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Microsoft 'Pretty Comfortable' With Economy, Expects 2:1 Dominance Over PS3

Microsoft 'Pretty Comfortable' With Economy, Expects 2:1 Dominance Over PS3 Exclusive

November 13, 2008 | By Leigh Alexander

As retailers like GameStop and Best Buy have begun to report an impact on their business from a hesitant consumer, it's increasingly difficult for the industry to feel recession-proof. Microsoft's Mindy Mount acknowledges this -- but feels the games biz, and Xbox 360 in particular, are prepared to withstand.

Speaking at today's annual BMO Capital Markets Interactive Entertainment Conference, the company's Entertainment and Devices Division corporate VP and CFO discussed the challenges confronting the industry in the current climate.

"We've seen some pretty drastic developments in the broader economic picture," said Mount. "I think everyone's rightfully concerned about how consumers may be behaving in the coming months."

In a downturn, maintained Mount, the value-per-dollar argument in favor of video games becomes increasingly salient. "Value is more important than ever before, as consumers are looking to get the most for their money," she said.

"In tough economic times, people tend to cut back on very high-ticket items like travel and automobiles, but they still want to be entertained. Video games already offer some of the most hours of entertainment per dollar than any other form of entertainment."

For example, Mount said that Xbox 360's Arcade SKU and a copy of Madden can provide a renewable football experience to a family of four for the same price as one set of game tickets, while the high cost of movie theater attendance makes watching Netflix video via Xbox 360 a compelling alternative.

"Certainly, consumers are pulling in their purse strings a little bit, and you can't help... [but] hear about companies taking down forecasts and reducing their headcounts," said Mount. "But we think that the interactive entertainment business is poised to weather this storm a lot better than other businesses."

Mount noted that in the last U.S. economic recession in 2001, the interactive entertainment business saw 43 percent growth, and she cited NPD stats predicting overall industry sales growth of 23 percent on the year to a $22 billion dollar total.

"It's not to suggest that video games are recession proof, but... even in hard times, people want entertainment more than ever, and video games offer a greater value for the money."

"But also, a lot of what the interactive games business is driven by is the cycle of the platform, where you are in the platform, where you are in price points, and the titles that are out in the market today," said Mount.

She added that, thanks to the Arcade SKU's "sweet spot" $199 pricing, the holiday blockbuster title slate and the soon-to-revamp Xbox Live experience, she feels Microsoft is "a big driver of that growth."

Mount says that by the end of this month, Microsoft predicts Xbox 360's global installed base will reach 25 million units, surpassing that of the first Xbox.

"It's a great milestone for us, but it's still only a start, when you consider that history shows that more than three-fourths of a console's sales come at a price of $199 or lower," a price point that the company reached just a month ago.

And consumers have responded; according to Mount, console sales increased 42 percent month over month, 62 percent in Europe and a hefty 500 percent in Japan. "Later today, NPD is going to release October sales... and we expect these numbers will show that we continue to outsell [PS3] by a ratio of two to one."

"We feel pretty comfortable that we're positioned well for this holiday and the months beyond," Mount said.

And following her comments at the event, Microsoft also released promising stats from its Holiday Entertainment Survey, which showed that an overwhelming majority -- 81 percent -- of homes with children are looking to buy "gifts that provide entertainment while staying home" this holiday.

In addition, 71 percent are seeking "one gift that will bring the family together," and 86 percent of young adults hope to receive a video game for a holiday gift.

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