During Microsoft's San Francisco launch party for the Halo 3 "Friends & Family" beta test, I was able to sit down with Shane Kim, corporate VP of Microsoft Game Studios, for an in-depth chat about Xbox 360, Games for Windows, and the current games market. In his role at Microsoft Game Studios, Kim oversees all of Microsoft's first party development for Xbox 360 and Windows, and has been instrumental in growing the publisher's increasing number of internal studios. Topics discussed include the future of console exclusives, the value of the mass market, Nintendo, PlayStation Home, Xbox 360 failure rates, PC/Xbox 360 cross-platform multiplayer, gamer and developer concerns regarding Games for Windows, and more.

Shack: We're at a Halo event, so let's start with a Halo question. As a franchise Halo may very well be unstoppable, and you guys are starting to branch the series out into other mediums, and other genres with other developers. Can Bungie practically remain fully involved in all of this and are you cognizant of the possibility that over time the series might get overloaded?

Shane Kim: Sure. Well, first of all, Bungie is very involved in all of that. As the creators of the material, we need their support to execute those well. They're working with Ensemble Studios on Halo Wars, they're working directly with Peter Jackson on the Halo interactive series, so they're pretty closely involved with all of that stuff.

As far as over-exploiting the property--yeah, that's something we have to be very careful about. Right now, you mentioned "unstoppable"--I don't know if I'd use that term--but it is definitely very strong and we want to keep it that way because we've never had a property like this. We're going to be careful with it. We're learning, and hopefully we'll do very good things. We haven't tried to pimp it out too much, and we think the things we've done make sense for not just expanding the game but expanding the universe and the story as well.

Shack: Overseeing development at Microsoft Game Studios, you obviously deal heavily with matters related to first party and exclusives. With the way things are going these days, it seems like those two terms might as well be interchangeable. What are your thoughts on that?

Shane Kim: Oh, I definitely agree. You're not going to get exclusives from third parties in the future--not very many, anyway. The economics of the business just don't support it. It costs too much money to make and to market the titles, so third parties almost can't afford it, and hardware guys can't afford to pay a third party publisher to compensate them for the opportunity cost. You're going to see third party titles on every platform, and we can't count on third parties to do our heavy lifting. That's what the job of the first party is, and my job in particular is to make MGS competitive versus Sony first party.

Shack: On that topic, we've seen Nintendo indicate publicly that it's backing off of studio acquisitions to a degree. What's your approach there? Obviously you recently picked up Lionhead and you've got some big internal studios.

Shane Kim: Yeah. We don't have any stated strategy or objective to own a certain percentage of the studios we work with. We're fairly agnostic about that, actually. We'll do it where we think it'll make sense for us and for the partner, and that was the case with Lionhead. In particular, [Lionhead founder] Peter [Molyneux] was ready to be acquired. He didn't want to deal with all the headaches of running an independent studio.

Shack: It's rough these days.

Shane Kim: It is rough these days. We cared a lot about the Fable franchise, because we saw that it's very important to us. That was a good marriage of needs and desires. But I don't--acquiring a studio isn't always the right answer. It isn't always the solution that the studio itself wants, so we take it on a case by case basis.

Shack: Many people have questioned whether the figures Rare's games have pulled in have justified the high price tag paid for the studio. Looking back now, several years down the line, how do you respond to that?

Shane Kim: I think that the story on Rare is really going to be told in the next three to five years. The kind of titles we're really asking them to focus on now are the Banjos, the Viva Pinatas, the Kameos, and so forth. Rare is going to be our internal studio--really, our primary studio for the most part--that's going to be focused on creating those big, triple-A-level, broad appeal titles. We're entering into the life cycle stage of the console where those kinds of titles can and should do well. We've never been in that stage since we owned Rare. When you look back at Xbox version one, that was a hardcore box through and through, right? Now, Kameo and Viva Pinata have launched during the highest price point of the Xbox 360. Those are really good titles that we're very proud of, and Viva Pinata in particular I think will have very long legs with the television series.

But we've got to get the console to a price point too that's more mass market, and that's going to happen over the next three to five years. Every hardware manufacturer is driving cost out so they can reduce the price of the console itself. When that happens, that's when you're really going to see Rare's value showing through.

Shack: This console cycle looks like it might be a very different landscape from the last one, proportionally. Do you think it would be possible--or acceptable, for that matter--to have a situation where there isn't necessarily one clear winner, where there might be two or even three consistently viable platforms?

Shane Kim: Well, no, our objective is to be the clear winner. Would it be acceptable otherwise? I don't think it would be acceptable. This is why Microsoft is in this business, to win this generation. Certainly, I believe we're in a better competitive situation versus Sony than we envisioned we would be when we launched this program, right? I mean, they're the past two generations winner. We're more focused on executing our strategy and getting to that objective. We're in a better position to actually achieve that now, so that's really what our focus is.

Could there possibly be room for more? Well, I think there would have to be changes in the overall market for that. In some sense, you might say that this generation is going to be different, but I actually don't believe that. The only thing I think is that the timing is going to be different. We're starting at such higher price points in general--there was no $600 console in previous generations that had the goal of being mass market. Even the prices of the Xbox 360 are higher than before. Because of that, the generation is starting later, or going slower, and will have a longer tail. I don't think that at the end of the day we'll be much smaller than the 160 million unit last generation.

Shack: Bearing that in mind, do you think you'll keep your box around longer this time?

Shane Kim: Potentially, yeah--part of it depends on how fast you can get down to that mass market price. If you go back historically, 80% of most consoles' volumes are done at $199 or less. We're sure not at $199 or less, right? [laughs] The faster you get to that price point, typically that's when you can hit the switch on the mass market. The sooner you get there, it could be that the shorter that life cycle will be.

Part of it depends on what the other companies do themselves. Obviously, we launched the Xbox 360 four years after we launched Xbox 1. Will another competitor do that this time? I don't know. We're banking on the Xbox 360 going the long haul, having a long life cycle, but you have to be ready to respond as well.

Turn the page for Shane's thoughts on Nintendo, viability of the Xbox 360 Core, cross-platform multiplayer, and more.