Can consoles play the video game?

Games consoles have shed their reputation for being the preserve of geeky, bedroom-bound teenagers, thanks largely to the family-friendly Nintendo Wii. But executives at Sony and Microsoft can also take credit for the shift. Their ambitions for their respective PlayStation 3 and Xbox 360 devices go far beyond bringing gaming to a wider audience: They aim to make their consoles the hubs through which all content in the connected home is accessed.

Unlike the PC, consoles connected to the TV have found a natural home in the living room, and users who hook them up to the Internet get access to an enormous array of content they can then watch from the comfort of the couch.

Video is an obvious candidate for distribution in this way. Although users can theoretically watch content from the likes of YouTube by connecting their laptops to their TVs, most won’t bother to do so. And that’s why the ability to instantly get television shows and movies via an alternative Net-enabled device has huge potential.

Last month, both Sony and Microsoft took big steps in that direction. The former announced that it planned to launch a video-download store through its PlayStation Network service. Prices range from $2.99 to $5.99 for rentals and from $9.99 to $14.99 for purchases, charges that are pretty much in line with those of rival download services. The service offers content from eight major film studios and is set to include 300 movies and 1,200 TV shows at launch. Users have 14 days to watch what they download. One major selling point is that users can watch the content on their TV screens and the PSP, Sony’s portable gaming device.

Microsoft has been providing a similar offering for a couple of years, but the company has now announced a deal with Netflix to enable its users to access the DVD-rental firm’s 10,000-strong digital-download catalog through the Xbox Live platform and watch videos on their TV sets. Xbox users with a premium subscription will be able to stream movies through their console for no cost other than their Netflix and Xbox Live subscription fees. The deal gives Microsoft a partner with a strong profile in movies, providing its customers with access to a greater range of titles than available via its own video service at no extra cost.

Some cannibalization is inevitable, but the two services are different: Netflix is a subscription-based streaming service, and the Microsoft store is download and pay-as-you-go. Microsoft is probably hoping that the deal will see more customers paying $50 a year for Xbox premium membership.

Sony and Microsoft are not the only ones hoping to bring streamed and downloadable video to the TV. Netflix has also signed a deal with settop-box manufacturer Roku, and Amazon plans to launch a VOD service that streams straight to internet-compatible TV sets. Apple is making its own play for the living room with its iTunes store and Apple TV device.

But console providers have some key advantages. For one thing, they have large user bases. As of May, Microsoft had sold 10 million Xbox 360s in the US and had 12 million Xbox Live customers worldwide. Sony had sold more than 5 million US consoles as of July, all of which have access to PlayStation Network. The figure far outweighs the number of Apple TV and Roku boxes sold.

The demographics of gaming and movie fans are also similar. And the young-male console audience is more likely to connect its consoles to the Net and use a download service than the broader, less technically adept user bases of other connected devices, such as the Tivo box.

Another advantage for Sony is that the PS3 contains a Blu-ray high-definition drive. As more HD content becomes available, the console will look more attractive to movie fans.

But a major obstacle facing console makers is the state of US broadband infrastructure. Although major carriers AT&T and Verizon are investing heavily in speedy next-generation broadband networks, millions in the US are stuck with slow DSL connections. This will affect download services in particular, because a 6GB high-definition movie would take at least a day to draw down over a standard 4Mbps copper connection.

Users’ experience of online video is generally limited to the small screen size and low quality of YouTube, and TV viewers are used to television working instantly and perfectly. Their tolerance for slow downloading and poor picture quality will be pretty low. And console makers have no control over distribution infrastructure, unlike telcos or cablers, which can reserve bandwidth to ensure the smooth running of their VOD services.

Both the PS3 and Xbox have the chance to win the war for the connected home, but the networks over which they plan to achieve such domination will have to significantly improve before Sony’s and Microsoft’s platforms persuade people to abandon their traditional movie- and TV-viewing habits en masse.

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