BS: I definitely think it's an intriguing device. I was doing an interview recently with Jenova Chen from thatgamecompany. You know, they do flOw and Flower and all that. And basically, he was talking about how he envisions that in the future, you won't actually need a controller to play games, and you'll be able to have facial recognition, and your friends will see you moving as you would move, and then a couple weeks later, there's this. It's kind of interesting. I wonder what someone like Chen would be able to do with it.

SK: Well, it would be a great follow-up thing to, you know, go back to him now and say, "Okay, you've seen the Natal stuff. What do you think?"

BS: One thing that I found funny from Sony's press conference was the claim of Final Fantasy XIV being a PS3 exclusive when it's also showing up on a Microsoft platform, PC. [laughs] What is the importance of an exclusive nowadays? Does that even matter anymore?

SK: Well, I still think exclusive content is really important. First of all, in games, we've said for a long time that a key part of our strategy with Xbox 360 was a level third-party playing field. Now we've effectively done that with Metal Gear Solid coming to the Xbox 360.

The economics are such that third parties also have to support multiple platforms, and you can't ignore Xbox 360. It's the second leading platform. It's too much of a business-driver to just be focused on a single platform if you're not a first party. So, it's up to the first parties to deliver the bulk of the exclusive game content.

Now, we're having success with third parties because we can still get exclusive downloadable content, because of the service we've built with Live and the business we've been able to generate for third-party publishers there. But I also think we have to broaden our definition of exclusive content, now. It has to include things like Xbox Live, because I do think Xbox Live is a real competitive differentiator for us.

And now Project Natal is going to be an exclusive thing, too. And so, we feel good about how that's shaping up, but it's really not about relying on third parties, because I don't think that that is sustainable, as we've proven. And it's up to each of us to differentiate on our own.

Kris Graft: If I could jump in before we get totally off Project Natal -- what is the third-party publishers' reaction been to it? A lot of them probably just officially found out about it this week, right?

SK: That's not true. Actually, we took it on the road a couple months ago to show our third-party partners.

KG: Okay. So, how's the reaction, then?

SK: They've been super positive. And that was important for us, because that was the first time we disclosed it publicly, if you will, to people outside of Microsoft. You know, when you're so close to it, you sometimes don't know how great it is or isn't.

And we all thought we had some magic on our hands here, but it wasn't until we went on the road to show third parties -- and we showed people outside of the industry, which is how Steven Spielberg got involved in it as well -- and they validated sort of that Spider Sense that we had about what we potentially could create with Project Natal.

In this week, we shipped development kits to people, so they will get their hands on those and start to imagine and design experiences that are specifically centered around Natal functionality.

KG: When you told them, like you called them up on the phone, "Hey, this is Xbox. We want to show you a new camera for games." Is there any apprehension about that or skepticism?

SK: That's not how it works.

KG: Okay. [laughs]

SK: As a platform owner -- at least what Microsoft does, I don't know about the other guys -- we have very extensive and close relationships with third parties, so we go to visit them very regularly. So, we did those in the context of one of those regular road trips.

So, it wasn't like, "Hey, we've got something new to show you." But as part of those visits -- it was to an exclusive group, you have to keep in mind, because we were trying to keep this under wraps as much as possible, and I think we did a pretty good job of that -- we showed them in the context of that. It wasn't like, "Hey," we chatted on the phone, "Guess what, John Riccitiello? We've got this cool..." you know.