Microsoft Makes Xbox a Set-Top

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Las Vegas— It's a game console! No, it's a TV set-top box! Listen up, kids: Microsoft has morphed the Xbox 360 into both.

During Bill Gates' leadoff keynote at the International Consumer Electronics Show here last week, Microsoft executives demonstrated the Xbox 360 video-game machine running its Internet-protocol TV software for service providers.

“It just made a lot of sense to do it, to combine these two platforms we had in different parts of the company,” Shari Barnett, director of media services in Microsoft's TV software division, said in an interview.

IPTV on Xbox, code-named Project Carbon, will provide both TV and video games in one unit, as well as combine elements of the two. Barnett touted the combo as an “easy” way to demonstrate of the flexible nature of an IP-based TV system.

For example, Microsoft plans to let TV viewers access “Xbox Live” community-based features, such as voice chat and sending and receiving text messages, while watching their favorite shows.

Microsoft said the IPTV-enabled Xbox will be offered by service providers “by holiday-season 2007,” and claimed it will give its telco partners a unique offering that melds several home-entertainment services.

AT&T, the largest U.S. company offering TV services via Microsoft's IPTV Edition software, has been experimenting with the “IPTV on Xbox” device but has no firm plans to offer it yet, said assistant vice president of consumer marketing Michael Grasso.

“There's an opportunity to bring TV to other devices in the home over time if it makes sense,” Grasso said. “Yeah, we're excited about the possibilities — we've been working with Microsoft on this.”

But analysts predicted the TV capabilities of IPTV-enabled Xboxes won't be the lead selling point. The Xbox will “continue to be purchased primarily for gaming and related purposes,” ThinkEquity Partners analyst Anton Wahlman said in a research note last week, adding that “IPTV functionality will be secondary at best.”

Some speculated that the IPTV on Xbox project could be a Trojan horse, embedding the necessary receiver for Microsoft to deliver its own Internet-based television services in the future.

The Xbox already provides a conduit for Microsoft to sell downloads of TV shows and movies over the Internet, as announced last fall.

Those download services bypass telcos that are using the Microsoft IPTV platform, noted Brian Baker, president and CEO of Widevine Technologies, a provider of content-security technologies.

“Talk about biting the hand that feeds you,” he said.

Microsoft said it has sold more than 10.4 million Xbox 360 consoles in 37 countries to date.

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