Game Over

by Josh Lovison, Oct 31, 2008, 12:00 PM

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Big news this week ---news that is going to ripple well beyond gaming. Starting Nov. 19, in concert with the launch of the new Xbox 360 Dashboard, the console is going to be able to stream video from Netflix,in HD.

Yes, this is pretty significant. It represents the beginnings of a viable price model for streaming HD content, and is backed by the brand that's replaced Blockbuster as synonymous with video rentals. Sure, Netflix is releasing this capability beyond just the Xbox 360 -- all of the company's set-top boxes will be HD-capable with firmware updates -- but with an install base of over 10 million domestically, the Xbox 360 is going to be the de facto device for streaming HD Netflix content before year-end. Initially, this is just a soft rollout from Netflix -- only 300 titles will be in HD, as compared to the over 12,000 titles available in SD for streaming. But it's a start.

So where will the repercussions of this massive shift be felt?

1. "Console Wars" becomes a misnomer: each device is really defining its own market segment. The Wii is more or less a stand-alone consumer electronic -- people buy it for the device, not so much for the games available. The Playstation 3 is developing some interesting social components, and doubles as a Blu-ray player. And now the Xbox 360 is a full-fledged media centerpiece that can also play games. As each evolves, their competition is less other consoles, and each is becoming the other solution in the spaces they are evolving to - (i.e. the Xbox 360 vs. Apple TV vs. on-demand).

2. A threat to Blu-ray: A rapid expansion of broadband streaming HD (as I believe this development will cause) is going to be an issue for Blu-ray. Not that it's actually competition as a product -- for those in the know, there's actually little comparison. (To my eyes, the difference between Blu-ray and an HD stream is the same as the difference between said stream and a DVD). The problem is convincing the public of that. Considering the horrible job the entire industry has done in educating the public about the HD revolution, it's going to be very difficult now to convince an audience that isn't even sure why HD is better than SD to drop the money on Blu-ray. This becomes even more difficult as easy and cheap HD alternatives continue to grow.

3. Digital Price Drop: Because Netflix's offering is free to subscribers and unlimited in hours, it provides a value that is going to be very difficult for a la carte digital download providers to compete with. ITunes recently announced rental pricing for HD film content, but $3.99 for each rental just doesn't compete with unlimited rentals for $10 a month ($4.99 Netflix plan + Xbox LIVE subscription). Pretty much all online video services are going to have to slash prices to compete, which is going to require lengthy renegotiation with studios. This undercutting of a la carte services goes for Microsoft's video marketplace on the Xbox 360 as well, which is bizarrely ironic.

4. Bye-bye cable: At the end of the day, the biggest losers in all the online video developments are cable television providers. They are selling a soon-to-be-obsolete product. As the country heads into a recession, I wonder how long $50 a month is going to be seen as a necessary expense when 12,000 SD titles and 300 HD titles can be streamed for $10 to a $199 device that doubles as a gaming center. That's a five-month break-even point, with $480-a-year savings from there on.

[Full Disclosure: Josh Lovison consults for the IPG Emerging Media Lab, which works with Universal McCann. Both Microsoft and Sony are agency clients.]

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