Microsoft is positioning the Xbox 360 at the centre of 'The Future of TV', according to its press release. The games console is getting a new dashboard (user interface), integration with Bing (search) and Kinect (voice control): "The power of Kinect combined with the intelligence of Bing search is turning your voice into the ultimate remote control". In addition, it’s also getting a great deal of content. This is not just for the American market, but also includes deals with a large number of operators in other countries too.
The market for connected TV is being somewhat undermined by the rise of the tablet. The basis of connected TV is the idea that video content is best viewed on the largest screen in the house, usually a flat-screen TV in the living room. However practice is proving otherwise: tablets, however small they may be, serve well as a ‘second screen’, as shown by the TV apps launched by cable operators. As a result connected TV loses some of its importance as a differentiator on the TV and triple-play market. Nevertheless Microsoft is again making a good go of it (see our commentary 'Microsoft positions itself as a partner for operators on the connected TV market'). With the latest Xbox developments, Microsoft is tying itself further to the operators and content suppliers. With its own assets (Bing, Kinect, Xbox, Zune Video, Xbox Live Marketplace and a new Xbox Live app for Windows Phone) Microsoft is also competing well in the fight with the TV makers (Samsung, Panasonic, LG, Philips) and the big internet companies:
- Google: the new Google TV 2.0 software, enhancements to YouTube with almost 100 new channels and content deals with Disney, Pixar and DreamWorks; in January at the annual CES in Las Vegas new hardware partners will be announced.
- Apple: the Apple TV box and according to market rumours a streaming video service and next year a TV.
Other players such as Amazon (and its subsidiary Lovefilm), Netflix, Sony, Vudu (Wal-mart), Hulu (Fox, NBC, ABC) and Blockbuster (Dish) should be seen in this light as content aggregators and as such potential partners for the above players. Microsoft is positioning itself in the complex playing field as the pivot, that works with everyone, both operators and broadcasters as well as content aggregators. In addition it’s taking advantage of the huge success of the Xbox 360 (57 million sold, including around 1 million in the weekend after Thanksgiving alone) and Xbox Live (35 million users). The only doubtful element in the mix is the hardware itself, which is already a couple years old and as such offers less processing power to support multiple simultaneous video streams. A new version will reportedly only reach the market in late 2012, and a completely new box (Xbox 720?) is expected in 2014.
For operators the Xbox offers great leverage to offset the decline in traditional TV viewing. According to Nielsen, the number of TVs in the US recently showed the first decline in history. Working with Microsoft can help compensate for the lost ad dollars by making TV viewing a richer experience. What’s interesting at both Microsoft and YouTube is the continued emphasis on ‘channels’, instead of individual content items such as films or episodes. This is expected to ensure that the 'the future of TV' is not all that radically different from what consumers already experience.
Microsoft is taking the lead in the connected TV market, and it’s now up to Apple and Google to come with a response. Microsoft has the advantage of all the building blocks in house, apart from the content, while Google is dependent on third parties for hardware. For Apple, it’s still unclear how serious it is about this market, which in the past Steve Jobs described as a ‘hobby’.
