Microsoft announced last week that it is going to launch Xbox TV later this year. While there is no guarantee of success, Microsoft is well positioned – much more so than others – to succeed where others have failed.
Apple TV, Google, and even Microsoft (with its Windows Media Center) did not succeed in getting consumers to watch Internet-delivered content on their televisions – at least not in mass quantities that many expected. The biggest challenge for these players is that consumers had to purchase ANOTHER set-top box in their home for another specific purpose. Many consumers already have a cable or satellite set-top box, DVD player, and likely a game console. They don’t want another box in their entertainment system just for watching Internet-delivered content. Consumers would rather use an existing set-top box for that purpose. Google smartly integrated their service into televisions, but consumers are not likely to buy a new television simply to get the Google TV service – unless they were already ready to buy a new TV.
Microsoft has sold 55.9 million Xbox 360 consoles worldwide of which 33 million are in the United States, according to VGChartz.com. This is a large installed base that Microsoft already has – positioning it to at least come out of the gate ahead of other competitors.
Microsoft’s plan is to include video-on-demand (which it has already) as well as live television on its Xbox 360 game console. The announcement didn’t include other business models (like subscription VOD) but my guess is that this will be included in some way. The company also didn’t yet announce content partners, but Microsoft has deep relationships with all of the major content owners, so it is likely that many deals are already in the works.
Another option for Microsoft is to become the “TV Everywhere” extension for cable and satellite providers. Many have already rolled out their plans (e.g. Dish, Comcast) but many have that. Microsoft could include the Internet-delivered content on the Xbox 360 and also make it available through their other outlets like the Zune Marketplace, which is available on a Windows 7 PC (of course that software could be extended to other platforms).
Live television will be a difficult proposition for Microsoft if it is done separately from a TV Everywhere strategy of a cable or satellite company. It might be possible for broadcast channels, but for cable channels that would be much more difficult as cable and satellite providers may threaten to drop channels that are offered an a la carte offering through Xbox 360. Cable programmers like to package channels together and sell those packages to customers. A la carte offerings on other platforms would threaten that. Since cable channels are the bulk of a cable channel’s revenue base, it’s unlikely that would leave that large revenue stream.
One way to help ensure success with Xbox 360 is to make the content available on the console available on other platforms as well. This strategy has served competitors like Netflix and VUDU really well. Their content is easily accessible on everything from set-top boxes to computers to mobile devices. Consumers like to use the same service in multiple places – and don’t want to pay to access content just because it’s on a different platform.
Despite the challenges, Microsoft is in a position to be successful with an Internet-connected television service with Xbox 360. Customers flocked to the service when Netflix was made available on the console, so it’s clear that there is demand for content on the console. As long as Microsoft has a significant amount of content with multiple revenue models that appeal to a broad customer base and makes content discovery easy and organic (like Netflix does with its recommendation engine) then it will do very well.