Xbox 360: Video-On-Demand Trojan Horse

I’ve been theorizing for awhile that Microsoft’s Xbox 360 (and the forthcoming Sony Playstation 3) isn’t really about teens and video games. Obviously gaming is a core feature and responsible for getting these systems into many homes, despite the steep $400 price of admission. But that’s just a trojan horse — the real money and future of the Xbox 360 is as a digital media hub for the living room.

Over the last year, owners of both Microsoft Windows Media Center Edition (MCE) and the 360 have been able to stream a variety of content such as music, photos, and even pay movie downloads from their computer to the TV via the 360. Yesterday Microsoft pushed out an Xbox software update that now allows media transfers directly from a typical XP computer, without the need of the specialized MCE OS.

But this is just the tip of the iceberg… Ultimately, Microsoft will want to simplify the process by taking a home computer out of the equation. Right now customers have the ability to directly download a variety of movie trailers and game demos which has served as a proof-of-concept, both as a technical demonstration and a demonstration of consumer acceptance: 70 million pieces of content downloaded.

The next obvious step is to monetize by renting movie downloads directly to the 360. In order to provide such a service, Microsoft needs both content deals and more Xbox storage. They already have a start on the content side in dealings with online video distributors Movielink and Akimbo. Additionally, they recently tested long-form content download of a Battlestar Galactica recap. On the hardware front, Microsoft plans to release an 100GB hard drive accessory for the Xbox 360 in Q1 ’07.

Which brings us to when will this play out… 2007 will be the year of Internet-based video-on-demand services. There are quite a few ongoing experiments in place, such as television network broadcasts and Apple’s iTunes dipping their toes into Disney movie downloads. I expect we’ll see more content owners in this playground as the new industry coalesces into something mainstream consumers, rather than the bleeding edge geek set, can utilize and appreciate. Microsoft’s Xbox 360, along with Apple’s forthcoming iTV media extender, will lead the charge.

6 thoughts on “Xbox 360: Video-On-Demand Trojan Horse”

  1. The biggest barrier for Ineternet-based VOD is DRM. I don’t know if that can be addressed at a level where the content owners will allow this form to go mainstream in 2007 (or ever?). Plus, the cable and sat guys aren’t going to stand by and wait for Microsoft and Sony to steal away their lucrative business model either. I guess it depends on what you mean by mainstream. PVR/DVR tech has been around 10+ years, but it still hasn’t seen the kind of mainstream penetration you’d expect.

  2. I’m specifically referring to movie rentals via Internet/broadband going mainstream. Hopefully the cable and sat companies will feel the pressure and also decide to offer thousands of movies on demand via a usable interface.

  3. I don’t think Microsoft ever tried to hide these intentions. They saw the Xbox as a vehicle into the living room.

    Initially, I think they thought the MCE would get more traction – but over time with cable offerings, price, and so on it became clear that wasn’t the best strategy.

  4. Looks like this also relates back to your comments about Unbox the other day. With a regular XP computer and a 360, you should be able to play Unbox content.

  5. Despite any misgivings I have about DRM, I’d be sold on MS as a downloadable media provider if they were to offer more full-length high-def video and audio content (and a bigger place to store all of it). I’m a huge iTunes fan now, but might be singing a different Zune if MS had a comparable or better selection.

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