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Prior to Bill Gates' keynote address, technology reporter Matt Hartley sat down with Robbie Bach, the man heading up Microsoft's entertainment and devices division, which oversees the development of the Zune and the Xbox brands.

Tell me about the Zune launching in Canada

“Canada will be the first international market that we will go to. Now my guess is that there are already people in Canada who have Zunes because they bought them in the U.S. and some stuff does actually go across the border as we know. It's an important first step for us to move outside the United States.”

Zune Marketplace and Zune Pass aren't part of the launch, what is the reason behind that?

“It turns out the vast majority of music on people's devices is music they have ripped rather than bought from an [online] store. So over time, do we want to make those things available in other areas? The answer is sure, but we've had a lot of demand just to get the devices. People have all their music on their hard drives and they want to be able to put them onto a device and we think it's a good opportunity for us to get into the market. So we're optimizing for reaching out to those sets of customers especially since the United States and Canada are so close to each other, we want to make sure people have that opportunity.”

You're not worried about that putting the Zune at a competitive disadvantage?

“I think given the other things that Zune officers including social, wireless connectivity and other things, I think there are plenty of reasons to buy the Zune without it having those capabilities.”

How is the Xbox segment of the business doing?

“If you look at the data, we've now shipped 17.7 million units of the console around the world, which is a big milestone for us. We now have more than 10 million users on the Xbox Live service. If you look at consumer engagement and consumer mindshare — or wallet share if you will — consumers spent in the United States in the last 12 months $3.5-billion on Xbox 360. That's about a billion more than they spent on the [Nintendo] Wii and it's about $2-billion more than they spent on [Sony's] Playstation 3. So there's really a tremendous amount of momentum behind Xbox.”

We're going to be adding ABC TV and Disney TV shows to our Xbox live video service, which includes shows like Hannah Montana, High School Musical, Grey's Anatomy, Lost, Desperate Housewives, all available for download the day after they are broadcast, MGM is also adding their movie library to the Xbox Live Marketplace, so this will be things like Rocky, Terminator, Legally Blonde and many others, that's a big validation of our service.

The other announcement we will make that we announced here last year is that people will be able to use Xbox as the set top box for their IPTV. Tonight we will also announce that British Telecom with be the first partner. So in the UK, you'll be able to go to BT, pick up an Xbox 360 and hook it up to your TV and it will be both a full video game machine as well as a set top box for their digital service, which I think is called BT Vision.”

Do you have a Canadian partner yet?

“We've done trials with Bell Canada … but we haven't moved beyond that phase.”

There were some problems with the Xbox Live subscription service over the holidays with users complaining about downtimes. What happened there?

“Basically what happened was that we got swamped with customers and with a lot of concurrent users. We've set records probably every day for the last two weeks for concurrent users, and that's just put a lot of stress on the service. We already anticipated more demand after the holiday, and we had more than we were planning for. So the team has been doing work adding servers, adding network access, making configuration changes to make sure we can handle it all, and right around Christmas day we had what you would call outages, but now we have that down to the occasional five minutes of trouble. But in a way, it just demonstrates how powerful Xbox live is and how the service continues to grow.”

The entertainment and devices division generated $6-billion (U.S.) in revenues last year but still lost money. In the past, Microsoft has claimed that this year the division will become profitable for the first time. Are you still on track to meet those goals?

“Still on track, both Xbox and the division as a whole will be profitable this year and that's in spite of the fact that we continue to make a lot of investments in a lot of new areas. We're making tremendous investments in Windows Mobile technologies, big investments in Mediaroom, and ongoing investments in Xbox and Zune. So you've got a business that started with a bunch of small start-up businesses that has scaled those to the point where the collective is profitable. And yet we're still continuing to invest, which I think is quite exciting.”