BIZ: The iPhone has gotten hugely popular and Sega has been there from the start with Super Monkey Ball (SMB). How will iPhone change mobile going forward and what impact is the new 3G iPhone having on Sega's mobile games division?

SR: It's important to understand how successful SMB has been. About 10 million apps have been downloaded since the app store was launched and Apple has sold a million 3G iPhones. SMB is the #1 app to date, so we're thrilled about that. And we're thrilled about the partnership with Apple and the support they've given us. How will iPhone change things? I think it's going to be interesting. It's a device with unique functions like the accelerometer and the tilt-technology... Is it a phone? Yes, but should we treat it like a mobile gaming device like the DS and PSP? Yes, I think so. In terms of how we approach development, we're now going to have to consider the iPhone. Having said that, there are a lot more smart phones from other manufacturers as well. It isn't just about iPhone now; it's about the next-generation of mobile phones. Sega has been in the mobile phone business for a long time, and over the last couple years we've been building our capabilities in the West as opposed to previously focusing in the East. We're really pleased with iPhone. Yes, we're going to have to consider our development when we're bring something to the DS – should we be bringing that content to the iPhone and other smart phones and PSP? Again, it depends on if it's right for the product. Yes, I think its shaken things up and we're excited to be at the forefront of it.

BIZ: The economics of it for Sega must be great. $9.99 for a game and it couldn't cost that much to develop for iPhone. I would imagine the risk is fairly low and you can get a big return.

SR: The cost is obviously different compared to PS3/360 development for sure. Yeah, I think the model is interesting because the publisher sets the price. We charge what we think consumers are willing to pay for the experience. In some ways, it puts the control back on us. However, it's early days. The app store has only been up a few days. Is it going to be a long-term viable platform? We don't know that yet. On first look, it looks great.

BIZ: Let's talk a bit about Sonic. He's still Sega's "mascot," if you will, but I don't think it's harsh for me to say that the games in recent years have just not been any good.

SR: Don't mince your words. [laughs]

BIZ: Aren't you concerned about the brand though when game after game is mediocre at best?

SR: Some of that criticism is probably warranted. We definitely recognize that a franchise that has been going as long as Sonic, you really have to put a huge amount of effort in to make sure that you maintain that quality, and arguably a disproportionate amount of effort. However, I would say we recognize it, which is why you're seeing us this year taking the first steps in making sure the quality is right, and we're constantly looking at innovation. We can't just stand still with Sonic; we've got to be looking at different ways to develop the character, different genres, and so on. Chronicles is a great example and that's a Western developed title. So again, trying to address the quality, if you're going to put Sonic in his first RPG experience, who do you go to? Bioware, the world leader in making RPGs.

I think the Sonic next-gen experience in terms of quality, that was relatively early in the next-gen cycle when lots of developers were just coming to grips with the technology. It's not a huge surprise when you try to get something out for launch or thereabouts and the quality is not optimal. This time around, with Sonic Unleashed, we got a great new engine, the Hedgehog engine, and that allows us to truly deliver the Sonic experience as it arguably should have been on the next-gen – you know, blending classic 2D gameplay with 3D, beautiful landscapes, rich environments. Then with a nice innovative twist, we're taking Sonic in a different direction, slow him down and he transforms into a "Werehog." And that changes the gameplay again. For fans of Sonic that have been looking for a next-gen experience, this is the game they've been waiting for.

So your point [about quality] is a fair one, and it's a challenge to Sega to make sure we're pushing and making sure the quality is there with Sonic. Do we get concerned about it? Yes, of course we're always concerned about how we're developing that franchise. And a lot of time and effort is spent discussing how we develop Sonic.