Is This How Microsoft Beats Netflix and Apple?


Microsoft may be seen as a tech laggard these days, but the world's largest software company could very well lead the way in raising the bar on interactive television.

Yusuf Mehdi and Nancy Tellem -- executives of Microsoft's interactive entertainment and studio divisions -- presented at AllThingsD's D:Dive Into Media conference yesterday. They provided some color on the state of the tech giant's entertainment business.

The Xbox has definitely evolved into a full-featured entertainment platform. Traditional video games have been slipping for years, but Microsoft's market-leading console has thrived as a hub for in-game engagement and entertainment.

The installed base now stands at 76 million consoles with 46 million Xbox Live subscribers. The average user now spends 87 hours a month on the box. We can't call them gamers anymore. These are folks watching video, streaming music, and surfing the Web through their systems.

The next step is to take advantage of the sizable Xbox audience and the Kinect motion-based controller to make television more customizable.

Original gangster
Microsoft will naturally be working with successful studios for content, but don't underestimate the potential of proprietary content.

Tellem watches over a studio with 125 employees focusing on interactive content. Some of the examples singled out by GigaOM include live shows and children's programming in which kids can interact with the characters on screen.

Let's put this into perspective.

Netflix is making waves today as the exclusive home to Turbo: F.A.S.T., a cartoon series based on a movie that DreamWorks is putting out this summer. went public two weeks ago with plans to bankroll pilots for five original children's shows.

That's great, but is Microsoft about to raise the stakes by making its own kid-friendly content more interactive? What if kids can select characters in a show and then break off into games or interactive realms with the chosen character? What if a live show lets viewers vote on what viral video clips will play next? What if a talent competition is decided on the spot by viewers?

Microsoft is at the cusp of redefining television. Yes, Microsoft.

TV dinner
Netflix CEO Reed Hastings resigned from Microsoft's board of directors four months ago.

There was plenty of speculation at the time. Microsoft and Netflix were thick as thieves during the early days of Netflix's streaming revolution. Netflix went with a Microsoft platform that precluded Macs at first. When it came to streaming through consoles, Microsoft's Xbox got a year of exclusivity before PS3 and Wii owners got in on the fun.

However, just as Hastings has gone on to show up at Apple product launches -- and rightfully so given the popularity of Netflix apps on Apple's high-end gadgetry screens -- Microsoft has also embraced Netflix's competition. Xbox systems now play nice with some cable partners, and just last week Microsoft announced support for Netflix's rival Redbox Instant by Verizon service.

Microsoft has a shot here.

Mr. Softy has been falling short to Apple and Google in the important battle for mobile operating system supremacy, but it has its Xbox army to unleash in the television world, where its rivals have sputtered.

Google has flopped so far with its Google TV smart television platform. Apple continues to gain ground with every Apple TV generation, but Microsoft already has tens of millions of TV buffs using their Xbox systems to consume video.

The Xbox is a Trojan horse
This could very well be Microsoft's crowning achievement. Cable networks and broadcasters don't fear Microsoft as a disruptor. They're too busy fretting about Netflix leading the cord-cutting revolution and the eventuality that Apple will introduce a full-blown high-def TV that may make traditional cable and satellite television subscriptions a thing of the past.

Microsoft is seen as an old-school chum that the industry can trust.

It's a brilliant plan.

Maybe traditional video games will bounce back. Maybe they won't. Either way, Microsoft is amassing a growing audience of consumers who are learning to turn on their Xbox systems when they crave entertainment.

Microsoft may finally have a new calling: Mr. Softy's going to be a TV star.

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Longtime Fool contributor Rick Aristotle Munarriz owns shares of Netflix. The Motley Fool recommends, Apple, Google, and Netflix. The Motley Fool owns shares of, Apple, Google, Microsoft, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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