3 Ways the Next Xbox Could Change the Entertainment Industry

After almost seven years and 66 million machines sold, Microsoft (NASDAQ:MSFT) is gearing up to release a successor to its Xbox 360 game machine. It won’t be out in 2012, and some have hinted that it won’t even hit the market in 2013, but the technology that will power the device is already in the hands of game makers.

Epic Games’s Mark Rein, whose studio is behind multimillion-selling Xbox-only hits like Gears of War, said at the DICE Summit, the game industry conference held last week in Las Vegas, that Epic’s new Unreal Engine 4—an engine is the software a game is built on—is running on systems he “can’t name yet.” Read between the lines.

There are plenty of rumors about what the new Xbox (Xbox Next? Xbox 720? The official name hasn’t been revealed.) will sport in addition to fancy new graphics. Codenamed “Durango,” according to sources working on the device, Microsoft’s new gaming machine is said to include nearly every technology gimmick under the sun. A Tuesday report posted by BGR spotted a Microsoft job posting that hinted Durango supports stereoscopic 3D. A Friday report by Computer and Video Games said that it uses a tablet-like controller, similar to Apple‘s (NASDAQ:AAPL) iPad and the controller in Nintendo‘s (PINK:NTDOY) Wii U.

Microsoft’s Entertainment & Devices reporting segment, of which the Xbox is a part, generated 20% of the company’s total revenue last quarter, nearly $4.2 billion. The 3D and controller tweaks, in addition to a revamped version of Microsoft’s popular motion-control device Kinect, will likely draw consumers to the new Xbox, but it won’t transform Microsoft’s business and drive growth in the entertainment segment.

Durango likely will offer more than fancy new tech bells and whistles, though. Here are three things Microsoft’s new machine may do that will change the whole entertainment industry.

Streaming TV

Microsoft has already made streaming television a part of its Xbox business. From an Xbox Live version of Disney‘s (NYSE:DIS) ESPN 3 channel to partnerships with Verizon (NYSE:VZ) and Comcast (NASDAQ:CMCSA) to bring their respective FiOS and Xfinity cable services to the device, Microsoft has made its intentions in the TV market known. The business is still half-baked, though. Plans to open a full-scale online subscription television service that would allow Xbox 360 to compete with cable and satellite companies was put on hold in January, reportedly because of high costs for licensing TV content.

At the same time, however, the company continues to forge individual partnerships with content providers. Microsoft announced at the International Consumer Electronics Show in January that it had struck a deal with News Corp. (NYSE:NWS) that brings Fox, Fox News, and Wall Street Journal television content to Xbox Live. In all likelihood, Microsoft is repositioning its new TV service to release alongside Durango, making it both a game and television machine. What’s more…

The new Xbox may be a television

Smart TVs are changing that video game business. With technology companies shifting their gaze from mobile platforms to living rooms with the rumored Apple iTV and the existing Google (NASDAQ:GOOG) TV, gaming-only boxes for the home may go extinct. Businesses like OnLive and Gaikai are popping up to embrace that future, offering services that stream games to TVs, mobile devices, and PCs in the same way that Netflix (NASDAQ:NFLX) streams television. In fact, Gaikai co-founder David Perry said, “My predicition is that Microsoft will have to make a TV.” A television with game hardware inside of it would certainly let Microsoft play every angle, serving its streaming TV ambitions and its growing games business. Another rumor about the next Xbox reinforces this possibility as well…

It won’t play used games

Speaking with blog site Kotaku, an unnamed source said on Jan. 25 that the next Xbox will still use physical media, and in a coup for Sony (NYSE:SNE), it will use Blu-ray discs instead of DVDs. More interesting, though, is the source’s suggestion that the new Xbox will somehow block the use of used games. Used-game sales are a constant thorn in the side of game developers. Retailers like GameStop (NYSE:GME) have built empires on reselling games—used game sales accounted for nearly 50% of GameStop’s profits, $292 million in its second quarter alone—while publishers and console makers like Microsoft never see a dime. How will the new Xbox block used games from playing on it? First by offering a streaming game service directly through the device, as suggested by Gaikai’s Perry. Second, for any physical disc sales, Microsoft could link a Blu-ray disc to a specific Xbox Live account. If a consumer purchased that disc used, they would likely have to pay a fee to reactivate it, similar to online passes currently used by many game publishers.

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.


Article printed from InvestorPlace Media, https://investorplace.com/2012/02/3-ways-the-next-xbox-could-change-the-entertainment-industry-msft-aapl-ntdoy/.

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