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Hello Xbox Resource! This is Tate Steinlage (SteinlageT), and I am happy to be interviewing Michael Pachter this time for Xbox Resource. Mr. Pachter is the Managing Director at Wedbush Securities where he specializes in entertainment software and retail. He is here today to answer some questions that have been buzzing around the Xbox 360 world and some other random questions sent in from our Xbox Resource Twitter fans! Mr. Pachter's answers are in italics for your reading pleasure. Make the jump to read about some hot topics and other interesting things.




Above - Michael Pachter, Managing Director at Wedbush Securities


First off Mr. Pachter, thank you so much for taking time out of your busy day to answer some our questions.

1) Mr. Pachter, would you start off explaining more about what you do at Wedbush, and how it correlates to the Xbox world?
--I am a stock market analyst, responsible for helping institutional investors make better decisions about a handful of stocks. Institutions are hedge funds, mutual funds and pension funds, so the managers are quite sophisticated. Analysts cover around 15 stocks, and the group I cover includes the video game publishers, so I have to stay on top of events that influence the publishersí ability to earn profits. Since 30% of game sales happen on the Xbox 360, the Xbox world is pretty relevant to my work.

2) Gamers by now have heard the rumors of paid subscriptions for online play; mainly in the Call of Duty series. How sure are you that we will start to see this?
--Iím sure that the publishers look at the number of hours of free online multiplayer time spent, and wonder how they can get something for it. Gamers are dependent upon the publishers continuing to provide online multiplayer content, and the cost of providing that content has to be recouped somehow. Itís clear that a large number of gamers buy games like Call of Duty Modern Warfare 2 solely for the online experience, so perhaps the publisher (Activision in this case) was well-compensated for providing online multiplayer for free. However, the sheer number of hours spent suggests that there is an opportunity to charge something, and that most people will be willing to pay something. Iím sure that you will start to see this early next year. I donít propose that ALL multiplayer will be subscription based; rather, I think youíll see the same high quality experience for free, with something of even higher quality offered for an additional charge.

3) Do you believe that a ďpay-to-playĒ monthly online service is the smart thing to do, or is Activision having to do this based on the huge number of people buying and playing just one game (Modern Warfare 2)?
--I think pay-to-play is inevitable, whether itís smart or not. The fact is that people used to play games for an average of 30 Ė 40 hours, and are now playing that many hours per month for months on end. If the average game cost $50 ten years ago without multiplayer, and the gamer spent 40 hours, he paid $1.25 per hour for the experience. Today, the average game is $60 and the average gamer plays it for 200 Ė 300 hours, so heís only paying $0.30/hour (or even less). The publishers recognize this, and the gamer community might hate it, but itís coming. My best guess is that there are 15 million people playing MW2, another 6 million playing Halo, another 3 million playing Battlefield Bad Company 2, another 1 million playing Red Dead Redemption and Borderlands, and another 2 million playing various EA Sports games. That adds up to 27 million people playing an average of 10 hours a week. Iím sure that we are double-counting a lot of gamers, but itís hard to argue with the fact that there are at least 15 million real people spending a tremendous number of hours playing online multiplayer, and paying only for the packaged product. Yes, itís true that Microsoft has figured out a way to get them to pay for Xbox Live, but they arenít paying the publisher anything once the packaged product is purchased. I think that the analogy to a cell phone is appropriate: if you buy a cell phone, itís useless without a service plan, and you pay based upon usage. Games are heading in that direction, with higher use and value added services costing more.

4) You have mentioned before with the ďpay-to-playĒ monthly fee, that Activision would still have some sort of ďfreeĒ service to players. What do you see that service being like?
--I think free will be the same as it is now, and subscription will include map packs, achievements, tournaments, etc. Of course, I donít KNOW anything, so this is all just a guess.

5) With gamers paying $50 a year for their Xbox Live service and now possibly an extra $15+/per month, is that smart move for Activision? The economy is obviously still hurting and people are cutting back every day. Do you believe that a huge drop off Call of Dutyís online players is possible if the paid subscriptions happened?
-- I donít see any businesses giving consumers a break because of the economy. Movie tickets havenít gone down in price, nor has any other form of entertainment. I think Activision would love to move their games off of Xbox Live, but that would require another disc purchase (for PC), and would move the experience from the living room TV to the PC, so they would lose more people that way. My guess is that the first subscriptions will be much more modest, like $5 or so.

6) If this subscription service starts for Call of Duty, will you see it trending to other shooter series like Halo, Gears of War, Medal of Honor, Battlefield, etc.?
--Once there is one subscription that works, everyone else will emulate, so yes, I see this trending to all other games.

7) Entertainment wise, what is Microsoft doing that is better than the other consoles, and what could they do better to provide a better all around service?
--I think Microsoft has done a great job of exploiting the large community it has build on XBL, and keeping them engaged. The company continually adds services to XBL (the user base has really taken off since Netflix was added, for example), and it looks like they plan to keep adding services. Once a Gold member, users seem to get more engaged over time, so the service is quite sticky. Once all of your friends are on XBL, you feel better in purchasing a 360 instead of a PS3. Theyíve kept this virtuous cycle going for the last seven years.

8) Everyone has their opinions on Kinect, how do you see it doing; when itís released and in a year-or-two?
-- Kinect will be challenged by its price. Itís not a ďmust haveĒ for most 360 owners, but is a ďnice to haveĒ. At $149, ďnice to haveĒ wonít cut it. I see it selling 2 Ė 4 million the first year, more if they cut price.

9) Do you think that Microsoft needs to release a new Xbox within a few years, or should they focus on making this console better and expanding what it can do?
--I donít think that they need a new console, and think that once they drop price by another $100, sales will grow dramatically. We have a lot of room in this cycle, and as long as Nintendo rests on its laurels with the same Wii they introduced in 2006, there is an opportunity for Microsoft and Sony to capture the upgrade market when Wii households decide to move up to HD.


Well Mr. Pachter, thank you so much for taking time out of your busy schedule to answer some questions for us. Everyone at Xbox Resource would like to send you a big thanks for all you have done! We hope all of our readers have enjoyed this interview with Michael Pachter. Stay tuned to more interviews on Xbox Resource in the near future. I am Tate Steinlage (SteinlageT) with Michael Pachter singing off!
 

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