Microsoft's Pursuit of 'Input 1'
"They'll be looking to establish the Xbox in those homes that have them as input number 1," says Colin Dixon, senior partner for The Diffusion Group (TDG) 's advisory services, and a former Microsoft, Liberate Technologies and Oracle Corp. (Nasdaq: ORCL) exec. "They know, as we do, that most people don't switch away from input 1."
Input 1 is the primary input to the TV that's typically used to take in video services from a pay-TV operator-supplied set-top box. Microsoft is making tweaks to the high horsepower Xbox 360 so it can handle the baseline set-top-box functions, plus other goodies like Kinect-based navigation and using Bing for content discovery.
"Getting the Xbox on input 1 as the primary device gives Xbox a huge advantage," Dixon says. "It's better than being the default browser on the PC."
This sort of strategy is not really new. That's been TiVo Inc. (Nasdaq: TIVO)'s play with CableCARD-capable DVRs that can combine an MSO's subscription video services with over-the-top content, and the results have been mixed, particularly at retail.
Microsoft, however, isn't anchoring the Xbox to the clunky CableCARD, instead aiming to use software-based security to deliver cable's TV service in IP format, so its approach may end up being more simple and elegant than TiVo's.
But that approach also has its share of challenges since not every MSO has employed an IP simulcast yet. Cablevision Systems Corp. (NYSE: CVC) and Time Warner Cable Inc. (NYSE: TWC) are already moving in that direction in support of iPad apps that pipe in live TV channels, and Comcast Corp. (Nasdaq: CMCSA, CMCSK) has hinted that it will be doing the same. Still, Microsoft's market for Xbox TV and everything it wants it to be seems rather limited. (See TW Cable Flirts With Full IP Video Simulcast, Cablevision Launches iPad App With 280+ Channels and Comcast Keeps Eye on the iPad Prize.)
Dixon sees this as a "tremendous opportunity [for the Xbox] to be the main entertainment device in the home," but still has reservations about how quickly Microsoft can pull it off. It'll need the support of cable operators, which historically haven't been known to move at light speed when it comes to these kinds of partnerships. But cable's adoption of IP video could help to speed things up.
"You just can't take two years to do this anymore," Dixon says. "In two years we'll be in a different place with online delivery."
And there's some question if cable will play nice with Microsoft and cede some of this control. It's a fair question, given cable's history as a control freak, but I think the industry is finally ready to loosen up a bit, especially if it means it can avoid an AllVid mandate while taking some set-top capital off the books.
— Jeff Baumgartner, Site Editor, Light Reading Cable