GS: Given that a hard drive is necessary for this, is there any movement within Microsoft toward always bundling the hard drive with the console? It seems to be one area where Sony is taking the lead in terms of developers utilizing that.

SK: No, I think we feel pretty good about the strategy we chose to go with for the Xbox 360, which provides more choice to consumers. Developers need to address the fact that there will be scenarios where there won't be a hard drive, but for a lot of customers, the premium they would pay for the 60-gig version of the PlayStation 3 -- or even the Xbox 360 -- is pretty significant.

We're all trying to get to the point where we will generate volume to win this generation, and you have to reach the mass market. For a lot of those people, it's going to be more about price point than it's necessarily going to be about having a hard drive, so we want to be sure that we can address their needs in terms of providing choices for them. We feel great about the strategy we have chosen.

GS: Do you know how many core systems are being sold versus premium systems?

SK: Yeah, we do, but we don't talk about that publicly. To be fair, I think at the price points that we're at, we're talking more about the core gamer audience. They tend to gravitate more toward the hard drive than even the people who are buying the core system who see value in terms of adding storage capabilities. The hard drive accessory has also been very successful. But we certainly believe that that composition will change as we drive more and more into the mass market. Having that choice is a good advantage for us.

GS: Why was the Live Arcade size bumped from 50 megabytes to just 150 megabytes? It seems like a very small step up, considering the availability of large memory cards now.

Konami's Castlevania: Symphony of the Night, among the first titles to break the Live Arcade 50MB file size limit.

SK: It's three times the size! One thing that we're trying really hard to make people understand is that 50 megabytes has been plenty of room for a lot of people to operate in. What we want to be careful about is that we don't want to see a flood of big games before peoples' storage or bandwidth are available to handle that.

Now, we're obviously testing in other areas with the Video Live Marketplace, and so forth. That is, as you start to see bigger and bigger content we'll be able to push that, but today we feel pretty good about bumping that from 50 to 150. I think the vast majority of people are still going to hover around that 50 megabyte limit, even though there's more storage available.

GS: It just seemed a little arbitrary to me, since you can already download things that are so much bigger, and I don't think that anyone minds doing that.

SK: For the audience, especially when you think about going into the mass market, as we add more content to Xbox Live Arcade -- which is something that we absolutely have to do -- more of that content will be targeted toward a broader audience. You will look at people who will not want to deal with long download times, because if you want to download a hi-def movie, that takes a fair amount of time to do. Which is okay for a big movie experience, but for a lot of people who want quick and easy, in-and-out entertainment experiences like you can get on the web today. For example, they're not going to want to spend that much time downloading. So I think that's where the balance trick comes in.