GameDaily BIZ: While it's great to see MS extend the 360 warranty and address the hardware problem, it's a bit of a double-edged sword isn't it? Millions of people who didn't know much about Xbox heard the news on radio or TV and they heard about the $1 billion hit, and now they associate the brand with a console that has major defects. Does that concern you?

Peter Moore: We knew that it would be a challenge because the issue was focused primarily on the gamers who were having a problem and we had to respond to that, but you know when you do something that begins with a "B" the world takes notice. But it wasn't a hard decision. We had no choice because we were not happy with the way we were seeing the failure rates go up in recent months. So yeah you're concerned that [the brand] does take a hit with consumers, but the other thing I'm actually seeing is a lot of kudos for Microsoft in actually standing by its product and a lot of commentary like, "I wish more companies would do that." It is what it is, and I think the overwhelming positive that came out of it is that people feel a lot more comfortable with the product. Any concerns that might have been lingering about quality have gone away because we're going to stand by it.

BIZ: One thing that's a bit concerning to me, though, is that Microsoft refuses to say what's at the root of the problem. An analogy I would use is that if your car breaks down and you need to get it fixed, the mechanic will tell you what's causing the problem.

PM: That's because they're giving you a bill [laughs]...

BIZ: Well, you guys were giving a lot of consumers a bill before the warranty policy changed. And now you have to repay those customers. So why is it that Microsoft won't disclose the root cause of the defects? Shouldn't consumers have the right to know?

PM: There are a number of different causes that have different trigger points, whether it's issues with how you use it, where you use it, whatever... So it's a complicated issue, and there's no real purpose to be served by sharing any more information than we've done. We've really got to focus on getting things fixed, and our challenge now is to implement the plan. It's a complicated thing, it's global in nature, it's not inexpensive and we want to take care of people who send in their console because of the three red rings; that's our focus.

BIZ: It's a bit ironic, because when MS first got into the console business, critics laughed because MS is a software company at its core. It's not in the business of creating hardware. Now the company has discovered some faulty design in its 360 hardware, seemingly proving the critics right. What do you say to those critics?

PM: Those critics need to do their homework and look at some of the hardware product failures that this industry has seen in the past 30 years that maybe have not got as much publicity...

BIZ: You're saying that this is not an unprecedented failure for a video game console?

PM: Probably the size of it may be unprecedented, and certainly the financial implications, but if people say that previous consoles have all been perfect and not had failure rates, then they need to go get a history lesson.

BIZ: I met with Shane Kim earlier this year and asked him to give the Xbox 360 a grade for 2006, so he gave it a B+. Obviously you'd love to think of the 360 business as A-grade material, so what do you need to do to improve this year and beyond?

PM: If Shane is grading it B+ for 2006, he looks at it through a Microsoft Game Studios lens. As we move into this holiday with the lineup we've got and Xbox Live firing on all cylinders with what we believe is a tremendous focus that's going to pay dividends on broader entertainment, whether it's Disney or Scene It and bringing in easier to use controllers, I think all of the things we put into place 3 or 4 years ago as strategic plans for holiday 2007 all seem to be firing. And there are a lot of announcements still to come � we've got Leipzig and Tokyo Game Show, and there's still 5-6 months before the holiday. I think the implementation of the strategy laid down several years ago to broaden the reach by 2007, that's something I need to make sure we do.

BIZ: Right, Microsoft keeps on talking about how it needs to expand beyond the core audience, but the console and its games are very much for the hardcore. And let's face it � Rare by itself is not enough. This is a huge challenge for Microsoft, especially as Nintendo seems to be grabbing more of that non-core audience. How do you approach this challenge?

PM: I'd rather be in our position where we've captured the core, and as I pointed out with the economics of the business on Tuesday night it's a very important customer to capture. It's a far better place to springboard from to captivate the masses than try to do the reverse if you've started off at the mass market level and then you have to go get the core. So yeah, we have to do all the things I just talked about. You need to have simplified controllers, you need to make sure you have enough games � you're right, not just one game from Rare, but multiple games � and you need to continue to stick to your task.

The brand also needs to broaden. We started campaigns about a month ago to support blockbuster entertainment. The movie games, like Transformers for example, have done well for Activision, for Disney and even for EA. And starting off with Rock Band on Tuesday night, I think is an important statement about fun... and you're going to see a lot more of that. Our Guitar Hero success [is another example]. With Activision in the previous quarter, they called out in their earnings that we sold a lot of Xbox 360 Guitar Heros. So it all has to come together and it all will come together.