Ted Howard

Project Natal is awesome. No question on that. But does it alter business models? I don’t think so.

The announcement that people haven’t discussed much, at least in positive terms, is moving the Xbox 360 media marketplace to Zune. I see that as far more significant than a new controller.

If Project Natal can expand the potential market  of Xbox 360 consumers then it could change the business numbers. But that market expansion will require more than just a new controller. It requires a large number of good games that use it well, which requires non-Microsoft publishers making those games. If you look at the Wii, it has taken a long time for non-Nintendo studios to understand how to use the Wii controller well. Natal is just incremental in my opinion.

The social networking (Facebook, et al) announcements may have more impact that controllers. AdAge had a piece on this entitled "How Xbox’s Social Strategy Could Change Gaming Forever". Social networks have fun network effects. I haven’t thought enough about whether this could impact the Xbox 360 business significantly, but there is no doubt in my mind that it has more power to change things than a new controller.

The Zune announcement can change things.

It’s hard to find the information, but Zune will expand the availability of video on the Xbox 360 to more countries. If you look at old press, one of the problems that the Xbox 360 Marketplace experienced trying to expand to more countries was licensing. Every company offering media has to negotiate specific distribution rights and payment terms, often with a separate negotiation for each individual country. That’s why you don’t see the same content everywhere, even in neighboring countries with the same language and essentially the same culture (USA & Canada). It appears to me that the group getting media distribution rights for the Xbox 360 Marketplace was hamstringing the long-term efforts by not getting expansive rights. The other issue with these licenses is that it takes time and money to get more rights in more countries. The Zune group is completely focused on getting great licensing terms. One can assume that they are getting licensing terms geared towards long-term success to distribute everything worldwide. This can expand the Xbox 360 media market to more countries, the Xbox 360 media market by having more content, and the Zune marketplace market to more Xbox 360 consumers.

If you look back, there was also an announcement that Microsoft’s IPTV system, Mediaroom, can run on the Xbox 360. (It may take hardware change – that was never clear in the PR.) They obviously already have NetFlix streaming integration already. The Xbox 360 is designed for cost reductions and already costs less than a fully subsidized iPhone! Let me say that again. An Xbox 360 is cheaper than an iPhone with a full 2 year AT&T contract that costs at least $50/month ($1,200 over 2 years).

Microsoft’s media groups are assembling the pieces needed for a great media experience in the living room.