GameDaily BIZ: Let's talk about the news, which I'm sure was very encouraging to Sony, namely Toshiba finally saying, "we're out" on HD DVD. So now it's looking like including Blu-ray in the PS3 was a wise choice. How much do you anticipate that news, and the fact that people now know Blu-ray is THE next-gen movie format accelerating PS3 sales?

Scott Steinberg: I think it's huge. I think it's huge for us and it's significant to our competition. I think once the standard battles subside as they have, I think the opportunities for us at retail increase; instead of trying to support two systems and platforms retail now focuses on Blu-ray, both as a video game platform and as a consumer electronics device. The movie studios now get behind Blu-ray and start promoting their movies on Blu-ray and that becomes part of their lingua franca, their manner by which they market. It just winds up escalating the installed base growth. Even if we look at PS2 owners who were on the fence or sidelines waiting, "Do I upgrade? What's with all this Blu-ray? I don't want to buy a dead format" – it gives them every reason to jump into marketplace. So I think it's a huge win and it gives us a lot of momentum and also gives us momentum to stop talking about standards and start talking about games.

BIZ: Were you at the Microsoft keynote?

SS: No, I saw some of it on the web and caught some recaps of it.

BIZ: I just wanted to gauge your reaction to some of the things they announced, like their XNA based community Live games that they're launching later this year and that user involvement, having a Creator's Club and allowing aspiring developers to create these games and to share them with others, and we as gamers get to check them out and rate them. What is your opinion on a service like that?

SS: Well I think it's something that we've been doing, with a different flavor, for the last couple years with the PlayStation Network. I think it also goes back to our different approach, style and strategy to online. We don't charge; we make that content available to everybody and, of course, with the subscription model before a consumer can have your game shown you've got to pay a monthly subscription fee to get online. So that openness and accessibility I think is more representative of what we're trying to do in building games. We've been building games specifically for the PSN from the beginning of the system, so I think it goes back to some core tenants around accessibility and openness which I think, candidly, we represent more than a subscription based model for an online service.

BIZ: What is the growth path for PSN in terms of how fast Sony is going to upgrade its features. Obviously, there are a lot of people clamoring for an in-game friends list and all sorts of things like that and at some point, they want to see movies available either for rent or purchase through the service and even just the interface, the user friendliness of being able to navigate... when can we expect an overhaul?

SS: 2008. I think it's not a shock to think of 2008 as important for two reasons. One, the software lineup, the standards discussion is past us. The software lineup is here. I think we're at the point to say we're ecstatic about what we have in 2008. It's finally to the point where there are no standards uncertainties, so consumers now can evaluate us on the skills and attributes of our lineup, and we've got an incredibly diverse lineup. On the network side, we've stated that we're in a closed beta now for Home, we'll be rolling out functionality later this year, both for the Network and making Home public to others. So 2008 is going to be the year where both on the service side as well as on a Blu-ray side, you're going to see everything that we've got. And what's interesting to me is that the Blu-ray side represents such big blockbuster type games and the Network has the potential for startup products, entrepreneurial games that are smaller, more affordable and I think represent a different kind of creativity than the Uncharteds or Resistance 2s or the LittleBigPlanets.

BIZ: Regarding the PS3 SKU strategy, there's been some talk about the 80 GB model possibly being phased out from some of the rumblings we've heard and that Sony is looking to possibly put some more distance between the 40 GB and some new model that might come out, maybe packed in with the Dual Shock 3... but it seems like there's been so much change over the last couple years; first you had the 20 GB and the 60 GB and the 40 GB and the 80 GB. Doesn't that lead to consumer confusion to have so many different SKUs out there?

SS: It hasn't hurt Apple. Our strategy at the end of the year was to offer up a $399 40 GB, which we thought was the magic price for a Blu-ray machine and then a $499 80 GB. What we were surprised to see is that $100 really didn't matter to a certain customer. Our sales were fairly equitable according to TRST and our internal numbers through the holidays and even into January; we're pretty dry on the 80 GB as a result of us underestimating the demand for the 80 GB and thinking that most folks, because the price message was such a big part of the pundits and the analysts decrying the differences between the 360 and the PS3, [would prefer the 40 GB]. Reality is the price wasn't that big of a deal and $499 sold a lot more than we thought, so the 80 GB got dry at retail not due to us artificially compressing it but the demand became greater than we thought. So you'll see us replenish these in the marketplace. We're still committed to our current strategy and there is much to do about nothing, I think is the way to think about it.

BIZ: So the 40 GB and the 80 GB... those are the two that are going to stay on the market, and there's no plans to swap one out for another?

SS: I don't know about the long term. We're looking at the marketplace and I think if the business can support two, we'll continue to do that but what we're seeing is that the hardcore guys have gone to the 80 GB and they value that extra hundred dollar worth of features and the more casual consumer, we think has gone to the $399 because they're a little bit more price conscious. We're still talking to our retail partners, we've got a big retail meeting next week in Scottsdale and we'll continue to take our learnings from the last couple months and we're formulating our strategy on how the hardware roadmap looks for the balance of the year.

BIZ: I would think though that you would want to include the Dual Shock 3 as sort of a standard controller once it does launch this spring...

SS: Well, peripherals are going to get a much better focus from us – 2008 in addition to being the year of the software and the network will be the year of the peripheral for us. I can't comment on pack-ins versus standalones. I think there's probably good arguments for both scenarios. We haven't really announced an exact ship date for the DualShock 3, but we've got some great games that are being suited up for it and we hope to have enough volume so that we're able to meet demand. [The week right after GDC, SCEA confirmed the DualShock 3 for April – Ed.] The DualShock controller is one of those emblematic devices we've had to represent the PlayStation universe. So we get all that, and making the right decisions to maximize the business and make sure it's successful to gamers who want it.