• by Laurie Sullivan  @lauriesullivan, April 15, 2011

The Microsoft Xbox 360 marketing team has been trying to change the box's image from a game console to an entertainment center for nearly seven years. The opportunities for growth through a new image could catapult sales of pre- and post-roll videos to tracking and retargeting ads cross-platform, as well as product placement in virtual lounges that allow avatars to intermingle online.

Jose Pinero, Xbox spokesperson, acknowledges there are many opportunities to build "experiences" and combine it with advertising or branding that would not interrupt video gaming. "We're starting to build experiences that include more than content," he says. "There are huge opportunities for advertising."

Microsoft data reveals that Xbox Live gold members -- those who pay an annual fee to access multiplayer gaming and other content -- spend 40% of the time interacting with video, which means they watch movies or television shows on Netflix or in the Zune Marketplace. When analyzing the aggregate number of hours people spend on Xbox, on average 1 hour per day per person is used for non-gaming activities.

The data suggests Microsoft has begun to see data that supports the slow shift from Xbox as game console to Xbox as entertainment center. The Xbox team could tap that same data to target ads, but Microsoft must first step back and continue rebranding efforts that began in the mid-2000s to show consumers available options for entertainment.

The best-known Xbox feature resides in video games -- but how will Microsoft reach the millions of consumers that don't have one? About 30 million of the 50 million Xbox consoles sold are hooked into Xbox Live.

For Xbox to become an entertainment console, it will need to include two critical elements: access to more live television and streaming movies, and a Web browser. Earlier this year at the Consumer Electronics Show, Microsoft's Xbox division announced it would add Hulu Plus navigation and link it to Kinect, as well as Netflix, a feature still not available today.

Today, interactivity exists through applications such as ESPN, which asks questions of those watching the programming, such as "who will win the tennis match, Team A or Team B?" The console doesn't support a Web browser, which leads some to wonder whether Microsoft dropped the ball to expand the use of its search engine Bing and paid-search advertising.

Consumers can count on seeing an "entertainment story" in more television and online ads and promotions this year. Pinero says the Xbox team is working to determine how to get that message out, "but "we're not commenting or announcing future plans now."

Sales of the unit, however, are not lagging -- although they fell slightly in March. Microsoft Xbox unit sales surpassed 500,000 units in February and 10 million sales for the motion sensor Kinect controller. In March, the Xbox 360 came in a close second with 433,000 units sold, according to The NPD Group.