Earlier today, Microsoft stunned the game industry by announcing that it is extending the manufacturer's warranty for the Xbox 360. Instead of the 90 days the console came with initially, or the one-year warranty it was later upgraded to, now every 360 has a three-year warranty for the dreaded "red ring of death" error. The warranty covers all expenses and every console sold since the 360's November 2005 launch.
Though gamers are debating the motivations behind it, there's no debating that the warranty extension is unprecedented in game-industry history. It also isn't cheap. Just before revealing it barely missed its 360 shipment target, Microsoft announced it would take a $1.05 to $1.15 billion hit to its April-June earnings as a result "for anticipated costs under its current and enhanced Xbox 360 policies."
Shortly after the announcement, GameSpot spoke with Peter Moore about the recall. Besides being the corporate vice president of the entertainment and devices division of Microsoft's interactive entertainment business arm, Moore is also the Xbox 360's most public spokesman. However, instead of the bravado he displayed at Microsoft's E3 2006 briefing, the usually outspoken Moore was contrite, sounding genuinely apologetic as he explained the new 360 warranty--and its repercussions.
GameSpot: So, Peter, I hear you have some pretty major news for us...
Peter Moore: Alright, let me take you through what we're announcing. So, I don't have to tell you guys how strong the  business is, and I think you're going to see proof of that next week at E3. But before we go into E3, we want to make sure that we take care of something that has certainly been on radar screens around the world, and you guys have covered it, and that's the area of quality. We've had a number of Xbox 360 console repairs that have been unacceptable to us over the past few months. So, we've investigated the issue here in Redmond, and we've identified several factors, not just one, but several factors that can cause the general hardware failures indicated by the all-too-familiar three flashing red lights on the Xbox 360 console.
So, here's what we're doing about it. We've made improvements to the console itself that we believe will reduce the occurrence of these issues, and we're also implementing an enhanced warranty program to cover the general hardware failures that are indicated by the three red lights.
We're announcing today a specific warranty coverage that extends to three years for any console that displays a "three flashing red light" error message. So if the customer has a "three flashing red light" issue, we'll repair the console free of charge. Now, that's including shipping, for three years from the purchase date. So, whenever you purchased it, you've got a three-year warranty from that date for this particular issue.
On top of that, we're retroactively reimbursing any customer who paid for out-of-warranty repairs related to this error message. I want to be clear. I think you guys know this, this is not a safety issue for consumers, and what we're doing is a voluntary decision on our part. Obviously, there's a cost to this, and we're announcing this afternoon that we're going to take a $1.05 billion to $1.15 billion pretax charge to earnings for the quarter ended June 30, 2007, for what we believe are the anticipated costs under the current Enhanced Xbox 360 policies.
A final statement I'd like to make is we stand behind our products and are taking responsibilities to ensure that every Xbox 360 console owner continues to have a fantastic gaming experience.
GS: Well, that's absolutely phenomenal news for 360 owners worried about their consoles dying. But obviously a company of your stature doesn't take such moves unless something prompted it. You said there was a variety of factors, do you care to identify any of those?
PM: Not really. It's not really material. The fact of the matter is, as you guys know, and I know painfully well over the last few weeks with the e-mails that I've got, that we haven't done right by our consumers with this particular error. It's a hardware failure error. I don't have to explain to you guys what it is, but we're doing the right thing--at no small cost, obviously--but we believe this is the right thing for our consumers. We also believe that the majority of Xbox 360 customers are having a great experience, and it's important we take care of the people that we've been a little slack in taking care of in the last few weeks. This is to put things right. They're a loyal, passionate bunch--I don't have to tell you that--and we haven't lived up to their expectations recently. We need to change that.
GS: So just to be clear, this is retroactively affecting all Xbox 360s from the beginning production batch onwards?
PM: That's correct. If you've already had a "three red light" problem, and you paid us to fix it for you, we're going to give you that money back. And if you purchased one last week, or the week before, you've got three years of warranty to cover this problem.
GS: The announcement makes it sound like it's only for 360s purchased before June 30, 2007?
PM: No, no, that's our fiscal year. This is an Xbox 360 warranty enhancement program. So you get a three-year warranty and it covers the three flashing red lights. So even if you bought it on launch date, you get three years from then.
GS: Now, is this going to apply to all 360s being made going forward as well?
PM: Yeah, this is a warranty program. We've got to fix this problem, and it's not just a one-time up until this date we'll take care of the ones in the past. No, this is a three-year warranty effective immediately.
GS: Do you foresee you changing this policy any time in the future?
PM: Right now, no. We need to take care of people. Changing it doesn't take care of people.
GS: Now, the problems that prompted this thing, have they been mainly affecting regular Core and Pro 360 packages? Have the Elites been less often?
PM: I think that's fair to say. It's been the Core and the Pro that have been obviously the huge bulk of what we have in the marketplace. Obviously, we've got over 10 million sold through of these things, and as a result, we're seeing a level that's unacceptable to us of returns with the three red lights, and we need to do something about it.
GS: Well, it sounds like you definitely are now. But what about 360 owners who've been experiencing these problems for months, or even years?
PM: The only apology I can make to a consumer that's been affected is we probably should have been a little quicker. But they've got to understand the complexity of gathering the data and figuring out exactly what was going wrong. It's taken us a little while to put fixes in place and get global call centers all up and running. The good news is, we're up, we're running, and we're ready to go.
GS: Can you identify any hardware fixes in particular that you're using to remedy the problem?
PM: Not really. I'm the wrong guy to start talking about the complexities of technical enhancements to the Xbox . We've been watching and gathering data and trying to figure out exactly what this is, because it's not easy to pin down. But the team has been working on it, we have a lot more optimism now that what we've got going forward is going to cause less problems. But boy, we've caused problems, and we need to take care of it.
GS: Now, obviously this announcement is going to produce a very big response. What steps are you taking to kind of prepare yourselves for the onslaught of customer service requests you're going to get?
PM: It's a challenge for us because this is a global announcement, not just the United States. So, the teams have been readying. The interesting thing is, it's not easy to let a lot of people on the ground know of an announcement of this magnitude, for us to be able to ready our customer service centers around the world. The only thing I would ask is that consumers give us just a little bit of slack here over the next few days as we get ready to go. We've been training staff as we speak and making sure that we're up and running as fast as we possibly can on a global basis.
GS: Now, has this been prompted by any certain title? I know there's been reports of Forza 2 bricking systems...
PM: Nothing to do with software, guys, nothing to do with the titles. It's a general hardware failure, it's not a title. I know there's been some rumblings in the last two days about Forza 2, and I scratch my head at that one because that is simply not the case. This is a general hardware failure. That's when the three flashing red lights come up, and we need to take care of the hardware.
GS: How long can somebody expect to get a new console once they--once they submit a broken 360 for repair?
PM: It's going to be weeks not days, but as I say. If they just have a little bit of patience here, we're trying to do the right thing. It is a global roll-out, and as soon as we humanly can, we'll get them their new consoles.
GS: So, you guys, you mentioned call centers. Have you also set up new repair centers to deal with this?
PM: Not necessarily, I think we've got the infrastructure we got in place, but this is a very large policy change, and it's going to require agent training and stuff of that nature, and repair and refurbishment centers are ready to go. So, it's our goal to make this as painless and as fast as we possibly can for the consumer.
GS: Will the number of problems go down in new production batches of 360s?
PM: That's certainly our goal. We continue to make announcements and improvements as you always do with hardware as you go into the cycle, and I think we're already going to see some better results, certainly starting with the Elite. So, but no matter what happens, the key here is if a problem does occur, we're going to take care of you. OK?
GS: Yeah, that's pretty comprehensive. It's rare for a company to be this forthright about their missteps, so you'll probably get some good feedback on this...
PM: Yeah, I hope so. The only apology I can make, if we've caused anybody any pain, then hopefully we can do right by them as quick as we possibly can.