The Ultimate Trojan Horse: Game Boxes Take Entertainment’s Center Stage

If you care about the future of home entertainment, the week of June 10, 2013 was a busy one. We saw the latest salvos in the war for control of the living room (and beyond), and if you’re a marketer, there’s quite a lot to chew on when it comes to the future of home entertainment.

First, at the annual E3 gaming conference last Monday, Microsoft and Sony unveiled their new flagship products, the Xbox One and PlayStation 4 respectively, in Los Angeles. Then, 24 hours later, Comcast CEO Brian Roberts was at The Cable Show in D.C. to debut the cable giant’s new X2 platform.

These new products make for a transformative year and provide a roadmap for understanding the ongoing (and seemingly never-ending) struggle between the cable and satellite industry and newer “over-the-top” (OTT) digital platforms as these new technologies move ever-further into the zone of broadcast and cable TV.

To give full disclosure, I worked on the design of Comcast ‘s previous platform (X1) and my company does work with both Sony and Microsoft. So while I surely have bias, hopefully it’s equal opportunity. In fact, having worked on a variety of digital content plays since the early 2000’s, one of the most striking facts is how little the fight has changed.

On the one side is the cable and satellite industry (I’m going to use “cable” as shorthand for legacy providers), which has been the dominant platform for a generation. Currently servicing nearly 85 percent of all U.S. households, the traditional platforms have the huge numbers but are considered yesterday’s technology. It’s been blood sport for over 10 years to declare these legacy providers “dead,” despite data to the contrary. In fact, it’s only been in the last two years when there’s been an actual dip in the cable subscriber base – dropping from 87 percent of U.S. homes in 2010 to the current number of 85 percent (SNL Kagan).

It’s About the Hardware

The reason cable has struggled with the reputation of your grandfather’s technology is because the guides and menus look so damn terrible. It’s not that cable operators don’t have taste; they just haven’t had the hardware that could handle interesting interactive features. Before the web became such a strong force in consumers’ lives, before there were thousands of titles available at any time, before DVR and OnDemand – all those little set-top boxes needed to do was change channels. Unfortunately, once millions of them were out there at no small investment from the cable providers, they couldn’t just be replaced with better hardware.

Every time we worked on a project with a sophisticated, slick, feature-rich user interface and planned for no latency, we asked which box it was going to go on. Time and time again, big companies rolled out their master plan: build a TV experience that is so amazing that consumers will happily head to Best Buy and shell out $300 to $800 for a box that can run it.

Guess what? That never, ever worked. Turns out that like cellphones, people would rather pay monthly than buy up front. TiVo and ReplayTV couldn’t get consumers to do it (TiVo didn’t get critical mass until it was bundled with DirecTV). OTTs haven’t gotten masses to pay even for cheap boxes (Roku, Vudu). And when Apple itself can’t get large numbers of people to buy Apple TV, you can spot a universal truth.

Yet, two companies have been able to buck the trend.

The Ultimate Trojan Horses

There are two set-top boxes that consumers have rushed to purchase, and those are the set-top boxes that don’t look like set-top boxes. Sony has sold over 70 million units of the current generation PS3. Microsoft has sold more than 76 million of the current-gen Xbox 360. Those numbers are staggering not just because they have driven a tremendous amount of revenue for the two companies, but because of the reach they have been able to achieve across U.S. households.

The PS3 and Xbox 360 dwarf the processing and graphics power of any legacy set-top box out there. Consumers are already using them for entertainment; PS3 is the most popular Netflix device in the living room and both platforms sell and stream a huge amount of non-game content. Today’s console game leaders have taught consumers that their platforms are for more than just button mashing – and they are about to get much, much better.

Which brings us back to last week’s announcements. Take a look at Comcast CEO Roberts’ keynote. The interface is slick, it brings in IP-based content, it’s intuitive, and any consumer would be happy to have it. One small problem: getting it to said consumers. Comcast’s previous version of the TV guide and navigating software, X1, isn’t rolled out yet. It’s in a handful of markets and Comcast says it will be nationally available by year-end, but it’s a familiar story; cable shows the future and they are serious about it, but I have a friend who designed products at a major legacy provider for six years before anything went live. When consumers aren’t forking over money to upgrade, it’s very hard to get hardware to your millions of customers.

Microsoft and Sony are unlikely to face that challenge. Amazon has already been reporting “unprecedented demand” for Xbox One. The “launch edition” of the PS4 on Amazon is even crazier; it’s sold out. And both platforms (particularly Xbox) are looking to focus even more on entertainment with voice-activated control and tablet and smartphone integration. We’ll see how many people choose to use what we currently call their “game box” as their “entertainment hub,” running subscription TV, physical movies such as DVD and Blu-ray, watching web video, buying and renting TV and movie content, and so on.

For now, access to the many channels that cable homes are used to will go through the legacy provider before showing up on the Xbox One or PS4. But once that consumer behavior is established, will Microsoft or Sony pony up the cash to become the first “virtual MSO” and make their own distribution deals with the content providers?

If so, we’ll see the largest advertising platform in the world break free of restrictions and become a fully interactive advertising environment. The revolution will be televised, connected, multi-screen, and of course, gamified.

Image on home page via Shutterstock.

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