Microsoft's Entertainment Domination Plan

Forget the fact that Microsoft is being overshadowed by Google and that Google is looking like the 800lb gorilla beating down Microsoft. Microsoft has other plans they’ve been working on — plans that have been really coming together the past few weeks and that quite frankly, I’m sitting here in amazement.

Earlier this week, Microsoft’s Xbox 360 division announced partnerships with CBS, MTV Networks, Paramount Pictures, Turner Broadcasting, UFC and Warner Bros. Home Entertainment to “Digitally Deliver TV Shows and Movies to Gamers.” This is Microsoft’s first move into digital movie and TV show sales — and is also another move towards turning their Xbox gaming system into a full-fledged digital entertainment system (note: they want to become the center of your living room). These digital movie and TV show partnerships for their Xbox 360 unit, will likely turn into sales through their future digital media sales service and playback on their upcoming handheld Zune device. Xbox 360 up until this announcement has only let users download select music videos and movie trailers. Last week, Microsoft sent a major update to Xbox 360 consoles that now allows users to now stream video from a PC or portable device (note: their handheld Zune device has wireless capabilities built-in) — previously, only users with Windows XP Media Center Edition installed could stream video to the Xbox 360.

Last week, Microsoft launched the website for their handheld digital music/video player Zune, which comes out next week (November 14) — Microsoft is taking on Apple’s iPod with their Zune device. And less than 2 weeks ago, Microsoft launched the latest version of their Windows Media Player (WMP), version 11, which takes over for Windows Media Connect and allows users to manage connections for sharing media (between PC, Xbox 360, Zune) within the new WMP player. One shocker is that Zune is not using Microsoft’s own “PlaysForSure” framework that other digital music etailers and manufacturers embraced (Napster, Musicmatch, Wal-Mart, URGE, MSN, FYE, etc) since Apple has not let etailers sell to iPod owners (due to Apple’s proprietary DRM, which DVD Jon recently cracked) and Apple has not let other manufacturers make devices that can work with iTunes-purchased media. Zune will be proprietary as well (like the iPod) and won’t be allowing etailers to get their media on it — Zune will not support PlaysForSure.

Since September, Apple has been selling movies online via iTunes, which iTunes at the time had 40-60 million copies of their software installed on user machines. Less than a week after launch, Apple announced $1mm in digital movie sales (125k purchases).

What does all of this mean? Microsoft has a serious strategy to dominate digital entertainment. Microsoft already has a very successful gaming console (Xbox 360) that allows users to play games, watch movies, buy movies, buy TV shows, stream video from their computer, stream music from their computer, and I’m sure buying music from URGE is in the gameplan — not to mention the social networking features that allow Xbox 360 users (and maybe Zune users, considering the wi-fi built-in?) to chat with each other in games, send messages to each other, add users to their friends list, etc.

The other device that has entered millions of homes over the years is the DVR. Microsoft has already been using DVR-related technology in their Windows XP Media Center Edition 2005 operating system (OS). In fact, if you own this OS, you can login to Microsoft’s online TV listing guide and setup their MSN Remote Record service, which then allows you to browse TV listings from any computer and click a button that will set a TV program to record to your home PC. I’d guess that in the future, there will be an accessory for my Xbox 360 that plugs into one of the Xbox 360 USB ports, hooking my cable TV into my Xbox 360, and allowing me to easily record TV shows to my Xbox 360 (note to self: short TIVO).

Apple may have millions of users using iTunes and millions of owners of iPods, but they lack a gaming console (which PriceWaterhouseCoopers predicts the gaming market will be $54.6 billion by 2009), they lack a DVR unit, and they won’t let manufacturers and etailers sell to their users. Currently, Apple’s strategy for getting into your living room is the anticipated iTV, which is rumored to be a set-top box for your TV and will allow you to stream movies, TV shows, and music from your iTunes software. Apple is also planning to sell basic games through iTunes, which iPod owners will be able to play. Could there be a gaming console (Nintendo WII? Sony Playstation 3?) purchase or partnership in the future for Apple? Could there be an Apple purchase of TiVo? (note to self: long TIVO)

This strategy by Microsoft is impressive and we’ll begin seeing how it all plays out over the next couple months of the holiday season — as buyers put up their money for an Apple iPod or a Microsoft Zune and/or Xbox 360.