Microsoft Xbox Challenges Cable TV

Microsoft (MSFT) is about to make a load of new enemies, this time in the cable TV industry. It plans to use its Xbox Live as a means to stream movies and TV shows into people's homes. If the extremely ambitious program eventually works as planned, customers could have no need for their cable TV.The New York Times reports that Microsoft is already in discussions with Disney (DIS) about streaming some of its programming, particularly some ESPN content. The paper writes "The roughly 20 million monthly members of Xbox Live can surf Facebook, browse an online mall of movies and TV episodes and, if they pay, watch Netflix." That makes the the Xbox community one of the largest "cable TV" companies in the U.S. Comcast (CMCSA) currently has 25 million cable TV subscribers.

The battle over premium content will become very complex if Microsoft's plan begins to take hold. Fox recently had an angry dispute with cable distribution company Time Warner Cable (TWC) over the fees the cable firm would pay Fox. The negotiation between the parties threatened to interrupt consumer access to major network content and was only concluded at the last possible moment to prevent a loss of customer service to Time Warner subscribers.

The Xbox plan may give programming companies leverage with the cable firms. Microsoft has evolved its game platform so that it is becoming a potential alternative to the cable guy. Microsoft has been known to spend billions of dollars to enter a market and try to dominate it. That means programming companies like Fox may have new negotiating leverage with cable companies for distribution.

Microsoft's challenge is to get its 20 million plus Xbox Live customers to view the device as an alternative to cable. That may prove extremely difficult; consumer habits die hard, and cable TV has been the dominant force in video to the home for over two decades. But even if Xbox Live fails as a distribution platform for films and TV, it could still cost cable companies a great deal to negotiate for programs given the enormous size of Microsoft's wallet.

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