Is This How Microsoft Beats Netflix and Apple?

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Microsoft (NASDAQ: MSFT  ) 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 (NASDAQ: NFLX  ) 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 (NASDAQ: AAPL  ) 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 (NASDAQ: GOOGL  ) 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.

Let us entertainment you
In this brand-new premium report on Microsoft, our analyst explains that while the opportunities facing Microsoft are huge, the challenges are many. Learn more about the company and whether you should include it in your portfolio today. We're providing regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 14, 2013, at 12:51 AM, sharpx2 wrote:

    Wow, really? No comments?

    OK, let me plunge in. I can see the strengths of Microsoft, but somehow I am not persuaded that what seems to me as a piecemeal approach to this opportunity will somehow come out on top.

    I think that, much like Jobs putting iTunes store together, he/she who is the best negotiator in this situation wins. I think the public is sick of being pulled this way and that by various entities, all of whom demand a subscription: Netflix, Hulu Plus, Amazon, AppleTV and so on.

    I think the winner will be the entity that achieves critical mass, providing most of what consumers want, in such a pervasive manner that most end users will feel compelled to sign up. Once that happens, it switches the balance of power. Now the content providers have to be concerned that their material is available on the medium of choice.

    Whatever company cracks that equation will lead the industry. I would put my money on Apple, but would agree that this is by no means proven at this time.

  • Report this Comment On February 14, 2013, at 8:25 AM, erniemink wrote:

    Microsoft is STILL better than Apple on all counts! I love Netflix regardless, but I think Microsoft is going to come out on top!

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