Microsoft: A Good Bet In Home Entertainment?
Maxwell is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The disruption of the television industry is starting to pick up, with a lot more new information coming this week. At the E3 gaming concert, Microsoft (NASDAQ: MSFT) played its hand, revealing many upcoming deals and technology that have potential to further its lead in the online television revolution. Many have written Microsoft off due to lackluster performance time and again, but with online television it might really be on to something. At the very least, it is miles ahead of its competitors.
The first major announcement this week is the addition of six more streaming content to the Xbox 360. Specifically, Nickelodeon, Paramount Pictures, Univision, Machinima, the NBA, and the NHL will be added to the lineup. This will bolster its already above par sports lineup while giving it more diversity in content. Notably, the addition of Nickelodeon will broaden the range of ages using the console. Moreover, as competitor Amazon.com (NASDAQ: AMZN) is looking to develop original content targeted at a young audience, the addition of Nickelodeon will save face. I think it is time to take notice. Microsoft is certainly a leader in the online television space and adding more content will make it harder for competitors to play catch up.
Additionally, Internet Explorer is finally coming to the Xbox 360. Personally, I think this is long overdue, but since nobody else has any substantial footing in this space, the announcement is very positive. Specifically, this version of Internet Explorer has the ability for Kinect Voice controls, a move that preempts any talk of an Apple (NASDAQ: AAPL) television set with "Siri" voice control capability. More importantly, the addition of Internet Explorer really integrates the Xbox 360 into your living room, an accomplishment sought after by both Apple and Google (NASDAQ: GOOG).
Possibly the biggest announcement is a new product called SmartGlass technology. According to Microsoft, this technology will allow any smart phone or table device to become part of the Xbox 360, with a tablet acting as a keyboard and a smart phone acting as a mouse. However, SmartGlass is much more than this, as content separate from your television will appear on your tablet and/or smart phone. I think it is important to note that any tablet or smart phone can be used. This is crucial since Microsoft's Windows Phone has lackluster sales and it has yet to launch a decent tablet. Also, this has the potential to cause some to resist an iOS or Android only ecosystem. If all your content can sync up with the Xbox 360, why purchase a separate box top. As Microsoft states, SmartGlass can make any TV a smart TV.
One other very intelligent business move by Microsoft is the introduction of Amazon Instant video app on the Xbox 360. Make no mistake, Microsoft and Amazon are competing in the same television space. However, Microsoft has a place for content and Amazon does not. By placing Amazon Instant in its Xbox 360, Microsoft is tying some of its success to Amazon's. This is very calculated. If Amazon Instant takes off, it will give Microsoft a lot of leverage. Either Amazon needs to develop its own set top box or be beholden to Microsoft for a spot on the Xbox 360.
Fortunately for Microsoft competitors are far behind. Unfortunately for traditional subscription TV services, there are many companies looking to enter this market.
First, as mentioned, there is Amazon. With the addition of Amazon Instant, it quickly became a content provider. Unlike Netflix (NFLX), Amazon users get access if they have an Amazon Prime account. Additionally, users can decide to purchase a single show, or stream one of many free offerings. More importantly, Amazon has been pushing to develop original content. This might separate it from Microsoft, as instead of being a content provider, it would be a creator. This is likely good for Microsoft, as competition with Amazon often yields poor results. If Amazon only creates content, the two companies would not be directly competing.
And then there is Google. Little is actually known about Google's ambitions to enter the television space, other than that its attempts at a GoogleTV have been miserable. Today we might have accidentally learned a bit more about its ambitions. Google Fiber, an extremely high speed broadband connection in Kansas City, might be issuing a set topbox. Any set top box for video service on broadband as fast as the Google Fiber broadband could stream or download anything instantaneously. Yet to be seen, but there are rumors that Google will introduce a TiVO-like service, as its broadband service will be fast enough to support a similar service over an internet connection.
And then there is Apple. At this point, there is little to say about an Apple TV, other than it will be coming in the near future. However, some believe that Apple will continue to use its iPad in conjunction with its AppleTV set top boxes to create a cable TV app. Until there are more announcements, I wouldn't factor Apple into the equation.
It is worth noting that many startup companies are also trying to enter the television space. One innovator, Aereo, is tied up in litigation in its attempt stream TV over antenna through an app on your tablet computer. Any competition from this front will likely be quick and unexpected.
Overall, Microsoft has set itself up well for future growth and expansion of its offerings. By slowly transforming the Xbox 360 from a console into a home entertainment system, it has positioned itself ahead of the competition in television offerings. I expect to see Microsoft continue this trend and shift its focus from gaming to home entertainment in general. With the disruption of an industry, one should be careful and watch out for unexpected players. At this point though, Microsoft looks like a pretty sure bet.
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