Quick Thoughts: More Shots Fired in the Battle of the Living Room

Written June 12th, 2013 by

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-          Gamer perspective – PS4 beats Xbox One on its lower price point, used game leniency, and unconnected gaming support – but MSFT is delivering real innovation, going beyond gaming.

-          The new Kinect is a HUGE leap forward in gesture controls, the cloud resources devoted to Xbox live enable very new experiences, and MSFT’s restrictive policies are very developer friendly.

-          PS4 may have early advantage, but Xbox One will have greater long term impact, as costs/prices drop and MSFT’s innovations are absorbed into gaming and non-gaming applications.

-          Comcast’s X2 initiative looks to stave off “input 1” challengers like Xbox One with a modern user interface and support for 3rd party apps, but stonewalling streaming competition

The bloggers have been quick to declare Sony’s PS4 the winner of this year’s E3 conference battle of the new consoles, a reversal of Microsoft’s victory in the 2005 faceoff between the PS3 and the Xbox360. However, the reasons for the enthusiasm for PS4 are decidedly conservative. The PS3, at $399, will be $100 cheaper than Xbox One. Unlike Microsoft, Sony is not implementing an anti-piracy DRM system, facilitating the used game aftermarket popular with hardcore gamers, although game publishers are free to implement their own solution. The Xbox One also must be connected to the internet and Microsoft’s cloud servers at least once a day, while the PS4 has no such requirement. Sony is not asking old school gamers to change much about the way they play games – a decidedly conservative strategy and one that may be rewarded in the early stages of inter-console competition.

Still, I think it is way too early to declare a winner in the multiyear battle that will not even begin until November. Xbox One is more expensive, but the package includes the new and improved Kinect. The previous version had sold for an additional $100 when combined with the older Xbox 360 console. Sony also offers a motion sensor, the Eye, considerably less sophisticated than the new Kinect and a $59 option for PS4 buyers. The new Kinect is a technical marvel – able to track movements of 6 different people across an impressively large coverage area, sensitive to finger movements, facial expressions and even heartbeats, and able to see in the dark with its infrared sensor. This industry leading gesture and voice control system is a new variable in the equation, opening a range of options to game and application developers that is limited only by their imaginations.

The new Xbox’s internet connection requirement is controversial, but it is understandable given Microsoft’s intention to lever its Xbox Live cloud service to enhance gameplay, not just facilitating multiplayer games, but also multiplying the power of the console itself with cloud based processing. This also opens new possibilities for developers and exploits Microsoft’s extraordinary cloud infrastructure. Microsoft’s strong DRM policy is obviously unpopular with gamers, but extraordinarily popular with developers, who may be more inclined to push exclusives to the platform given the protection from privacy and greater control over the used game market. Note that DRM does not necessarily preclude used game sales and Microsoft has expressed a commitment to delivering a user-friendly process for transferring games in the used market.

Over time, I expect Microsoft will let the console price come down as volumes drive cost improvements. Moreover, gamer appreciation for the benefits of the Kinect and the Xbox Live cloud will also grow with time and exposure. Those benefits go far beyond the gaming market, as Xbox One is also designed as a game-changing media access box as well, fronting the living room cable-box with that slick Kinect interface and delivering web streaming video content over the Xbox Live cloud service. We also note that Microsoft is keeping the older Xbox 360 platform alive with a slimmer and cheaper $200 unit, which should help stem share loss from console sticker shock. It is also rumored that Microsoft will deliver a more affordable media-only box down the line, and I think such a box could breakout the platform to a large new constituency while giving the company an inside position in the battle for architectural control of the living room.

Meanwhile, across the continent at The Cable Show in Washington D.C., Comcast CEO Brian Roberts revealed his company’s answer to alternative television boxes, like the Xbox One. Comcast’s X2 interface, to be rolled out to the company’s set-top-boxes beginning sometime in 4Q, offers a significant improvement to the “grids and menus” of the traditional cable interface, with promised voice recognition and an option to control the system from touch screen mobile devices. X2 also promises access to on-line content, but the presentation made it clear that to Comcast, “on-line content” does not include streaming video services that might compete with the cable bundle. This system narrows the interface gap with next generation platform providers, but I remain skeptical that Comcast or any of its system operator compatriots can take leadership in user interface solutions while the competition is companies like Apple, Google and Microsoft. Moreover, consumers do value applications that Comcast will never support, not just streaming video like Netflix, but also gaming networks like Xbox Live. The battle for the living room will eventually be won by the Internet and its champions, but Cable will not go down without a fight.

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