Michael Pachter, Wedbush Morgan Securities

First-party titles are important for differentiation, but some of the biggest differentiators over the last cycle were third-party exclusives. Your question (and N'Gai's column) seem to mix the two, with BioWare and Bizarre always third-parties that provided exclusives. I understand the logic that says that EA and Activision won't allow exclusives, but for a price they will. Remember, GTA was always a PS2 exclusive, and it was a third-party title. Also Metal Gear will be a third-party exclusive for PS3, so where there is a checkbook, there's a way.

The only first party loss is Bungie, and I think Microsoft has gotten itself a first look at all future Bungie products. Remember, Microsoft "owned" the Bungie name, and gave it back to the studio. There must have been some quid pro quo, and I'd bet it's a limited exclusive on future content.

[There's] no question that Rare is not productive, but they weren't productive before the Bungie spin-off, so nothing has changed there.

Again, I'm not sure that MGS is any worse off, and they've acquired [Fable developer] Lionhead, so arguably they will do all right this cycle. They've managed third-party exclusives Crackdown, Lost Planet, Saint's Row, Gears of War, Mass Effect (I'm sure that there are more) so far, and there is no reason to believe that they won't be able to manage several more exclusives going forward.

David Cole, DFC Intelligence

Earlier this year we lowered our forecasts for the Xbox 360. This was largely because of a weak end of 2006/first part of 2007, but it was also because we saw that Microsoft's need to focus on profitability looked like it was starting to hurt in the software development and marketing area. Microsoft's in-house development efforts have always been behind Sony's and of course, Nintendo's. This is a pretty big challenge for the company. With the original Xbox their in-house strategy was to focus on a broad lineup in all genres. However, they ended up with one massive hit in Halo, a bunch of distant also-rans and a couple solid "second-party/first-party" products in Knights of the Old Republic and Fable. I think the strategy now seems to be to focus on more mega-hits along the lines of Gears of War/Halo 3.

But it is very tough and it just takes a while to build up a stable in-house base. Sony worked on it for years, well before the first PlayStation launch and with continued struggles after the launch (troubles with Psygnosis, losing Crash, Spyro, struggles with sports games etc). Nintendo has had their own struggles, but was just fine after losing a company like Rare (they also lost Left Field about the same time). So those type of struggles and changes happen and you can't always make too much of them. However I would say that MGS is clearly behind both Sony and Nintendo in internal development capability. Couple that with Microsoft's need to make a profit in this area, and I would say it is a pretty big challenge.

One thing that Microsoft could do better is general marketing outside of just for titles that start with the name Halo. Microsoft is fairly cheap on the marketing side and often seems to save it all up for a big title like Gears of War or Halo 3. I think they should be more consistent around all their products.

Todd Greenwald, Nollenberger Capital Partners

I don't think it's that big a problem for the 360. I think it may actually be a result of the strength and large installed base of the 360. With the significant installed base lead over the PS3, Microsoft no longer needs 1st party studios to be assured of premium content. The 360 installed base is too big for publishers to ignore now. And perhaps MSFT is planning to shift its investment dollars from buying studios to securing 3rd party exclusives. I think when the original Xbox first launched, Microsoft obviously needed to have its own content, and maybe spent foolishly on developers like Rare, FASA, etc. It would be foolish again for MGS to have paid $860 million for BioWare/Pandemic, when they can't get the multiplatform leverage that someone like EA can.

I think the better question is – why isn't Sony doing more to acquire 1st party studios, or at least secure more 3rd party exclusives? They're the ones who need to be doing this, not Microsoft.