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Xbox Continues to Conquer: OTT Video Trojan Horse Captures 20 Million Subscribers Via Xbox Live

Microsoft announced yesterday that sales of its Xbox 360 console have passed the 30 million mark globally, with its Xbox LIVE community growing to more than 20 million active members. With sales up 28 percent from last year, Xbox is so far showing the highest rate of growth in 2009 among the gaming consoles. What is most impressive is how it has grown over the years from primarily a gaming console to a virtual cornucopia of multi-media entertainment. Leveraging Xbox Live, Xbox has become a strong Over the Top (OTT) video platform, providing premium movies and TV shows in both standard definition and HD. So far, consumers have downloaded nearly 1 billion gaming and entertainment titles from the Xbox LIVE Marketplace.

According to Microsoft, activity on Xbox LIVE surged following the launch of the New Xbox Experience in November 2008. Since that time, the community has recorded a 136 percent increase in new members, TV and movie downloads have more than doubled, and game-related purchases have increased by 70 percent. To give you a measure of the scale of this platform and its further potential as an OTT video box, Xbox LIVE reaches 26 countries worldwide and is now in more homes than even the largest satellite TV provider. Further, Microsoft claims that before the end of 2009, that number will surpass the largest cable provider.

As a further measure of the strength of Microsoft’s OTT video strategy, British broadcaster Sky announced a deal today to leverage Xbox to stream live television programs, including sports, TV shows, and movies, in the UK and Irish markets later this year. This is similar to a deal that Sony and Nintendo already have with the BBC's iPlayer, to instantly stream recent TV shows to the PlayStation 3 and Wii consoles.

A major benefit of the Xbox/Sky subscription-based service (pricing has not yet been announced) is that it will eliminate the need for set-top boxes and satellite dishes, a huge cost-saver for Pay TV operators to deploy, service, and upgrade. But since it will leverage the customer’s broadband Internet connection, some portion of this cost will have to be passed onto the broadband service provider, which in the case of Cable MSOs is the same entity. The service will have subscription packages and pricing tiers similar to cable/satellite offerings today, but we would have to expect a broader array of content options.

What will be interesting to see is if Microsoft can pull off similar service provider partnerships in the U.S. market. Though no plans have been announced yet, it seems inevitable. Maybe it will be easiest to partner with satellite service providers. Challenges may come from operators who must decide whether to defend their turf or eat their young, and the movie/TV houses who have had to build a labyrinthine web of legal licensing to deal with the many ways their content can find its way to consumer eyeballs. In this age of Netflix and Hulu (Disney recently threw in the towel and adopted the “if you can’t beat ‘em, join ‘em” strategy”), it may seem the best thing for Pay TV operators is to find ways to extract revenue-sharing and/or cost efficiencies from the tidal wave OTT video trend, rather than be swept away by it.

In related news, 20 million teenagers staged a massive protest over the prospect of reduced Halo game time so Mom can watch re-runs of Grey’s Anatomy on their Xboxes. To protest Microsoft’s Xbox plans, they have vowed to not do their homework for a month, to which their Moms replied: “So what’s new?”

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