Xbox One and the Future of the Digital Living Room

Ben Bajarin / May 21st, 2013

When I started my career as an industry analyst in 2000, my focus was on the video game industry and the digital living room. We had a belief that at some point in the future rich media and entertainment would collide and set the norm for living room multimedia and immersive experiences. Today with the unveiling of the newest Xbox generation, called the Xbox One, Microsoft has taken another step closer to this vision.

I’ve closely observed each major console announcement since 2000 and at each and every one there was a clear and focused message: this console was first and foremost about a great gaming experience. No longer is that the message. Great gaming experiences are simply assumed. They are the new normal and expected. The question that consoles need to address in order to evolve and appeal the wider audience necessary for broader adoption is: what else can you do for me?

Microsoft spent not only the introduction of the Xbox One but the vast majority of the presentations emphasis not on gaming, but on the what else can you do for me. This is very telling. Not just about where we are as an industry but Microsoft’s living room agenda at large.

I’ve long said, and I’ll continue to state that I believe Microsoft’s best asset to build upon and around is the Xbox. It is, arguably, the strongest and most relevant consumer brand they own today. It is also the strongest from an ecosystem standpoint, and the one I feel they need to build out from with regards to personal computing.

Of course the Xbox One will have amazing games, and I for one am extremely excited about that aspect. But, the most interesting parts of the unveiling were not the graphics, or games, or even the exclusive titles. The most interesting announcements were the OTHER exclusives.

Exclusivity is No Longer About Game Titles

We have a name for exclusive games. We call them platform drivers. The first Halo on the first Xbox was a platform driver. It was the single greatest selling point for that generation of XBOX hardware and it was exclusive to the Xbox. Many other top-tier titles were born as Xbox exclusives and its continued demand and strong sales were tied to those exclusives regardless of whether they stayed exclusive. It was almost always Xbox first or Xbox only with many top-tier franchises. To be fair Sony has many of their own, but the elusive hard-core gamer between the ages of 18-35 seemed to generally gravitate to the Xbox and the exclusive titles that drove the Xbox experience.

Today, however, Microsoft discussed exclusives of a new kind. Of course there will still be exclusive games, but now games are not the only exclusive content Microsoft appears to aggressively going after. Exclusive TV series, and network deals with the NFL, along with unique interactive content with SportsCenter were key parts of this announcement. I get the feeling that Microsot hopes that unique content of this kind may drive platform adoption the same way exclusive titles have in the past.

We keep wondering when our set-top boxes will break free from the mercantilist nature of our cable and TV programing companies. My thoughts on this is that we are simply waiting for an Internet only, or over-the-top-service only, blockbuster success. If that happens we will almost certainly see a paradigm shift. Perhaps Microsoft with the Xbox One will be the catalyst to drive this paradigm shift and create a true leadership position in the digital living room.

Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio
  • commun5

    Or, then again, maybe Microsoft will just cave to content providers and cable companies. Based on past experience, which one seems more likely?

    • benbajarin

      That is a much more complex problem. Microsoft can get all the content they want, they just have to be willing to pay for it.

      • Rich

        And if they pay for it, so will the viewer.

  • Rich

    Ben,

    My impression is that the content providers and the cable companies are locked in a very lucrative relationship. You say “an Internet-only blockbuster success” will cause “a paradigm shift.” So I have two questions:

    When you say a blockbuster success, do you mean a single show?

    What do you consider a paradigm shift?

    I’m doubtful that a single show, no matter how successful, will significantly disturb the current content provider and cable companies’ relationship. There are simply too many very popular shows (“Blue Bloods” and “White Collar” are two examples but there are lots of others) making too much money for that to happen. In military terms, what you seem to be describing would be a chemical bomb, however powerful, when what would be required would be a nuclear device. I don’t see any one show, now or in the future, as being a nuclear device.

    All the talk about how technology is going to free the public from excessive charges will never make sense to me until somebody explains it in concrete *business* terms, instead of making vague statements like “the networks can’t fight the advance of technology forever!!” That tells me nothing.

    Some people think Aereo will be the one to break up the cartel. I don’t think they will, but even if they did, it’s predictable what would happen. At first Aereo would have low rates as a way to attract customers, but wait five years and the same profit motive that now motivates the cartel would have Aereo making what would then be considered excessive charges. You can count on it.

    There’s another factor that nobody ever seems to mention when they talk about over-the-top delivery: to the best of my knowledge, most Internet access is obtained through a cable company. If too many people “cut the cord” and watch TV via the Internet, the cable companies can simply jack up the rates for Internet access. Why in the world wouldn’t they? I need a specific answer to this specific question.

    To summarize, the current entertainment is too much loved – for good reason – for people to give it up. And as long as that’s the case, a way will always be found to make the public pay for it, no matter what technology does. In economic terms, it’s simple supply and demand.

    • benbajarin

      I don’t disagree with the picture you paint but I do believe this shift will happen, however, it will take a long time and requires a specific set of intricate steps.

      What I am describing is just the beginning but will be the first tipping point. The capital behind a show or series needs to be convinced they can make money from an online service or delivery. The profit margins need to be greater than by traditional distribution. Given how much they are paid up front for the bulk of their content this is hard to imagine. However, shows like arrested development and even house of cards, are examples of how a show can move from broadcast to broadband delivery. If a long tail show like this can do achieve it, then perhaps networks will invest and bring more niche, or long tail, or even test shows in this manner.

      To your point the model is not being disrupted and yes the pipe guys will charge more. Those who own the pipes are the ones regulating this. They are mercantilists as I have stated.

      I agree it won’t be Aereo either. This will take time but I’m watching for rays of sunshine.

      • Rich

        I apologize if I missed something but when you say “this shift” do you mean that the public will pay less for TV in the future than they do now? If the answer is yes, I’d say the Internet does lots of wonderful things but it can never delete the profit motive from human beings.

        • benbajarin

          No, that’s not what I am implying only that the costs will transfer to something else. So we may not pay to cable, but we may be able to pay to other OTT sources for the content we want. Basically pay for broadband, then put together an OTT service that works for me. So probably still paying about the same but arguably with more customized services uses better technology than the one my service provider wants to give me.

    • steve_wildstrom

      I just added my own post on Xbox. I think Microsoft is quite content to work with the existing providers rather than try to displace them. That is very much Microsoft’s history and style. But they are ging to need some significant movement from the industry, especially the cable operators, for their Xbox strategy to work.

  • def4

    And you will keep wondering when your set-top boxes will break free from the mercantilist nature of your cable and TV programing companies because that’s not the problem.

    You see no significant change because there is nowhere to go with film and TV programming distribution. The value networks are completely solidified and significant profits are made exactly from parts that generate viewer frustration.
    You are fooling yourself into thinking that minor incremental changes will do anything more than make some of the rough edges slightly more bearable.
    Remember what Jobs said about TV: it’s not a technology problem, it’s a business problem.
    As long as the business of movies and TV programming stays the same, your enjoyment of the results will not improve substantially.

    The root of the problem is the absurdly high cost of production for the entertainment.
    I believe that lowering the cost is the only way to cut the Gordian knot of TV.

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