What do you think Microsoft could be doing better right now?

PM: The only thing after this week is that we've got to continue to accelerate and broaden our reach into the broader market. We've been making a lot of strides, and I know that we have some announcements between now and the holiday that we've kept for Tokyo Game Show, and I think it's going to be very important that we reach.

As much as we love our hardcore guys -- they're going to love Halo 3 and Grand Theft Auto IV and all of the incredible games that we've got -- at the same time, we've got to get fun back in the living room on our platform. We need to accelerate that reach. That's the only thing we're looking at, in terms of what our competitors are doing. I think Nintendo is doing a phenomenal job in providing that fun, unexpected experience, to their credit.

Can you say what kind of steps you're going to take?

PM: It's things like more content that's going to take advantage of the new controller. The new controller's doing great for us because it's simple and relatively inexpensive.

You mean the one with [quiz game] Scene It?

PM: Yeah. That'll come bundled with the game, and you can bet that there are going to be more games that are going to take advantage of that controller. That takes a little bit of the intimidation factor away. Typically, when you pass a controller to someone who's not a gamer, they don't even want to touch it, because look at all those buttons and pads and sticks and triggers. The thing's damn complicated. We wanted to do something for anyone who could use a remote control with a TV, which is just about everybody.

It can be tough to launch a peripheral and make it mainstream and large-scale.

PM: That's why we're bundling it with a game. The game is compelling and has a great price point, then our job is to take advantage of the install base so as to not just treat it as a peripheral. But we sell millions of wireless controllers, so the peripheral business is very strong. It's going to be the question that the guys behind Rock Band or Guitar Hero are going to have. It's a fabulous experience, except when I'm playing guitar! We hear a lot of interesting things from the community.

There was a community gathering here last night, and I don't know if you heard this, but I was asking the community because we were demoing Guitar Hero, and they're finding people on blogs who are asking, "Who wants in?" They don't know how much Rock Band is going to be, but there are groups of four people coming up with plans to buy the peripherals and forming their bands virtually. There are blogs saying, "I'm in for guitar if anyone's in for drums." I don't think they know, and I know that MTV has announced the pricing yet, but it's not going to be cheap.

The drumkit's not going to be cheap, that's for sure! The thing about that is that it's going to teach you to play the drums. The guitar is not going to teach you to play guitar, but this is the interface.

PM: Harmonix had in a number of bands that have real drummers, and they had difficulty adjusting. Drums have a rhythm and touch that they've found difficult. My Chemical Romance loved Guitar Hero, but the guy says, "I can't play my own song in the game because my fingers want to go somewhere else." It's fascinating.

How important do you think the online platform is to the future success of all of the current consoles?

PM: I think it's pretty darn important, from the point of view of bringing communities together. If you're looking for the concept of building business models that help the industry and help get money back into development -- which is not inconsequential, given the costs of working on high-definition games -- you've got to find different ways of connecting people so that you can advertise to them, do sponsored downloads, and sell them extra content.

The offline model simply is insufficient in this connected world. Having a rich online community that has critical mass is going to be very important, not only for the people who connect to us to buy games, but for ten million people who we can talk to, advertise to, and sell to. It's going to be absolutely critical.

Are you at all interested in having a social networking front-end? I'm not talking exactly like Home, but Nintendo has its Miis, which is a half-stutter step.

PM: Well, I'd like to think that seven million people connecting, talking, and playing is pretty darn good social networking. We built up the front-end to let people say, "This is who I am. This is my Gamerscore. These are my Achievements, and this is what I'm playing right now. You can be my friend." You've got the rudimentary things that you need as a gamer to understand what the social network is.

I think ultimately, you'll see us look at things like connecting through spaces and things like that, but we're going to say, "Let's be careful." If I opt in to give you information about me, in my case, I would have no issue. I have an MSN Space, and I could potentially link you to that, so you could see more about me, figure out where I live, and how old I am. I'd learn a little bit more about you, particularly about what we're playing on a particular basis.

I personally think that the Gamerscore and friends list things are among the most important, and I'm curious as to why not everyone else thinks that.

PM: Friends lists for us are a very sticky application. The more friends you have, the less chance you have of going off the service. That's a standard numerical fact. We let people build friends lists because you have your social network there, and if you like to play with these people, you can become a Gold member. It's the old AOL model -- back then, you were scared stiff of losing your AOL e-mail address, because the only way you could have the Internet was through AOL. It made it easy for you.