Microsoft has shrugged off recent negative publicity around its gaming business – specifically a $1-billion allocation to extend the Xbox warranty – and revealed plans to grow this sector of its business. 

Robbie Bach, president: entertainment & devices division, told financial analysts that, while the top-line figures may not look good, the division is actually in good shape overall.
"If you think about our Windows Mobile business, we had a great year: over 11-million phone-enabled licenses, lots of momentum, some key iconic devices like the BlackJack and the Cube and the Dash. If you look at our PC hardware business: 33-million units sold worldwide – mice, keyboards, cameras. Our camera business is now another new profit centre for us.
" Media Center had a huge year. We're now at 45-million Media Center licenses in the marketplace. And the Embedded business continues double-digit growth this year. Our launch for Office and Windows at retail, which is part of what E&D does, was also very, very successful."
Bach adds that Microsoft's music player, Zune, and it's Mediaroom – previously known as IPTV – have made some inroads into the market and are on track for growth in the future.
On the Xbox front: despite the warranty issues surrounding it, Bach is confident that the fundamentals of the product are strong.
In addition, Xbox Live now boasts more than 7-million members and 220-million content downloads, including 45-million paid-for arcade games.
Looking forward to the 2008 financial year, Bach believes connected entertainment will play a big role.
"Connected entertainment is a concept that, over time, people will be able to think about their entertainment assets and the things they want to experience as something they can get any time, any place, and on the device that they want.
"So whether they're in the car, in the bedroom, in the living room, at work, traveling, at home, they're going to be able to get access to their music, their video, access to their friends, their games in the environment they want when they want it."
To make the dream of connected entertainment a reality, Bach says companies need to explore new content paradigms; they need to develop core competencies on all the elements of the business; and they need to understand the relationship between hardware, software and services.
"You can compare the open world and you can compare a closed world closer to an Apple model. We want to be in a place where the consumer's experience is managed but where there's openness for a broad variety of partners to participate.
"Xbox certainly is in that space today, and you'll see other parts of our business move to that over time as it makes sense."
Expanding on his vision for the coming year, Bach says that while Zune sold 1-million units in 2007, it will be transition to a more broad-based product than it is now.