Microsoft And Sony Play In The Same Sandbox

by Jay Krihak, Jul 8, 2008, 2:00 PM

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In a not-so-stunning turn of events in May, confirmation surfaced that Xbox will be making a Blu Ray drive add-on available. It would be nice if Microsoft offered the gamers who bought the HD DVD drives the opportunity to swap their obsolete peripherals for Blu Ray. But I'm sure gamers will have to cough up another $199 for the new device because it competes with HD content offered for download through Xbox Live Marketplace. With over 10 million Xbox Live subscribers, it's hard to imagine a reason why Xbox users would buy the Blu Ray peripheral drive.

Blu Ray adoption has been noticeably slow in the U.S., giving Xbox the opportunity to be lackadaisical in getting a Blu Ray drive to market. It's also no surprise that the Playstation 3 consoles haven't been flying off the shelves since Blu Ray's victory announcement in January. What is even more interesting is that Playstation has been engaging in licensing talks with major studios since early April with the intention of having HD video available for download through the Playstation Network as early as this summer. It looks almost as if Sony is being smart, giving consumers a choice of how to consume HD video content through the PS3 living room entertainment console.

Unfortunately for Microsoft and Sony, only gamers are purchasing the consoles. This is due to high price points for the hardware, peripherals, subscription fees, points, content costs and other barriers for the non-tech-savvy. Sure there's some adoption of these online interfaces, but as long as episodes of "The Simpsons" and "Family Guy" can be found on Hulu (and elsewhere) for free, video downloading will remain a small portion of the paid DLC business. As Steve Ballmer has mentioned before, it's hard for a paid service to compete with a free one.

Maybe the video business should take a cue from iTunes: make a lot of content cheaper to access, easy to find and consume, and available in multiple locations and formats. Knowing that the PSP and Zune offer portability, maybe it's time for these handhelds, with decent viewing areas, to take on a bigger role with downloaded video content from Xbox Live Marketplace and Playstation Store. The Zune may have low penetration, but the PSP has lifetime sales of nearly 14 million handhelds. Last I checked, that's more units sold than either the PS3 or the Xbox 360. Maybe the next time Sony upgrades the PSP, larger hard drives will be a higher priority.

All in all, the game console networks are still functioning like walled gardens. There are few businesses that have been able to survive long term using that model. With DLC video as a tertiary business opportunity for Sony and Microsoft, I strongly suggest that they do everything they can to give gamers a reason to spend more time with their HD video network than on Hulu or other sites. And maybe part of the solution is to allow marketers to run ads within video DLC (pre-roll or otherwise) or surrounding environment to better compete versus free online video by offering what Hulu cannot -- instant, 1080p HD access to large screens in the living room without an extra cable or two. Instant gratification would be awarded to the appreciative gamer and opportunity for the marketer to engage gamers, while the console folks make a couple extra bucks in the process.

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