Who: Kevin McCarthy, CFO, Xbox
When: Thursday, November 10, 2011
Where: BMO Digital Entertainment Conference
EDWARD WILLIAMS: All right. While everyone is grabbing their lunches and coming back into the room, we'll go ahead and get started with our next presentation.
Next up we have Microsoft enlightening us on how things are going for the Xbox 360 at this point, and presenting for Microsoft will be Kevin McCarthy, CFO of Xbox.
KEVIN MCCARTHY: Thank you, Ed.
So, unfortunately, we're going to have start with one of these beautiful safe harbor. The legal guys say I've even got to read it. So, I'm going to do it in my best Irish accent at double speed. This presentation contains statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in our earnings press releases, in the comments made during our earnings conference calls, and in the risk factor section of our Form 10-K, Form 10-Q, and other reports and filings with the SEC. We do not undertake any duty to update forward-looking statements.
I want to talk today about a story of transformation, the transformation of Xbox from the gaming console to an entertainment hub in your living room, where we believe we're able to offer the entertainment you want with the people you care about made easy.
I also want to shine a spotlight on the content and innovation that we're going to bring to the holiday market this vital holiday period. Before we do that, this is actually an important week for us. Ten years ago, in this very city, we launched Xbox. So, it's been an amazing ten years. I want to take a quick look back.
(Video segment.)
There are some amazing memories there, and I certainly want to thank many of our partners who are here in this conference with us for helping us over that past decade. Many of you have seen this slide before. These are the consistent investment themes that we use, and we will continue to use as we approach the next decade.
We believe in the power of unique content experiences in our ecosystem. Within that, some of them are very obvious. You can only play Halo or Gears of War on Xbox. You can only experience the power of being the controller with Kinect on Xbox. Others are more subtle, you can only experience ubiquitous Netflix, and the power of using your voice to go Xbox Play, Xbox Pause, on Xbox.
We also have key apps like the ESPN experience, the ESPN3 experience, where we link you to your friends, link you to the community, and have that create a unique experience through that product which, once again, is available everywhere in the world.
Underlying all that, we believe in the power of community, and the power of your friends. This is the foundation of our LIVE product, bringing people together in an easy way, making sure that you know what your friends are enjoying, and that you're able to drop in and play with them, be it shooting them in Call of Duty, or be it watching them on ESPN.
And, finally, approachability is a key element of our business. We understood that the controller with 17 buttons was a large deterrent to bringing people into our universe. We changed that with Kinect, removing the controller, making you the controller. We also believe that this concept of approachability, and making the technology easy is what underlines our ability to give you that vision of the entertainment you want with the people you care about made easy.
So, as we come into the holiday period, how are we doing? Well, I'm very happy to say we're still on track to be the number one console worldwide this year. Don stood up at E3 and made that statement, and with the NPD results that are going to come out this year, or this today, you'll see that still in the U.S. we are the number one console. Kinect is a year old this week. We're delighted with what we're seeing in this product.
We now understand that we need to move beyond the early adopters, and bring this to the mass market, bring this to the families, bring this to the people that want to have that different experience. And, finally, our install base, at the end of our Q1 earnings, it stood at 57 million. We're rapidly approaching 60 million, and so that is a huge asset for us to have, 60 million consoles in people's houses being used.
But, underlying all of this is LIVE, our core asset. I was involved in LIVE back in 2002 when we started this product, and at that stage we believed that what the key thing for LIVE was going to be was being number one in the world. Being the number one in the world Halo player, being the best PGO racer. We figured out very quickly, like three or four weeks into it that that isn't what people wanted to do with LIVE. What people actually wanted to do with LIVE was play with their friends, connect with their friends. And so we repivoted the service very early in its existence to focus on that, to set up chat rooms where you can find your friends, and you can play with them.
Then, in 2008, we introduced the next Xbox experience. This is where we brought the first vestiges of entertainment to Xbox. You can see the difference that that has made to the adoption curve of our product, moving from 13 million members to the 35 million members we have on the service today. And, in addition to that, it has moved beyond gaming. As you can see from the stats, over one-third of the time online in the U.S. for LIVE is now spent in entertainment applications not gaming. And that has grown over 100 percent in the past year.
So, as we look towards the holiday, these are the five categories that we believe will help us win this vital holiday period. Obviously, we're a core gaming company, blockbuster games are at the heart of our base. And so, we believe that in Xbox is the only place where you can play all the key core games of this year. We're happy to announce that we're going to have 75 Kinect games at the end of this holiday, over four times the library that was available last holiday.
As we announced at E3 and as we followed up within the last few weeks, we're bringing over 40 entertainment partners, content partners, media owners to the Xbox, where it's going to be fully Kinect-enabled at this holiday.
And, to get through all that content, we're bringing Xbox, Bing voice search to your living room, the power of search from your sofa, just leaning back. And finally, we're redefining the way the world works, and understands and interacts with entertainment. If you've seen the UFC app it is a fantastic application of this. All the information that is out there on the Web we bring to you as soon as you sign up for a fight. The history of the fighters, their form against each other, what the fan-base is saying about it and then once you actually get to the fight itself, you're able to react to polls, predict the next move, predict the next round, talk to the other players, the other fans of it. Changing the way you interact with entertainment on your TV.
Let's dive into each of those elements. Here are some of the key games that we have coming this holiday. We obviously started with Gears back in September, the number one console exclusive title for the year. We sold more than three million units through in that first week. We've got another anniversary coming next week with the launch of Halo: Combat Evolved. Ten years ago we reintroduced the world to Master Chief. It's an interesting fact to think that we sold approximately 25 million Xbox V1s. As I said earlier, we're rapidly approaching 60-million install base on 360s. That means 35 million people have never had the opportunity to play the first Combat Evolved, to understand where the story comes from.
One of the features I love in this game is at any stage you can press the back button on it and it will take you back to what the game looked like back in 2000, 2001. I have to say, when I was playing the game back in 2001, I thought it was the pinnacle of gaming. When I look back now it's shocking to see how far our industry has come. It's like watching SDTV after you're used to HDTV for a few years. Then we obviously have our key third party titles. The largest game of the year is going to be Call of Duty. It's off to a great start. We're delighted to partner with Activision, and to partner with Skyrim on how to make sure there's key exclusive content only available for a limited time on 360.
Then with our friends in EA, great franchises, with Battlefield, FIFA 12, where we bring the power of live to that experience and help you connect with a friend.
Finally, what I think is the most beautiful game of the year, Forza. I'm a big car guy, so I love my car racing. But, this game is simply stunning. It's the number one racing game on Amazon, and beautiful interaction, or integration of Kinect.
When I'm racing this game I want to have a controller in my hand. I need to be able to feel the backend of the car slip out as I'm going around a corner. But, I do love the fact that I'm able to use Kinect to give me head tracking so I can actually see around the corner, or when I'm in auto-salon mode to sit down, hunker down and look around and enter these cars, these beautifully, perfectly detailed cars that are just stunning to look at. Let's take a look at Forza.
(Video segment.)
Moving beyond the core, as I said, we're bringing over 75 titles to Kinect. We started with updating Kinect Sports 2, bringing six new games, six new sports for you to enjoy with all the family. Then we brought the most highly anticipated game in our house by the seven-year-old daughter, key category anyway, Kinectimals with Bears. We're also partnering with some of the largest IT owners in the world. Sesame Street, Disneyland, and Star Wars, helping them to reimagine what they can do with those beautiful pieces of intellectual property, those beautiful pieces of content, by making them more interactive for the whole family and for core gamers like myself.
And finally Dance Central 2, another highly anticipated game in my household where my wife and daughter can beat up on me and absolutely show me what it takes, that I can't ‑‑ Irish accountants are not the best dancers in the world. It's very important for us, though, to make sure the people understand what is Kinect. Early adopters understand it. I still have conversations. I had one today, where people go, I just got a Kinect, and I actually can't believe it works the way you said it was going to work. So, this is a very important aspect for us and this is something we're trying to get across in our advertising.
(Video segment.)
I see this slide and all I can say is, wow, what a collection of the worlds' greatest content owners, content providers, and media companies coming to our platform. We're partnering with all these key owners to make sure that they get our technology stack integrated, so that saying something as simple as Xbox play, Xbox pause just works for consumers. We're also taking some of them and creating reference apps against it. What we've done with BSkyB in the U.K., where we've changed the way the electronic programming guide is represented. So, you can actually see what your friends are watching and drop into a football game with them.
But, with all this content comes an overwhelming array of our overwhelming desire to find it. Many of you, I'm sure have searched for movies using your TV remote control. It can be a frustrating experience, is it X-space-Men, X-dash-Men, Xmen one word? What way do I spell it? It's much easier to use your voice.
(Video segment.)
So, that's our content lineup. However, we're not stopping there. We also want to change the way you interact with LIVE. And so therefore we're launching this holiday a revised UI experience, leveraging the Metro design principles that have been so warmly reviewed on the Windows Phone 7. And will also be part of Windows 8. This consistent experience across many devices will deliver what we want, which deliver to you the delightfully appropriate experience for the device you're on. I'm a core gamer. I get up at 4:00 in the morning, to play Assassin's Creed before I go to work. That's not what I want to do on the bus.
On the bus I've got 10 minutes, I want to play Angry Birds, I want to play Plants Versus Zombies, because it's quick, and it's over. But, I do want my phone to recognize who I am. I want to get the achievements from my phone. Then when I go to the office I want to listen to the music in the office that I have on my phone. I don't want to have to dock a device. I just want it to work. I also want to manage my play lists from the desktops. It's easier than doing it on the phone. When I get home I want those play lists to be on my Xbox.
This is our concept of made easy. We want to remove the technology from in front of you. We want to do that work. It's hard work, but that's what we want to do, just so that you as a consumer can have the entertainment you want made easy. But, it's not all about gaming. With Kinect we have released the revolution. We left that as an open platform and the world has embraced it.
We've got a commercial pilot in place with some of the largest companies in the world. Toyota, Houghton Mifflin who are going to use it for interactive reading; Razorfish who are going to use it for interactive advertising.
I was just in Asia last week, and I saw two fantastic examples of what can be done with Kinect. A hospital in Australia that is using a very simple Kinect game to assess the severity of strokes on the basis of how quickly or how well a stroke victim can follow a dot on screen.
And then, the Antarctic Scientific Foundation, the Antarctic Scientific Foundation, who are buying Kinect to bring to Antarctica so that the scientists who have to stay indoors for six months of the year can actually continue to get their fitness levels where they need to be. We're very excited about where we can go with Kinect.