versus third party historically, at least recently. I think part of that is because a lot of people had business model problems with the cartridge, the inventory issue. That is all behind us now.

Talk about Nintendo's strategy with third party and first party, but there is no question first party is going to be strong. Talk about third party if you will, and what you are doing with it.

PM: We are absolutely delighted to have leveled that playing field with the adoption of the new medium for our software on Game Cube, and you are right. It has removed that issue, and we think there are some fabulous third party developers throughout the world that we know are already doing product for us, and others that are going to be joining that group.

The fact remains that because we have made such substantial investments in not only our internal first party, but our extensive holdings around the world in second party, that these people in looking at their track records of hit after hit, we are very proud that a Miyamoto produced Mario title can sell five or six million pieces globally. That changes the balance a little bit, but we clearly are looking for the best gaming ideas. If they are in house great. If they are out house super.

At the end of the day it is going to be very clear, again with the graphics, and audio, and those basic capabilities being very similar, a very big component in driving this generation. It is going to be unique content and clearly we are going to be in a position to do a lot of that with our first and second parties.

JT: Robbie, exclusive titles are on everybody's mind and you have obviously created this wonderful working environment for developers. Publishers are the ones who control the checkbooks. What are you doing? Talk about how you are approaching the question of that.

RB: I think the question starts from basic assumption, which is our focus is on making sure we have great quality games on Xbox and that is why we have designed the platform to be so flexible for developers so that they can do very creative and innovative games.

It is why we focus heavily on working with third parties and making sure we get their innovation. That is why we have over 200 game developers working on Xbox games to get their innovation in the games, to make sure we have great coverage in all of the key genres with great selection for people of great style games.

Now, one of the things that goes along with that is we have invested in first party as well and we want to make sure that Microsoft can help drive the platform with titles that are exclusive to the platform and that do take advantage and twist the technology to create new innovative games. Now we think our mix will end up being about thirty percent first party and about seventy percent third party.

KH: Follow our lead.

RB: I think what is more relevant there is that the two hundred developers are now developing on Xbox and they are excited about the platform and the quality that they are producing is amazing. If you think about our platform, people have been working on it less than twelve months and we are going to have games at the show that look as good or better than anything that else at the show.

The final thing I will say about exclusive, to address you question specifically, is we have eighty exclusive titles in development today. About half of those are coming from third parties. We certainly are seeing people who understand that Xbox can do unique things and are going to create unique content for Xbox.

JT: I want to focus again on the publisher perspective for a second. Development budgets have skyrocketed over the last several years and you guys can now process so much art that it just consumes so much. Talk about what you are doing specifically to encourage publishers to invest in titles specifically for you platform and the kinds of support you are offering.

RB: I think the most important thing we have done to support third parties is that we came and talked to them about how they wanted the hardware to be configured, because the biggest secret and the easiest way to enable people to do better games faster and more economically is to make sure that the hardware is designed for producing games.

That it has the power and the flexibility they need to easily create games, an architecture that the developers already understand. We have really worked hard on making sure it is easy to get up and started on Xbox, and making sure it is easy for people to work with the hardware and produce great games and that is why we have been as successful as we have to have such great things here. In terms of what we do with third parties, we have various business relationships with different people, different companies have different objectives. Our job is to be flexible and work with their objectives. To understand what their need are and work with them, both from a hardware and software design perspective, as well as from a business model perspective to make sure that it works out well for everybody.

JT: Kazuo. Why don't you take a stab at that one?

KH: Right now in North America we have about three hundred developers that are working on titles for the Playstation 2 as we speak. To your point John, it is a situation where development cost do tend to increase with general changes in the hardware.

The important thing for us is not just focusing on the cost of development, but also working with our third party publishing partners to be able to help them market their software titles in the market and we have a variety of programs that we have in place that allow us to help in that marketing process and to make sure that when a publisher is publishing on the Playstation 2, that it is a profitable platform to publish on so that they can balance the development costs that are involved, but at the same time look at some of the things we bring to the table, not just financially, but in terms of other promotional vehicles as well that will also increase the revenue side of the equation when they are looking at developing titles.

JT: Peter, you guys take responsibility for driving your install base. Talk about the cost of that.

PM: That is a very sensitive topic called profitability. Isn't that an interesting notion. The last generation of N64 and Playstation 1, there were 1300 titles published in this country combined, and about seventy percent of them sold less than 300,000 pieces each. The new break even point on this next generation is probably about 350 to 400,000 pieces to break even, and I submit whether it is internal or external, we should be focusing on taking our brightest development resources and helping licensees or others do fewer title, not more. Fewer titles better.

Cover the genres better, but we don't need twelve of every kind. There has been an absolute blood bath in the development business over these last two years. We don't want all these bright ideas going down the tubes with people chasing impossible dreams. The market size is huge, but you better put your pencil to the paper and figure out when we all go out and sell 30, 40, 50, 60 million.

Whatever that number is going to be of the combined console install base, put a factor of ten on that, 400 million, 500 million and divide it by all those developers and pretty soon you will see that if all that came to fruition you are going to have a lot more red ink, so the focus has got to be with all of them, show me something better. Take it back to the stable. Work on it a little harder. We don't need twenty five of everything. Nobody does, and the development community will get a lot stronger as a result of that.

JT: I want to shift now from online gaming. Online gaming is viewed by many as the industry's next frontier and we are all talking about it, and kind of wondering what it really is. Recent PC online game numbers are really impressive and suggest that there are over 25 million people that regularly play games online on their PC.

What I want to explore here is we know what is inside each of your platforms. Talk a little bit about what your immediate priorities are in getting critical mass in online gaming. What are you investing in now, and when do you expect those things to start to yield results? Robbie, why don't you start with that one.

RB: I think obviously we have designed Xbox out of the box to be a great online platform and our focus there has been on simplicity and making sure that from the get go it is super easy. Priority number one is making sure that online gaming is straightforward and super easy. That means we want to have all the components you need in the box. We don't think that it makes sense for you to have to go out and buy a lot of extra components to do this and we think that people are going to want to do it right from the get go. Second thing is, when you want to play multi player, in terms of making it easy you have to be able to just click and go. So we are doing a lot of work in the infrastructure and the way we design our system to make sure people can just get connected.

The second priority in that area is great game content, because everything that drives new innovation here is about great games so that is why we are spending a lot of time working with our internal development studios, as well as our third party partners, to make sure they are looking at innovative new concepts. That they are thinking about how to bring online into their games and how to create new genres and new types of games. When I think about that, we think there is great opportunities to revolutionize the way people do multi player.

Instead of playing the offense and the defense in a basketball game, you can be individual players. You can create virtual communities, and communication, and that is why people love online so much. It creates a sense of community and competition and that really will broaden the market. If you look at the demographics of the people who play online it is quite broad. We think that is a huge opportunity. We think the idea that one of the challenges of development costs is that you develop for two and a half years and then you are done. One way to reduce that is enable people to do what we call episodic content, where you develop for a period and then the game evolves over time.

The game doesn't have to end and you can add new scenarios, new concepts, new characters, new storylines. It is much more like producing a show in some ways than it is in creating a game that you work for two and a half years and invest millions of dollars in. We think those are all great concepts that can really change the way online works, and finally we think communication and voice is critical to this environment, so we are investing to make sure we have technology so people can talk in a normal way across the internet to create great online games. We think this is the future. We think it can really revolutionize and drive growth in the business and so we are investing in it heavily from day one.

JT: Is there anything you see in the market right now that looks like it is beginning to be a killer app or is a model that the market is likely to go towards?

RB: I think the exciting thing for me right now is the things people are doing around community. The things people are doing to create these types of games that evolve and where people feel like they have a role. You see people in the PC world playing role playing games and I think that as we get into the console genres you are going to see other types of things that grow from that concept.

In different genres, but the idea that community is essential to an online game is going to be the first place that people explore because it is the thing that captures people's attention, and it is the thing that brings people back.

JT: Kazuo, why don't you talk about what you view as the key governor to growth in terms of this segment of the market expanding, and also if you could touch on some of things that Sony has that you can bring in, other entertainment related things that you can bring in.

RB: There are several factors that are going to be driving the growth in the area of online interactive entertainment. One of them is the infrastructure and the move to broadband which I think is going to revolutionize the content and entertainment experience that people can get on an online environment, so that is certainly one aspect that we are looking very closely at to see what kind of penetration that broadband can achieve in this market.

On the software side, I think it very important for us to remember that the online experience as Robbie said, the community experience is an important fact, but at the same time it should be an extension of the kind of compelling entertainment that people have come to expect and love through the offline environment. It really should be a natural extension of the offline environment into an online environment, done in a very seamless and point and click fashion. One of things that we are focusing on is looking at the really powerful and popular franchises that we have on the Playstation and the Playstation 2 and saying, okay.

Which of these makes sense to take the experience to the online environment so that it is a seamless extension of that software experience. From a consumer standpoint, we believe that it is really important for the consumers to have that seamless point and click, because if we are not able to deliver that kind of easy experience at the beginning then I think that a lot of consumers may be turned off, and so we are focusing our energies to make sure that transition is a very seamless and a very simple one so we don't lose consumers when they are interested in the online environment.

JT: Peter. You guys are in show me mode in online at least as it relates to now. What do you think is the holy grail and when do you think we are going to see Nintendo show up in size here?

PM: I think that we would agree completely with a couple of key words that both Kazuo and Robbie have used and one of those was concepts, and the other one was future and we would not have spent the time in installing capability for that if we didn't likewise believe the medium is seductive. Wouldn't it be great if we can find a way to do this. We are being very honest in saying that we have worked at it and are still working at it. We don't know what that idea is.

Not only that provides the compelling enhancement to the game play experience. That is what is critical. It is a better way to spend my leisure time and my spare dough. If it doesn't do that, then it is just another neat idea that goes in that same ash can of all those other dot com things that we have watched over the last two years. Great technology, lovely idea, no consumer. So we are looking at that and we are anxious to find that answer but the other part of it is we talk about this market and the demos and the niches, and all that stuff.

What you have to remember is that still over half the business is below the age of eighteen, people generally not in control to a large degree of their own discretionary disposable dough. They don't have credit cards, they don't have that ability, and those folks, have to convince another gatekeeper to say this is a good idea, so we are all in the same place. We have a set of content that is custom made for this kind of delivery. We have an experience that should be embraced by many. The key is going to be, whoever can find that wonderful idea, and gets it out there, we are all going to applaud them and then go out and do it one better, but we are hard at work at it and time will tell.

JT: Does Mr. Miyamoto have a secret project that he is working on?

PM: We have development teams at work. Believe me.

JT: In Doug's opening comment, he mentioned that this market is something like forty million households in the US and that could go to 70 million which would be massive penetration over the course of the next five years. When you talk about platform life cycles, you talk about the importance of various consumer segment.

We have early adopters, and we have kids, and we have males and females, and we have older, late adopters, so what I want to explore here is how would you characterize the core audience for your machine right out of the box, because my perception is that everybody is focused on a place to start and then you will expand from there. Kazuo, why don't we start with you since you are already out there, you know something about your demographic for the PS 2.

KH: We have come up with a term called the imaginators, and these are people who are between the ages of 18 and 34 that are very entertainment savvy, they know what new technology is available to them, they really want the cutting edge in terms of the entertainment experience, and we were able to deliver that demographic very quickly with the launch of the PS 2 here in October.

What we found in going through the last several months and looking at the demographic data, now that we have three million Playstation 2s in the North American market, we found that the demographic has already started to widen, and interestingly enough we have compared that to the same kind of demographic information that we had when the original Playstation had an install base of three million units, and we are already seeing that the Playstation 2 user base at three million units is a lot flatter in terms of the demographics than we had with the original Playstation. This really means that even at this point in time, the Playstation 2 really has become more of a mass market entertainment item a lot quicker than the original Playstation did which to my knowledge is nothing to shake a stick at either. We are already on our way to flattening the demographics.

The core demographic is from the early teens to the 34 year olds and that consists of probably 75 percent in three key demographic segments between the ages of teen and 34, and we already see that starting to flatten out. I think that given the consumer offering that we have been able to make, they have really embraced the system, and it's not just a system that appeals to one key demographic.

JT: Peter. Why don't you talk about demographics. You guys own certain segments and you made some attempts to move up and down.

PM: Let me talk about Gameboy for half a moment. The single most successful platform in the history of the industry. 120 million hardware systems. A good part about that is the most balanced demos of any system in history. Sixty forty male female, a third, a third, a third, twelve and under, thirteen to eighteen, and eighteen plus. That is the holy grail, that's the real definition of universal appeal and that is where you want to be.

Then when we talk to councils we have had huge success with our character based franchises which has given us great strength in the twelve and under, similarly very strong in the thirteen to seventeen and then we jump to the twenty five plus crowd, the parents who grew up playing Mario twenty years ago and we are very strong there. Historically we are slightly less strong with the late teen, early-20 gang, and believe me, building on our Gameboy experience it is clearly in our sights as we go on to this one. Products like Eternal Darkness, Wave Race, NBA Basketball, right out of the starting gate, those are focused clearly at insuring that we have a better outreach to that very specific and important crowd.

JT: Robbie. Why don't you tell us where you are starting out in terms of focus and you guys have done a lot of homework on what other people have tried to do in the past in terms of broadening. What have you learned from those efforts and where are you going to go to do that?

RB: I think that the target audience that we will start focusing on is in the 16 to 26 year range. We think that that is the strongest and deepest part of the market, and the place that will play to the types of games and strengths that we will bring to the market. We also think it is the part of the market we would call the enthusiasts. It is the group of people who generate the buzz and momentum and create interest in new innovation, new ideas, and new platforms. We think as a new console that is a great place for Xbox to start.

Having said that, we would say that in the combination of what we are doing in online and things we want to do to broaden the demographics in the core game franchise is that there is tremendous opportunity to grow this.

The ultimate opportunity is to reach the people that can turn on the TV and that is the simplest definition of where you want to get to. The way to get to that is to start with the core people, build that enthusiast buzz around the product, and then provide the product content that can appeal to different people and different demographics. What it comes down to is you have to have a variety of different and fun types of games that appeal to different people. If you are only in one area with games that appeal just to kids of games that are really hard core, it is very hard to broaden the demographic. You will see us start with the enthusiast community, and then broaden out quite significantly.

KH: Was that a Sony solution? Sounds like my answer.

JT: What is interesting here, is again we have three very powerful companies that are launching or broadening their installed base, and you are talking about a mass market, and TV relevance, and big ad budgets. Can we talk about what you guys think is necessary in order to rise above the level of the noise that is going to be created? There is going to be a ton of money spent here. What are the messages going to be and how much is it going to cost you this fall? Peter why don't you start?

PM: First, second, and third priority is going to be about content, not about budgets. You better have some unique, great content or all the dough in the world is not going to save you. You have to get out there and allow all of those gamers to try it, feel it, touch it, so we are all going to be doing interactives, and all that kind of great stuff, and then you are going to be going for share advice.

Again, it is discretionary time and money we are calling for here and that has a direct relationship to share advice, but this is not about inordinate budgets. The video game industry today globally is spending about 1.6 billion annually, internationally to support this business. I don't know between Sony and Nintendo last year in the US, we were about half a billion on old platforms. This is very serious money that is part of it, but it is all wasted if you haven't got great content. We are going to be there and we will be there with the right intrusive program, post labor day starting pre-sell, launching November 5. Stay tuned.

JT: What do you think in trying to establish this brand are the three most important messages going to be.

RB: In a way I would agree with Peter. I think the key message for the Xbox is communicating that it is all about great games. It is all about people having fun, entertainment in the context of playing games so you will see us absolutely focused on that.

We feel very fortunate. We have in our target audience about 65 percent awareness of Xbox, and we haven't really started our marketing push, so we think we are in a very good position for people to understand what Xbox means, to see the great games, and we will spend the money we need to enter the market place. Some of that will be in advertising, some of that will be creative promotions, but we will be there in November as well. We think we are going to have great products and we know that is what it is about and we are committed to making it happen.

JT: Kazuo, how about you? What are the take aways?

KH: I will say that as far as content is concerned I am certain in agreement with both Robbie and Peter. You have to have great content. Otherwise it does make sense to try to go out and market something that may not be up to par with consumers expect. It is the business of entertainment, and we are talking about discretionary spending. We are not just talking about discretionary spending in this industry, but there are other forms of entertainment as well. Going to the movies, buying CDs, buying DVDs, going out and having a beer and playing pool with your friends, whatever.

There is not just competition in this business, but it is also competition in terms of all the other entertainment options that the consumers have as well. We are very fortunate as we move into the most important part of the year, that just in North America, we have over 30 million loyal Playstation users that are focused on the kind of entertainment experience that the Playstation has brought to them and we will be leveraging that loyalty we have been able to establish with the consumers, and making sure that message gets across to 30 million Playstation users for their Playstation experience, and also taking advantage of the three million install base that we have on the Playstation 2 as well.

They have come to expect a certain level of quality of entertainment from Playstation and Playstation 2, and we intend to deliver on that, and deliver that message strong and hard.

JT: There is a group of people out there called PC gamers, who have been hurting a little bit lately. What does it take to get them over onto a platform. Peter do you want to take first shot at that?

PM: I think in some cases they are mutually exclusive. Part of the gaming on PCs is the drop out when you are trying to balance your bank statement or whatever else you are trying to get your mind off of, and so those puzzle games, and some of those games that have been at the heart of the high PC usage for gaming purposes will forever be there and it will be a form of that entertainment.

Once again, this is about going after the entertainment dollar, thinking about all the options out there, and if you have a better tune and a better game playing on your console, running on your forty inch television, that is what it is all about. It is not about special appeals to get them there. If this is compelling gaming to them, they are going to switch over and they are going to be doing it, and I think it is about is it or isn't it a better entertainment form.

JT: Robbie you have as much experience with PC gamers as anybody up here. What do you think it takes to convert them?

RB: I don't think that is the objective. It certainly isn't our objective. We think the markets are very different. The styles of games people play on PC are different, the genres of games people play on PCs are different. I think PC gaming is a great market place. We are going to continue to invest in that. We will come out with about twenty five titles this year which is the most we have ever come out with.

We just think they are different market places with different audiences and different needs. There are a lot of games on PC that are fabulous, exciting, and entertaining, and they just don't translate to the living room environment. We think it is different types of games for different people of different target audiences. We think it is a good market.

JT: Kazuo, have you guys talked to PC gamers at all in terms of bringing them on to PS2. What is the overlap?

KH: As Robbie said, I think we are talking about two separate markets. The key for ourselves is whether we can have the consumers that play games on their PC also say these games are fun to do it in the living room on a twenty inch or forty inch screen with your friends or family.

This is another dimension that I am getting on my PC, because these games are fun to do with my friends and family in the living room so it is really a matter of having the PC audience convert over for some types of interactive entertainment into the living room. I don't think you can suddenly have all the PC gamers, suddenly shift all the way over. It is giving them another entertainment option and if we are able to offer compelling entertainment that they believe is something they can have fun with in a community experience, then they will spend some of their time on the console as well.

JT: Our time is about up so I want to thank Peter, Kazuo, and Robbie for joining us here. Thank you for attending. There has never been a better time to be a gamer. Let's go see why.


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