Friday, April 11, 2008

Microsoft is Cable: Part Deux Edition


Last month I reposted an article I wrote about the Xbox really being a no apologies, cable system. Yesterday, the New York Times wrote a story about Microsoft's commissioning of original, linear content for the 360. Another cable system building looking kind of a move. If Comcast and Time Warner Cable are not awake yet I don't know what other alarm bells they need.

The move speaks strongly to the console wars as well as the cable world.

Microsoft v. Sony

When looking at a comparison of Microsoft to Sony, this story gives us a well enough defined view of corporate genomes to win the genomics Xprize. I said this before, but just a brief recap. . .

Sony's corporate DNA dictates selling boxes. I will sell you a Playstation 2 and then in five years I will tell you it is obsolete and you have to buy a new one. Conveniently, in the last two console cycles, obsolescence coincided with the launch of a new media format (even the first one provided audiophile approved method for playing audio cds). What are the odds? Sony loves physical media. The only thing better than moving hardware is collecting royalties on pieces of laser readable plastic. The box is driving Blu-ray sales, which in turn drives revenue to the core business. Good today, but this will turn into a dangerous legacy.

Microsoft's DNA dictates malignant growth. In case the word seems harsh, let me clarify with this definition: "a malignancy is not self-limited in its growth, is capable of invading into adjacent tissues, and may be capable of spreading to distant tissues (metastasizing)." The 360 came into our homes as a game console. Then it offered an invitation to serve media from a PC, then it offered to share content on portable devices, then it offered movies and television shows and the list goes on. Today, it promises to provide original content. Its’ position in the home is growing well beyond a game console. Sure, Sony is connected, but no one can tell me the PS3 on line experience rivals the 360. 360 is a window into the on line world. The PS3 provides the experience, but the focus remains on physical media.

When I consider the physical media relative to downloadable aspects of these boxes I think about an experience I had with my son when I excitedly pulled him into a room to see the Indiana Jones arcade game running on my newly installed MAME. Every aspect of the standup arcade machine, along with hours of misspent youth, were being channeled through my laptop.

[cue Courtship of Eddie's Father theme music]

"So, before consoles, we used to go to the arcade and play games. This was one of my favorites." I continued to whip Thuggee guards.

"You went to a place to play that?" Kevin asked

"Oh yeah. In between classes at UCLA I would go to Ackerman Union and they had one of these machines in the arcade."

"Arcade?"
"Yeah, a place with a bunch of standup game machines. You would go there and put quarters in the machine to play."

"You paid money?"

"Yeah." My first Indy died on screen as I was talking.

"Did you put the quarter in now?"

"No, you get three lives." Down goes the next one.

"Now did you put the quarter in?" Not yet . . . just as the third Indy died tragically in a lava flow.

"Now?"

"Yes, now I would have to put another quarter in."

"That's dumb."


Some day he and I will have the same conversation about physical media.

Microsoft v. the Cable business

Microsoft's advantage over cable is significant as well. Cable companies must pay for the boxes to be installed in people's homes. We buy 360s and subsidize R&D through game purchases. Cable companies compete each other by using a shotgun approach to broadcast everything under the sun to every subscriber. They must secure a lot of edge case content to broadcast into every micro, nano, niche interest known to man. I have never even surfed through the Golf Channel. Those 30 or so Spanish language channels? Nope, and there are a lot more. My cable service is kind of like British food in the 90's. Sure we give you a lot of uninteresting and possibly overripe content, but just carve off the bad bits and there is still plenty of good stuff underneath. Microsoft is able to narrowcast to a homogenous user base so they can post content and serve on an as needed basis. The audience programs their own channels. Same variety, less bandwidth. Relative to a cable company, they are heavy on storage, low on serving. Oh yeah, and they don't even pay for the pipes. We have to pay for the ISP to connect us to the subscription service for which we pay a monthly fee. That is enough to make and MSO break down in tears.

Finally, and most significantly is cable is weighed down by its legacy. Microsoft launched just a few years ago. So they are able to roll out with IP addressable boxes with powerful processors and built in hard drives. Every time Microsoft identifies a new feature, they are able to download an update to the installed user base. Every time the cable companies realize consumers want things like TiVo, they have to source it, engineer it into the system, and then figure out how to get consumers to accept it. This puts them years behind the market. The more incremental boxes in the field, the larger the variation in the installed base. Stealing a page from Apple - the first 360 dev kits were Macs - Microsoft's installed base is homogenous and the system is closed.

All of this leads to the reason why a content provider like Mr. Safran would go to Microsoft, rather than Comcast, or Time Warner Cable. Right now, according to Videogamechartz.com there are 17.94 million 360s installed in the world. There is no cable company in the world with a homogenous installed base of IP addressable set top boxes which can even come close to the computing power of a 360. If I want to make the most robust, most compelling, like nothing you can see anywhere else content, do I go to the big, fat, juicy, powerful, centrally controlled installed base of 360's, or the disparate, anemic installed base of set top boxes where I program for the lowest common denominator?

Sure, but the content just sits on a server waiting for download, it nothing like a network. Silly boys and girls, do you really think it is going to stay like that for long? How long do you think it will be before you can preset the back loading of the content so prime time viewing becomes my prime time and not NBC's prime time? As a want it now audience, if I can schedule my downloads, have exclusive content, network content, and content from my PC, do you think I am going to turn on my cable box, or my 360? The 360 is more like modern day British food. I only get the good bits and the rest stays in the kitchen.

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