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Microsoft announced two epic features for the XBox360 today.

  1. Digital downloads of games direct to hard drive
  2. Facebook integration with games

Change in entertainment

XBox is taking a page right out of Valve’s book. Valve provides direct to download PC games wrapped in a social network. I’m notified when my friends are playing different games and I can join them. If I don’t own the game, I can buy it immediately. Better experience for users, better margins for game producers and tremendous loyalty.

With Facebook integration, the XBox ties into an existing social network of 300M users. I can browse most of Facebook, push content to my feed and play with friends. Twitter integration is forthcoming. The result: TV becomes interactive, at a pace the cablecos can’t match.

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Why this is big: the enormity of the XBox platform

There are 30M XBoxes in the wild globally and 20M connected to the internet using XBox Live. In the US, there are about 8M XBoxes connected to XBox live, according to NPD. Since the launch of XBOX live, there have been 42M downloads, representing 12.3M hours of content.

Quoting GigaOm,on the Netflix app:

As of February, 1 million Xbox LIVE Gold members had downloaded and activated the application for streaming Netflix movies to the Xbox 360 console. Meanwhile, users had watched more than 1.5 billion minutes of movies and TV episodes from the Netflix Watch Instantly library.

For some perspective

  • 445,000 TiVos capable of getting Amazon or Netflix content, more that can receive YouTube
  • Less than 500,000 Apple TVs sold

Additionally, DVR penetration in the US is about 30% compared to XBox Live penetration is about 10%. It’s clear that XBox has a significant footprint.

Implications

As I wrote about yesterday, the television really hasn’t evolved in a decade, largely due to regulation and entrenchment in the set top box technology and networks. All that is about to change.

The internet is enabling the original vision of the CableCard: content downloaded a la carte on demand. But it’s only possible with the leverage of a huge installed base. With such a big market at stake, there are others vying for position as well:

Questions

I’m left wondering if the new revenue streams for on demand content will be able to sustain the expensive premium content production costs to support the tv and movie industry. At first blush, the higher margins from digital distribution should provide better monetization, but the smaller audience will take a big toll. Interestingly enough, this seems to benefit the game developers most – broader distribution at higher margins.

I’m not sure TV and movies will see the same scale of value destruction the music and newspaper industries have seen. But only time will tell.

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