• This is a partial transcript from "Your World with Neil Cavuto," May 16, 2005, that was edited for clarity.

    NEIL CAVUTO, HOST: Well, it is an all-out war, not in Iraq, in your living room. The most anticipated video games and consoles are going head-to-head at the 2005 Electronics Arts Expo this week.

    What's in store? Well, let us ask Bobby Kotick. Bobby is the chairman and the CEO of video game maker Activision (ATVI).

    Good to have you with us. Thank you for coming.

    ROBERT KOTICK, CHAIRMAN & CEO, ACTIVISION: Thanks, Neil.

    CAVUTO: What's hot this year?

    KOTICK: Well, for us, we have a new "Spider-Man." We have a new "X- Men." We have a game based on "Madagascar" that's coming out shortly, a new "Fantastic Four," "Quake" and the new Tony Hawk (search). So, we have a really, really strong lineup of products for the back half of this year.

    CAVUTO: Do you guys spill over each other, with the Sony PlayStation3 starting and then the Microsoft Xbox supposed to be all souped-up graphics and this new multidimensional screen. The same money is chasing the same relatively finite crowd, isn't it?

    KOTICK: Not really.

    In fact, what you find is, there's actually a lot of cross-ownership. But these new products that will come out into the marketplace have dramatically new features. I have been in this business for now almost 14 years. I have never seen the kind of improvements we're seeing graphically. You're going to — for the first time — see high-definition display capabilities and audio capabilities.

    CAVUTO: Are you doing that? Are you doing that? Or is Microsoft doing that?

    KOTICK: Well, Microsoft (MSFT) and Sony (SNE) make the hardware. But we make the software that supports it.

    CAVUTO: I got you. When you say that there's cross-ownership, are you saying that people own an Xbox, they own a Sony PlayStation, they own Activision? Are they all together?

    KOTICK: Well, remember, today, you're looking at probably 75 percent of American households with children have one active video game system. And we really don't care which system you have, because we make software for all of the systems.

    CAVUTO: You will make it for everybody. Right. Right. Right.

    I know you had pursued — if I'm getting this out of context, please correct me — maybe advertising hidden in some of the games. Is that true?

    KOTICK: We're in the early sort of exploration phase.

    And the catalyst for that is, when you look at television watching habits — and this is some data that we commissioned from Nielsen — but, about a year ago, we looked at the 2004 year, and what it turned out is that television watching to 18- to 35-year-old males in the U.S. was roughly 30 billion hours. And video game playing was roughly the same 30 billion hours.

    Advertisers spent over $8 billion on TV to the 18- to 35-year-old males in the U.S. alone, but spent negligible amounts of money advertising in video games. And yet we're delivering...

    CAVUTO: But when you say advertising in video games, is it product placement, which I don't think most people would have a problem with, or is it an outright ad, either before the start of the game, during a game, after the game? What?

    KOTICK: It's primarily really tightly integrated product placement, making sure that the products have an appropriateness to our audiences.

    But, I mean, you think about the power of — in a Tony Hawk game — going from level three to level four and having to drink a Coca-Cola or a Pepsi, you're reaching millions of consumers, hundreds of hours per consumer. It's a really positive association. So we see, you know, four or five years from now, this being a potentially big opportunity.

    CAVUTO: All right. Thank you very much, Bobby Kotick of Activision. Good seeing you.

    KOTICK: Likewise, Neil. Thank you.

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