Parks Associates Blog

Thursday, March 27, 2008

Netflix at the Xbox 360?

A rumor circulating by a Reuters report indicates that Xbox 360 owners may be closer to being able to use the Netflix Instant Viewing feature (catalog content available via streaming) to watch content on their TVs. Netflix has apparently surveyed its customers about their interest in having the service accessible via their game consoles, although Netflix Director of Corporate Communications Steve Swasey declined to say whether a partnership was imminent. If there were some kind of agreement reached, however, I'd be looking at Microsoft's entertainment strategy in a whole new light.

There's no question that Microsoft's Xbox 360 strategy is - to date - Microsoft's most successful foray into the living room. The launch of Mediaroom IPTV solutions has been characterized by fits and starts, although Microsoft does have major Tier 1 service providers such as AT&T, BT, Bell Canada, Deutsche Telekom, and others using the solution. The earlier Microsoft (and Intel) visions of "A chicken in every pot and a Media Center PC in every living room" also failed to gain traction. It's as simple as people don't want PCs in their living rooms.

Game consoles, however, are a different story. Microsoft has already done well in building the Xbox Live Marketplace as a compelling destination for TV shows and movies for Xbox Live Silver and Gold subscribers to access. In January, ABC and MGM joined the content lineup at the Marketplace. In total, Microsoft says that the Marketplace offers 3,500 hours of premium entertainment content from more than 35 studios and networks. And, our own consumer data shows that not only are Xbox 360 users watching streaming content from the Marketplace, but they're paying for it. More than 15% of Xbox 360 users say that they're paying for video downloads on at least a monthy basis, according to our Digital Media Habits II survey.

The potential for the Xbox and other game consoles to be "set-top box killers" is significant. While VUDU and Apple TV as dedicated video download units are compelling devices (and we recently contributed to a press release for VUDU in announcing some partnerships with well-known companies in the custom installation market; a very good fit for a product such as VUDU), the mass-market potential of these stand-alone devices is limited, in our opinion. Just compare our forecasts for the dedicated boxes (VUDU/Apple TV, etc.) to the Xbox 360 over the next few years. In a best-case scenario, we see VUDU and Apple TV box unit sales growing to perhaps 3-4 million units by 2012. At the same time, combined sales of the Xbox 360 and the PlayStation 3 in North America are going to be at around 40 million units (with a huge base of penetration already). If I'm a content provider or a service like Netflix that is looking for the largest potential market opportunity, I'm going to look to target those big installed bases of products such as game consoles. We certainly anticipate that a connected DVD player (which could come of of the Netflix and LG Electronics announcement from January) and connected TVs (like the MediaSmart TV from HP or products like the Sony BRAVIA Internet Video Link or the Sharp AQUOS NET or the Panasonic VIERA televisions) are also key platforms for connected entertainment experiences.

It will certainly be interesting to see if the Netflix and Xbox 360 partnership emerges. I'm also quite curious to see how a company like Blockbuster is going to respond. They bought Movielink last year for $6.6 million - now what are they going to do with it?

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