In a newly published interview with the San Jose Mercury News, Microsoft entertainment and devices division president Robbie Bach discussed the company's attempts to break into new markets with the Zune portable music player and its television content over broadband networks service, IPTV. Naturally, Bach also spoke about Microsoft's last big push into a new market with the Xbox and its follow-up, the Xbox 360.
The Xbox 360 started the transition to the next generation of gaming systems with its release in November of 2005, and was recently joined in the market by Sony's PlayStation 3 and Nintendo's Wii. While some expected the software giant to drop the price of the Xbox 360 to steal some thunder from the new arrivals, Bach told the Mercury News it wasn't a tough decision to keep the system's two versions at their launch price points of $299 and $399.
"When your competitor is supply constrained, it's not clear what price buys you," Bach said. "Let's be clear, Sony is going to sell as many units as they can ship in the US... I don't know that a lower price would make a difference in the outcome."
Despite that, the cost of an Xbox 360 is still a big concern for Microsoft. When asked if Microsoft was already cooking up the next generation of the Xbox line, Bach said the engineering team was always thinking ahead, but the "first order of business" was to get the manufacturing costs of the 360 down. According to a recent survey by electronics-research firm iSuppli, Microsoft is currently turning a $75 profit on each 360 unit, up from a $126-per-unit loss at launch. Microsoft's Xbox division has lost money every year since its inception, but Bach previously said he expects it to turn a profit in the company's 2008 fiscal year. According to the Mercury News, the Xbox and Xbox 360 have cost Microsoft a net loss of $3.8 billion to date. The paper then asked Bach if there was any limit to the amount Microsoft was willing to spend to establish itself in the gaming world.
"The amount of investment, in particular on Xbox, has been a large number," Bach said. "So, compare that to the alternatives and some of the alternatives would have been, 'Well, go buy somebody big.' So, you could have looked and said, 'Go buy Nintendo.' And Nintendo at the time would have been a $15 billion acquisition. So, by any stretch of the imagination, a much bigger investment."
Finally, the paper brought up the hit Halo franchise--recently expanded with the announcement of its first spin-off, the real-time strategy title Halo Wars--and asked why Microsoft "hasn't exploited Halo the way that Electronic Arts would."
"The balance we have to strike with a property like Halo is taking advantage of the intellectual property itself and not wearing out the franchise," Bach said. "Electronic Arts has an advantage in a way with sports where it is self-renewing. And it's not even their doing. It's the nature of the sport, with new players, new stadiums, and new teams.
"In something like Halo, you have to look at how do we maximize the intellectual property. We could do eight things, but that's probably too many. It's also important for us to have more than just Halo. That is why Viva Piñata is important. That's why Forza Motorsport 2 is important. It's why Project Gotham Racing is important. It's why Gears of War is important. It's important for our first-party group to have a range of titles."