Microsoft Announces New Xbox360 With Home Media Server Capabilities

Key points from Kaufman Bros. analyst Todd Mitchell's recent note to clients (for a full-length .pdf version of this report, click here):

Microsoft (MSFT) officially announced a new Xbox 360 with HD tuner capability and more memory called the Xbox 360 Elite. It will be launched on April 29 for $479.99.

Key points:

This is basically a high powered STB/DVR with gaming capabilities. It will come with a 120-gigabyte hard drive and HDMI port and cables. Microsoft says the console can store games, songs, and HD movies and TV shows downloaded from Xbox Live. Microsoft also announced that the 120-gigabyte hard drive will be sold separately as an upgrade for existing Xbox 360 customers for $180.

Put this together with the news of Netflix (NFLX) CEO joining Microsoft's board. This news should be put in the context of Monday's announcement that Netflix's Chief Executive Reed Hastings has joined the finance committee of Microsoft Corp.'s board of directors. To us this would seem to point to the potential of a transfer of Netflix's snail-mail movie rental business (and huge sub base) to a Xbox Life/MSN downloadable service.

Xbox Live customers have already demonstrated an appetite for downloadable content. As we reported in this week's Game Points, Xbox Live is the #2 distributor of downloaded TV and movie content after Apple's iTunes, and the #1 distributor to the living room. Currently, there is over 1,500 hours of downloadable content available on Xbox Live. To date there has been over 135 million downloads on Xbox Live and 70% of connected customers are downloading content.

We would view this news as positive for the consoles and negative for TiVo. Again, this goes back to our negative thesis with regard to TiVo. With the coming of cable cards, the high-end "differentiated DVR/home media server" space is getting crowded. Apple will surely be a force here, but with millions of gamers buying them, the Xbox 360 and PS3 have capabilities and the potential for an installed based that could blow the space open.

We would watch this very closely.