by Anthony John Agnello | March 28, 2012 3:58 pm
Microsoft’s (NASDAQ:MSFT) Xbox 360 is no longer a machine merely for playing video games. It is the most successful streaming and downloadable-media set-top box on the market.
Apple (NASDAQ:AAPL) has only sold around 3 million Apple TVs to date. Roku has sold around 2.5 million of its boxes. Google (NASDAQ:GOOG) and Logitech’s (NASDAQ:LOGI) Revue Google TV set-top boxes tanked badly enough to lose Logitech $100 million. Microsoft, meanwhile, has sold 66 million Xbox 360s worldwide since 2005, and while playing video games might have been the main motivation for people to buy those machines, they’re using them for a broader array of online entertainment.
Yusuf Mehdi of Xbox’s marketing and strategy team told the Los Angeles Times that households spend 84 hours per month on their Xbox 360, and more than 50% of that time is spent watching television and listening to music.
Microsoft’s long-brewing plan to take over living room entertainment, which started with the original Xbox in 2001, is coming to fruition. Now comes the next wave, and it starts with the Xbox Lite.
As detailed by Microsoft informant MS Nerd, whose accuracy on information leaks has been solid despite his diminutive cover name, the Xbox Lite will be Microsoft’s next major living room device. Set to debut at the E3 conference in June, Xbox Lite will be of modest size and function, a tiny set-top box that plugs into the television and retails for around $200. The emphasis will be on media — movies, music, television, and games as well — but also on social networking tools.
It also is expected to work with the newest version of the Kinect motion-control device that currently works only with Windows PCs. Xbox Lite might also forego an optical disc drive, relying solely on downloadable and streaming content.
This machine could be a huge win for Microsoft, one that trades on the strength of the Xbox brand but also moves that brand farther away from perceptions that it is a video-game-only device. Comparatively speaking, Microsoft still has a huge audience to capture. While it has sold 66 million 360s to date, Nintendo (PINK:NTDOY) has sold almost 95 million Wii consoles. A sub-$200 Xbox with a Kinect that doesn’t use discs but can play downloadable versions of seven years’ worth of Xbox 360 content, in addition to its suite of streaming media services, could make it the marquee product of holiday 2012.
Microsoft is bulking up on those streaming services as well. Starting April 1, Time Warner (NYSE: TWX) subsidiary HBO will make its HBO GO streaming service available on Xbox. Comcast’s (NASDAQ:CMCSA) Xfinity TV cable service will be available that day as well, alongside Major League Baseball TV (MLB.COM). These offerings will compliment the already wide array of streaming options on the box, including Netflix (NASDAQ:NFLX), Hulu, and even exclusives like a version of the Disney-owned (NYSE:DIS) ESPN 3.
What’s it all mean in the grand Microsoft picture? It means that Microsoft’s fastest-growing operating segment will continue to grow. In the quarter that ended in December, Microsoft’s Entertainment and Devices segment pulled in $4.2 billion, up 14% from $3.7 billion the year previous. It wasn’t all joy, as operating profits sank 20%, to $528 million, for the period year-on-year, but it’s still performing better than the company’s Business and Windows divisions on a quarterly basis.
Entertainment is a bigger and bigger part of the Microsoft picture, and its plans to keep those gains running are promising.
As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello and become a fan of InvestorPlace on Facebook.
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