One of the most outspoken and prolific observers of the videogame industry is Wedbush Morgan analyst Michael Pachter. Unlike many analysts, he's willing to make brash statements and bold predictions, which has earned him fans, detractors and haters. But for journalists like us, brash statements and bold predictions are like mother's milk, which is why we've had Pachter on speed-dial for several years. We caught up with Pachter yesterday for a quick e-mail interview about the current state of the videogame market, why his bullishness about Xbox 360 failed to pan out, and his expectations for 2007 and beyond. Here's what he had to say:

You recently told Gamasutra, "I'm pretty disappointed in the Xbox 360. I think Microsoft is doing everything right: Games are good; Xbox Live is amazing, and the console is not prohibitively expensive. Yet people are just not buying. The console is lagging behind my initial expectations by at least 200,000 units per month in the U.S., and I don't know why." Why did you have such high expectations for the consumer demand for the Xbox 360?

I thought that there were enough hard-core gamers indifferent to pricing to support much higher 360 sales at holiday. I truly thought "Gears of War" would be a driver, thought high-definition monitor sales would be a driver, and thought light PlayStation 3 supply (and high price) would work in the 360's favor.

Is there anything Microsoft can do to accelerate demand for the 360 besides a price cut and the release of Halo 3?I'm not sure a price cut will do it. I am beginning to think that A) there are fewer price-insensitive hard-core gamers than we all believed, B) high-definition matters, and over 70 percent of households don't have it yet, and C) people are conditioned to wait for price cuts. It's still early, so maybe December will surprise us.

The rule of thumb in the industry is that November hardware sales are generally twice those of October, and December's are usually twice those of November. Given how far Xbox 360's October numbers were below your estimates, why did you stick to your bullish predictions for November and December until earlier this month, once the November sales data was released?Sort of the same answer as above. I really thought that next-gen hype would drive consumers to stores in November (it did), and that they would buy 360s (they didn't). Instead, they bought PS2s, DSs and PSPs.

Numerous publishers, journalists and analysts have said that Microsoft will increase its market share this generation over the previous one. But the first 13 months of Xbox 360 sales have been much slower than you expected. Do you have any evidence that Microsoft is actually expanding its audience, or is it more likely that Microsoft is simply taking longer to reach the same audience--and the same ceiling--it reached with the original Xbox?I think Microsoft will expand its market share over a longer time period. The next-generation consoles are a lot more expensive than the current generation at launch, and I think that there is some price elasticity of demand. It may turn out that this cycle develops far more slowly than we thought, while at the same time, the current gen declines more slowly.

Is it possible that for all of Microsoft's efforts to broaden its base--a less-expensive $299 version; free Xbox Live Silver memberships; Xbox Live Arcade; the cutesy kids' game Viva Pinata; downloadable TV shows and movies; the $199 HD-DVD add-on--the company still can't shake the perception that the Xbox 360 is a machine for hard-core gamers and PC gaming refugees?I think you're right that the 360 still has a hard-core stigma. That will take time to change, and I think Live Arcade will help. Price cuts and content will also help, and we need to see Avatar, Bratz, Rayman, Shrek and Dragon Ball Z on the 360 before perceptions change.

In one of your August notes to investors, you wrote "sell-through of Xbox 360 hardware could be higher if the supply situation for the PS3 falls well short of demand, with many holiday gift-givers likely substituting purchases of the 360 in place of the PS3." From August through early December, you continued to cite gift-givers possibly substituting readily available Xbox 360s for hard-to-find PS3s and Wiis as a factor that could lift Xbox 360 hardware sales above your already optimistic projections. But at prices ranging from $250-$599, even the Wii costs more than the $99-$149 price points that have historically ushered in mass- market consumers. At these across-the-board higher prices, isn't it far more likely that gift-givers would consult gift recipients to determine their console preferences--thereby making the gift recipient's brand loyalty a major factor--rather than make an impromptu substitution and risk buying an unwanted gift? I'm not sure I agree with your logic about consulting the gift recipient. Most kids would be thrilled to receive any of the new consoles. My point was that I didn't think parents would substitute a sweater for a PS3, but that they might substitute a 360. I am probably wrong.

Is part of what analysts and industry observers may have overlooked, in making their Xbox 360 predictions, that the main purchasers are no longer parents buying consoles for their kids, but rather twentysomething and thirtysomething men with their own disposable income and brand loyalties?During the year, the primary purchasers are the first-party consumers--the gamers themselves. At holiday, it is a third-party gift-giver. At these prices, there are fewer first-party purchasers and more third-party purchasers, suggesting a greater shift to holiday sales.

Because of the phenomenal success of PlayStation and PlayStation 2, it's safe to assume that Playstation 3 has started at a higher point on the demand curve than Xbox 360. But it's also started at a lower point on the supply curve than the 360, and it's $200 more expensive than its main rival. Are you predicting the PS3's sales growth to be faster, slower or identical to the Xbox 360's?I think PS3 sales will be similar to the 360 (around 200,000 a month in summer), primarily due to the price point and light lineup. Also, the PS3 has two other competing consoles, so it is unlikely that it will be far ahead.

Following E3, you were one of the first analysts to question whether third-party publishers were sufficiently committed to the Wii, given its strong reception at the show. But part of that reticence on the part of independent publishers stems from how hard it's been for them to achieve strong sales and market shares on Nintendo platforms--from the Nintendo 64 to the DS--because Nintendo owners are so focused on buying the games that Nintendo itself makes. Now that Wii is the only one of the three new consoles with both strong demand and strong supply, how much of a challenge does that pose for third-party publishers whose development slates have been planned primarily around the Xbox 360 and the PlayStation 3? In order for third-party publishers to commit to, and succeed on the Wii, they have to overcome the Nintendo fanboy perception. They have to believe that the Wii is truly mass market, and create games that exploit its features. I expect Nintendo to continue to innovate on the software side, but think others (Sega with Monkey Ball, for example) will capture a ton of share.