On Tuesday, Microsoft will use its annual Xbox event in Amsterdam to unveil what it is calling its most impressive launch line-up ever, showing ten to 15 new titles for the new version of Xbox, the 360, due to be launched in North America on November 22 and in Europe on December 2.

Robbie Bach, Microsoft’s Mr. Xbox, the president of the company’s entertainment and devices division, sat down with the IDG News Service to explain why he thinks Xbox 360 will steal a march on Sony's upcoming PlayStation 3 (PS3). He also predicted that the new version will not repeat the poor performance of its predecessor in the Japanese market.

IDGNS: How do you react to the Forbes report that the Xbox division has lost US$4 billion?

Bach: We don't disclose the specific numbers at that level of granularity. I'm not quite sure where they came up with the number but I'm not going to contest that we have invested billions of dollars in Xbox, ... It's an investment that has built some amazing assets. We're the number 2 video game company in the world. That's a pretty amazing achievement in less than four years. You just need to look at our portfolio of first party games. How much is a franchise like Halo worth? It's a big investment. Xbox 360 is about turning that asset base that we've created into earnings power.

IDGNS: Any hints on the level of pre-orders?

Bach: So far things on the pre-order front are going very well. ... Our philosophy is to ship initial product and then in the second week ship a little more. Our retailers already know what they’re going to get and that they’re going to get more product the next week.

IDGNS: Why do you think Xbox 360 will be better than PS3?

Bach: First, we have some amazing exclusive franchises. We'll have probably the best launch line-up ever. By the time PS3 ships we'll be working on second generation games. In the end this business is about games and we’re going to have a spectacular line-up. Plus, we have a more powerful platform. We can all debate the merits of their hardware approach and our hardware approach. If you just look at hardware they’re about the same. In some places we’re faster, in other places, they’re faster. The platform isn’t just about that. It includes software design that goes into it and the service design that goes into it. Software developers are finding it incredibly easy to use it to design great games. On the Xbox live we're years ahead. The platform is going to be better, the games are going to be better and the on-line services are going to be better.

IDGNS: Why are you offering two versions of 360 -- with or without a hard drive?

Bach: The question is how do you reach a variety of customers with the right product. If you think about consumer electronics, video game consoles are the only place you don't get a lot of choice. ... There are people who want to spend and have everything under the sun. Others want to be able to play great games. Our logic is to reach those customers with a target offer. It’s particularly important in Europe where parts of Europe are very price sensitive and the channels where games consoles are sold are predominantly mass merchants which again are very price sensitive. ... One size doesn’t fit all.

IDGNS: Some people think the peripherals are quite expensive.

Bach: When you look at what we’re doing we have a custom designed hard drive that’s removable, it's expandable, it's portable. Sure, there’s a certain cost to that. When you look at the value, if you want to buy the full product €399/$399 version, you’re getting about $150-200 worth of technology for about $100 extra.

IDGNS: Will developers have to produce two versions of games?

Bach: Developers have known since the beginning that games will have to be designed to not require the hard drive. The gaming system in an Xbox 360 is the same whether it’s a core Xbox 360 or not. The games will play great on both versions. Can they do special things to take advantage of the hard drive? Sure. But when you play PGR III or Perfect Dark Zero on a core system you’re going to play a great game.

IDGNS: You have set ambitious targets for online gamers. What will drive this?

Bach: Today we have 10 percent paid subscribers. We want 50 percent of customers of the next generation to be connected to the live service. In the next generation we have two levels of service: “Silver" which is free and "Gold" which is the paid subscription. What we want to do is to get people on the Silver service and that’s where the 50 percent number comes up. The logic is you get people connected, they get a gamer tag, they start experiencing what it is, it's a great trial and that should help us convert people to the Gold service.

IDGNS: Bill Gates said that Halo3 would be ready as soon as PS3 would be ready to ship. Is this time-frame realistic?

Bach: Philosophically the point Bill was trying to make is that we’re not just going to ship and not have great stuff coming up. We don't know when Sony will ship PS3. They’ve said spring ... What we do know is that the way our portfolio lines up we’re going to have great exclusive content. Halo is something we’ll ship when it’s ready.

IDGNS: What are the implications for Xbox 360 of Microsoft backing HD-DVD as the preferred high definition format?

Bach: I’m not sure there are any. We have a great progressive scan DVD player built into the box. Because it’s been unclear about the format for the future we haven’t announced any plans. It's not clear that the disc format is the most important part of thinking about high definition content. Five years ago in the music industry everyone was debating what high definition CD they were going to create. It turned out that wasn’t what was important, it’s online delivery. If you think in a five-year time-frame with the rate the technology is changing why would that be any different with video? It's a topic which we will explore with time and then we’ll decide what to do. I can make a pretty strong argument that Xbox 360 is better configured for the future of video than PS3 is. Maybe having a hard drive that’s upgradable so you can store and download movies is a better strategy.

IDGNS: Are you still working on Xwand -- a TV-like remote controller like Nintendo's?

Bach: I give Nintendo a lot of credit, they’re willing to innovate and try and do some new things. We'll see if it pays off. Some innovations don’t work. It’s certainly a unique attempt to do something new. But it does put them in a tricky situation relative to third-party publishers because developers really need to be able to do things cross-platform.

IDGNS: It sounds like you’re not working on coming out with anything soon?

Bach: We agree with Nintendo on the focus of making games more approachable. ... We’re doing a lot of work on game design. You have to make sure you’re able to do it without taking away the high-end capabilities. Too many people never finish games because they get frustrated. That's an issue for game designers.

IDGNS: What's the future of PC gaming?

Bach: That’s an area where you’ll see a lot of focus from us. We think Windows is a very vibrant platform. People tend to look at retail sales for games and they see that for the last number of years it's been flat or declining. What they’re missing is when you add in the online revenue Windows games are growing 15-20 percent a year. Talk to the guys who are doing Worlds of War online. That’s generating a huge amount of income. PC gaming is alive and well. ... You’re going to see Microsoft Games Studios producing new games for Windows including a new version of Age of Empires which people are very excited about. And the launch of Vista will include significant enhancements for the gaming system.

IDGNS: Will Microsoft continue to develop new games for old Xboxes?

Bach: Microsoft will not but our third-party publishers will. Our lineup for 2005 is pretty spectacular. I think there are a little over 200 titles in development. Third-party publishers are going to do a lot of cross-platform work. They’ll continue to do PS2 development. It’s trivial to do Xbox development and there are 20 million plus Xbox customers. The reason why Microsoft won’t do those titles is because as the first party it’s our job to drive innovation on new platforms. It’s up to us to take the most risk, push our resources and blaze a trail.

IDGNS: You've been very tough in prosecuting modders. Aren't you falling into the same trap as the music industry has found itself in and not responding to expressions of consumer demand?

Bach: The tricky question is why people are modding. There are people who don't want to pay for games so that's not good for our business model. There's a form of modding by people who want to hijack our hardware to do other things. Given that we lose money on the hardware that’s not a customer we’re excited about. There are some people who have done modding because they want to do some related things like play music. We have an Xbox 360 built with a lot of that functionality. Those type of customers will be excited about today’s product.

IDGNS: Are you confident that 360 will do better on the Japanese market?

Bach: We learned a lot from our rather humbling experience with Xbox. We were two years behind Sony getting into the market and we didn't have the right content. We've spent a lot of time and effort to make sure we’re in the market in a timely fashion. We’ve signed up some of the leading Japanese creators to do development for us and [gotten] big support from Japanese publishers. ... We're cautiously optimistic.

IDGNS: I understand you are in Brussels talking to European regulators about parental controls.

Bach: For a while in North America we’ve had a parental control system in Xbox. It works very well, it maps to the ESRB (Entertainment Software Rating Board) rating system. We didn’t promote it very much because at the time there wasn’t a rating system in Europe. We said we need to have some principles on how we think about content. First, parents and gamers need the ability to choose what’s appropriate and what’s not. We need to make sure they have the information available through ratings, full disclosures on the box, fair advertising standards, etc. Second, there needs to be a way for parents to control what game content kids can play. We have developed a very rich family settings system for Xbox 360. It controls what game content can be played on the box. It’s password protected and we do it for Xbox online so parents can prevent a live encounter. Parents can control who they game with, how much of their identity is revealed, whether voice will work, etc. They have a whole set of settings so they can control the experience. You go through it when you’re setting up your console. Parents will see it and it’s really easy to use. We think it's a step [toward] industry being very responsible. Third, we think creators have a right to create what they want. Content creators like musicians and artists, movie creators should be able to deliver content they want. Fourth, we give employees choice. If there’s a game they are uncomfortable with they can move on to work on something else, no questions asked. We think we’re staking out a leadership position. We shouldn't be reacting to the latest piece of legislation.