* What are some of the primary goals with Xbox 2?
Broadening the market, having media capabilities that when there's a PC, we connect up to that. This whole story of the Windows Media Connect and how all the formats and rights management and that simple Media Center menu that's just got TV, photos, music right there--those are common elements we're bringing to all the home devices. We didn't do Xbox just to do a video game; we did it to be part of our vision of the digital lifestyle, and with the next generation, we really get to go there. In the first generation, we had one simple goal, which was to establish credibility as a great video game platform. We've done that. Actually, the last few months in the United States, we outsold Sony with the PlayStation. So even though they have the biggest installed base, we are a very strong, credible No. 2 in that. As we go into this next generation, it's much broader. Yes, great video gaming but videogaming for a broader set of people, more communications, more media, more connectivity. And at the same time, we move up to things like high-definition graphics and wireless that the chip breakthroughs allow us to get to. So just for the games alone you'd go, wow, but the concept now of bringing in your music, your media, connecting to the PC, connecting Xbox Live to Messenger--that just makes it a very big deal.

* It's a full entertainment center, basically.
That's right. So Media Center PC and Xbox become totally complementary. You've seen a bit of that, where we let you take music from PCs and put it into game titles, and we have this extender concept where the Media Center can project through the Xbox, but that's just the start of what we can do there.

* One thing that's kind of intriguing in Xbox 2 is you're participating a little more on the design of the silicon.
Well, we have some key partners that we've announced. ATI and IBM are the key chip partners, and there are some others. But I'd say our sophistication is much higher in this second generation. So every level, what we're doing in tools, what we're doing in Live, the way we're working with the publishers, the way that we've gotten involved in the hardware design--we're being very coy about when and all that, but I'm certainly excited when it comes time to show at how much smarter we are getting to do it a second time with the team that's been built there.

* Any interest in handhelds?
We are not in the handheld space. We watch the intense competition of Sony, Nintendo, Nokia--whoever comes along with interest. Our portable gaming will be focused on things like getting onto the phones, getting onto portable PCs, but our Xbox team is focused on the TV-connected console. And the fact that Sony's a little distracted with that may let us do all the better in the next generation.