In-depth and telling interview with Robbie Bach (MS)

[22psi]

http://blogs.mercurynews.com/aei/2006/11/an_interview_wi_1.html

Some very good info in the interview... talks about Zune, Vista, 360 (of course), overall H&E strategy, market, etc.

 

[Rangers]

Some stuff:

On the oft qouted 10 million:

Q: It???s 10 million shipped, right?

A: Yeah. In our case, it???s reasonably close to sold through. To make sure we???re clear, Sony does shipped from factory. We don???t. Our shipped means it has left a distribution warehouse in Memphis to a retailer. There is a big lag of six week to eight-week lag between what we called shipped and what Sony calls shipped. That???s the way we do the accounting.

Q: Price points for hardware?

A: Yes. The third thing is Xbox Live and the ecosystem around that and the benefit that drives for us and our publishers. Those are all things I can look at. It???s a fine debate. At some level, who knows? But those are all factors I can look at. I think we???re going to have the best game portfolio. Most publishers are doing their initial development work on the Xbox 360. That plays to our benefit. Because we are out there first, we have a bigger installed base of consoles. We can drive down the manufacturing curve sooner and faster. And because we designed a box that was fundamentally easier to manage on costs, we???re going to have that advantage. And Live has a significant advantage.

Q: Some people thought you might pull that trigger on price. When you think about that, that can hurt you financially, but it can also get you momentum. It seems like a difficult decision. You do want to make this generation profitable, but ???

A: Well, I guess you can say that. I actually don???t think in the holiday it is that hard a decision. When your competitor is supply constrained, it???s not clear what price buys you. Let???s be clear, Sony is going to sell as many units as they can ship in the U.S. I think that???s true. Given the quantities we are talking about, I???m confident they will sell all of them. I don???t know that a lower price would make a difference in the outcome. As you go out into later years, cost and price are both important issues. I???ve been on the other side of this equation. It???s a hard problem.

Q: So are you thinking about Xbox 720?

A: You know how these things work. The engineering team is always thinking about the future. Right now we are thinking about how to cost reduce the Xbox 360. That seems to be the first order of business.

Q: When do you make money on the Xbox?

A: To be clear, we have said that in fiscal 08, entertainment and devices makes money. That???s not exactly Xbox. We don???t break profit down by business. And there are parts of entertainment and devices that make money. Xbox doesn???t. Xbox has to make significant progress to enable E&D to get there. We feel we are on track.

Q: It seems like you are going to be profitable a year later than you hoped. Did things come in more expensive than you had hoped?

A: That???s a complicated equation. The group???s composition changed. We had home and entertainment. We added the mobile. We added Media Center. You have Games for Windows. It changes the division dramatically, and Zune. When we originally said that, Zune didn???t exist. You have a lot going on.

Q: That applies to the whole division as opposed to just the Xbox.

A: In the original discussions, we thought that home and entertainment had a chance to be profitable in fiscal 2007.

Q: Is Xbox behind on its financials?

A: Xbox is one the trajectory we thought it would be on. We feel very good about that.

Q: Somebody estimated that your division has lost like $3.8 billion or something. Most companies would have given up a long time before they went through anywhere near that much money. Do you guys have a blank check? Is there some point where you reach the end of the rope and somebody says, "You know, you guys have spent way too much money and we're not seeing an end to it?"

A: No. I think the things you have to look at is you have to look at, sure, the dollar investment, and the asset value that's created and then look at the P&L. You have to look at all three of those things. So, yes, the amount of investment, in particular on Xbox, has been a large number. 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. And if I look at the asset we've built, it's a different asset than Nintendo has, and they certainly have got a great company, but it's an asset that we can be proud of.

Q: A lot of investors would say, I could have taken that $4 billion and invested it and gotten a hell of a lot better return than I did from Microsoft?

A: That comes down to if someone really wants to say that, then you should say you should put your shells elsewhere. If you don???t think the management team is investing wisely, you should put your money elsewhere. The stock is over $29. The company in the last six months has performed really well. I think Vista and Office are going to pay off. I think Xbox 360 is going to pay off. Those investments come to their fruition. We probably have a longer investment horizon than most companies.