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Playing the digital-video game

Microsoft's forthcoming Xbox 360 Elite console points to entertainment push

March 30, 2007

Microsoft Corp.'s Xbox 360 Elite video game console is slated to launch in Canada on May 4, priced at $550. (Microsoft Corp.)

The emerging trends in entertainment technology could almost make one think we had jumped back nearly 30 years. The Next Big Thing appears virtually the same as it was then: video in the living room whenever it's wanted, amid the throes of a format war. And consumer electronics giants and media companies are scrambling to ensure they don't miss emerging opportunities.

The difference now is in the technologies being touted: rival formats for high-definition DVDs, competing forms of internet video downloads and the promise of high-quality streaming digital video over data networks — all looming against the backdrop of a video game console war.

Microsoft Corp. fired its latest salvo on March 28 when it said it would launch a new version of its flagship Xbox 360 video game console in the United States and Canada around the end of April.

The move suggests that Microsoft is fulfilling plans to move its hardware from chiefly being a video games console to being the hub of home entertainment, according to industry observers who spoke with CBC News Online.

Broader entertainment device

Matt Rosoff, lead analyst of commercial and consumer services for the research and consulting firm Directions On Microsoft, said the introduction of a beefed-up console was hardly unforeseeable.

"Microsoft has always said that with Xbox 360, they were going to make it an entertainment device," said Rosoff, whose company is based in Kirkland, Wash.

He pointed to Xbox Live Video Marketplace, the Microsoft digital download service that launched for U.S. users on Nov. 22, 2006. (It's not yet available in Canada.) The service lets Xbox 360 owners buy television shows and rent movies through the company's online gaming network.

"Consumer response was stronger than they expected, which led to some problems early on," Rosoff said, referring to the slow download times and connection difficulties that initially dogged Microsoft, "but those have been ironed out."

Rosoff said demand for the service has increased four-fold since the launch, although the company would not state actual figures such as the number of downloads. Microsoft spokespeople did not supply CBC News Online any information about how the video service is performing.

Meanwhile, Sony Computer Entertainment Inc. launched its own online network with its PlayStation 3 console on Nov. 17. It currently offers short video clips of movies and video games for download, but plans to eventually increase its offerings.

Demand for video

The increased demand for downloadable content logically creates a need for more storage space on the Xbox, Rosoff pointed out.

"They've capitalized on that demand by putting in a larger hard drive," he said.

He said Microsoft indicated its intentions quite clearly by including a high-definition media interface (HDMI) port and cable in the Xbox Elite package.

"It seems like a pretty straightforward video play," he said. "They've already built the download infrastructure through Xbox Live Video Marketplace."

Xbox 360 Elite

Microsoft's new Xbox 360 Elite console is slated to launch on April 29 in the United States and May 4 in Canada.

It is to include new features, including a 120 GB hard drive, an HDMI port and cable, and a black finish instead of the white one on current versions.

The unit will not include a high-definition HD-DVD drive, but an add-on module will be available.

The package will also come with a black wireless controller and headset, and sell for about $480 US. In Canada, the top-end console is to be priced at about $550.

The current Xbox 360 comes in two versions. The premium Pro version includes a 20 GB hard drive but no HDMI connector cable and retails in Canada for about $500. A lower-priced Core version sells without the hard drive and several accessories for about $400.

In comparison, Sony sells two versions of its PlayStation 3 console, both of which include a built-in high-definition Blu-Ray DVD drive.

The premium version of the console, which has a 60 GB hard drive, sells for about $660 in Canada, while a version with a 20 GB hard drive is priced at about $550. Neither includes an HDMI connector cable.

Michael Pachter, the managing director of research at Wedbush Morgan Securities of Los Angeles, agreed that the enhanced console points clearly to an expansion of Microsoft's video services.

"I think Microsoft is acknowledging that high-definition [video] matters to a lot of people," Pachter said. "They're saying, 'We're essentially giving you a digital video recorder.'"

He cited not only the HDMI port — which lets people view high-definition video at full resolution known as 1080p — but also the potential future step of streaming video using Internet Protocol, or IPTV.

"If you really are going to offer broadband video at 1080p, you have to look at HDMI," he said. "Add the possibility of IPTV, which is a pretty cool feature, and they're giving consumers a lot of choice — as many choices as possible."

Rosoff said he thought it was too early to make a call on IPTV, although both Microsoft founder Bill Gates and Robbie Bach, the president of the company's entertainment and devices division, made remarks at the Consumer Electronics Show in Las Vegas in January that suggested the company was preparing for a push into streaming high-definition digital video.

In his address at the tradeshow, Bach said: "I can play the best next-generation games, download movies and TV shows, connect to my Windows PC, and access my music and my photos, watch HD-DVDs, and now experience next-generation TV programs with IPTV. This is everything I want, it's all in one box, it's all on Xbox 360."

Entertainment gateway

Sam Punnett, the president of Toronto-based media research and analysis consultancy FAD Research, agreed that the Xbox 360 Elite follows Microsoft's stated plans for video and paves the way for even more.

"They've got a captive audience and that's what people dream of these days," said Punnett, who has advised federal and provincial governments on the traditional, new-media and video-game industries.

"It makes sense to develop the Xbox along the lines of what projected users are going to be doing."

Traditional entertainment industries could stand to gain significantly as they seek new ways to generate revenue in an age when their target audience gets much of its media through authorized and unauthorized online sources.

Consoles such as an Xbox with broader capabilities could help solve that problem, he said. "They have a branded distribution channel … and they're developing niche-specific audiences," Punnett said of Microsoft.

He added that the music industry in particular had been building links with the video-games industry for some time.

"They're looking for new ways to get their stuff out there because what they're doing now isn't working. Downloads are not making up lost sales from physical products at all. It's been at least five years that they've really been chasing movies and video games."

However, Pachter said he wasn't convinced the public would be fully appreciate the features and benefits of the new console.

"Consumers are not that smart," Pachter said. "From a consumer perspective, they may see it as a price increase."

High-definition DVD battle won?

The lack of a high-definition HD-DVD drive in the Xbox is also telling, Pachter said.

"It's an acknowledgement that HD-DVD is a flop and a tacit acknowledgement that Blu-ray is going to win the high-definition DVD battle," he said. "They seriously do feel inferior."

Both versions of Sony's PlayStation 3 console include a built-in Blu-ray DVD player.

"Blu-ray discs are outselling HD-DVD something like four to one," Pachter said. "It's over. The battle is over."

Rosoff was less convinced.

"Microsoft doesn't particularly care one way or another how people watch video," he said. "But it is interested in downloads. If people start to download, that's sort of more the Microsoft way of doing things."

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