Valve CEO Gabe Newell speaks at the DICE conference earlier this year.

Imagine playing an intense horror game and having your gaming experience change depending on how quickly your heart is beating.

That could very well be possible with Valve’s new Steam Box controller, as Valve CEO Gabe Newell shed some more details on his company’s first console, the “Steam Box,” a PC designed to connect to your TV and take advantage of the Steam’s Big Picture mode.

Newell is across the pond accepting the British Academy of Film and Television’s fellowship next month. He told BBC that Valve is planning on letting “customers” test out Steam Box prototypes within the “next three to four months.”

Newell also said the team is working out some noise and heat kinks, as well as putting the final touches on the Steam Box controller. Last month, Valve hired Louis Barinaga, who previously worked as director of mechanical engineering for Xbox accessories at Microsoft. He was spotlighted on Microsoft’s Careers Site for his role on the team behind the Xbox 360′s wireless controller. His work was key to getting the controller’s rotational d-pad to work.

Newell gave some details into possible pulse rate sensors on the Steam Box controller.

“If you think of a game like Left For Dead — which was trying to put you into a sort of horror movie — if you don’t change the experience of what the player is actually feeling then it stops being a horror game,” Newell told BBC. “So you need to actually be able to directly measure how aroused the player is — what their heart rate is, things like that — in order to offer them a new experience each time they play.”

Pretty cool, right?

Interesting to note that Microsoft doesn’t appear to be worried about Valve’s plans. At yesterday’s annual “TechForum” event on the Microsoft campus, Todd Bishop caught up with Don Mattrick, the president of Microsoft’s Entertainment & Devices Division. Mattrick spoke about Valve and said he does not consider the Steam Box as competition to the Xbox. 

“I think they’re doing some innovative stuff,” Mattrick said of Valve. “They’ve created some great experiences. The scale of products and things that are being brought to market are probably a little bit richer when I look at Sony, Nintendo, Apple, Google. But I love Gabe (Newell), the Valve co-founder. Was there for his lifetime achievement award. It’s wonderful to see what they’ve created.”

Newell was also the keynote at last week’s DICE Summit and spoke about how Valve is re-thinking what games are and how you sell them. He said that Steam for Linux gives people freedom to innovate on an alternate operating system. “It’s a get-out-of-jail free pass for our industry if we need it,” Newell said.

Finally, Newell made more headlines when he and director J.J. Abrams sent excitement throughout the gaming and movie worlds when discussing making games and movies together.

And it appears that Valve’s recent employee firings aren’t affecting the Steam Box progress. A few employees told Gamasutra that the cuts were part of a “great cleansing” and “large decisions.”

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