Microsoft (NASDAQ: MSFT ) couldnt have picked a better time to strike. Flush
with strong press reviews of both the new Windows 8 operating system and the
early Samsung-made tablets that use it not to mention on the day that Netflix
(NASDAQ: NFLX ) showed its first real weakness in the streaming video market
Microsoft chose Thursday as the day it announced its new Xbox TV service. After
nearly one year of rumors and hints about getting into the ever-changing
streaming- and web-based television business, Microsoft will open Xbox TV for
business later this year, offering both on-demand video and live television side
by side. Users, rather than having to use a complex controller and menu system
to find what they want to watch, will use the Kinect microphone-and-motion
controller for the Xbox 360 and Bing search technology to find programming by
simply asking for it and navigating by waving their hands. How will Microsoft
succeed where others like Apple (NASDAQ: AAPL ) and Google (NASDAQ: GOOG ) have
failed? And what will leery content partners and cable companies, concerned over
revenue lost to yet another technology company, do when Microsoft enters the
fray? On the hardware front at least, Microsoft never will suffer the same
trouble that Apple TV and Google TV had in trying to stake a claim in the
average citizens living room. Where those companies needed to convince consumers
to buy new set-top boxes, consumers already have bought into Microsofts delivery
method: the video game console Xbox 360. Between 2005 and today, the company has
sold more than 55 million Xbox 360s, and it announced in July that, as of the
second quarter, it already had shipped 14 million Xbox 360s to retailers this
year. Microsoft also has sold more than 10 million Kinect devices, which
features so prominently in Xbox TV, since last November. Xbox Live, the online
network used not only by Xbox 360 owners, but by Windows and Windows Phone users
as well, also will be the delivery method for the new on-demand and live
television options offered by Xbox TV. Xbox Live already has a user base of 35
million customers, and close to half of them are paying subscribers to the Xbox
Live Gold premium service. Microsoft doesnt need to find an audience. It already
has one, and from the look of Netflix, its an audience that is at least curious
about alternative streaming services. Microsoft CEO Steve Ballmer provided early
details about the service at Microsofts annual financial analyst meeting during
the Build conference in California. He showed off a prototype version of the
interface, saying Xbox, Bing The Office to bring up an episode of the Comcast
(NASDAQ: CMCSA ) and NBC Universal television show The Office . The
demonstration, of course, called into question who Microsofts content providers
will be to support the Xbox TV platform. At the Electronics Entertainment Expo
in June, Microsoft said it will be partnering with Comcast and Time Warner
(NYSE: TWX ), as well as other cable and satellite providers on their television
project, which would suggest the company wont make individual deals with
television channels and movie studios, but give users access to existing
television subscriptions through their Xboxes. This would be smart considering
how cagey channels like Liberty Media s (NASDAQ: LSTZA ) Starz are becoming
about licensing their content for streaming services, but partnering with
cable/satellite providers isnt a guaranteed fix. Time Warner ran into serious
trouble earlier this year when it attempted to air Viacom (NYSE: VIA ), News
Corp. (NASDAQ: NWS ) and Discovery Communications (NASDAQ: DISCA ) content
through an iPad app without renegotiating its agreements with those companies.
Any deal with Microsoft for Xbox TV would have to be ironed out before the
service makes its holiday release. Content, however, is a secondary hurdle to
delivery. Content providers will go where the audience is and, thanks to the
Xbox 360s continuing success, Microsoft has just the audience it needs to make
Xbox TV big business. As of this writing, Anthony John Agnello did not own a
position in any of the stocks named here. Follow him on Twitter at
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