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Sony’s Trojan Horse Sneaks up on Microsoft

Microsoft has known for a while that the trick to getting the Xbox 360 integrated into people’s living rooms is to load it with non-gaming features.

It’s a strategy that was worked well for the company. Family members that don’t like video games can still find plenty of other entertainment options on the console. Now, though, Sony is quickly following suit – and expanding on those features – which could give it an advantage as the industry prepares for a crucial holiday season.

Microsoft was the first game company to integrate Netflixstreaming onto its console – and is still the only one to do so from within the system’s dashboard. By mid-October, though, that will change.

Netflix CEO Reed Hastings announced Thursday that he expected a disc-free streaming experience on the PlayStation 3 before the company’s next earnings call. (Currently, owners of the Sony device must insert a Netflix disc into the machine before they can stream a film.)

Beyond that, the PS3 is the only console that will offer Hulu Plusstreaming this year. (Microsoft will integrate the service in 2011.) And while that service is still in beta and does not have a noteworthy user base yet, Hulu has been one of the most requested additions to virtually any device that’s capable of streaming content.

“I think it’s a mandate with Sony not to just catch up with, but to surpass Microsoft, especially in the non-gaming functionality,” says Billy Pidgeon, senior analyst with M2 Research. “What’s at stake here is the future of Xbox Live and the PlayStation Network, … We’re going to be seeing more houses where there are two or more consoles - and the battle will come down to where do (non-gaming) family members spend their time?”

"What’s at stake here is the future of Xbox Live and the PlayStation Network" -M2 Research, Billy Pidgeon

Microsoft, of course, isn’t backing down from the fight. The company announced an alliance in June with Disney’s ESPN to stream 3,500 live and on-demand events to Xbox Live, ranging from college football and basketball to soccer, major league baseball and NBA games. Viewers will also be able to participate in polls and trivia contests as they watch the games. (The service will be free to Xbox Live “gold members” – who pay a $50 annual subscription fee – beginning this November.)

It also still has an exclusive relationship with Last.fmthat integrates streaming music into the Xbox 360. And the company has promised that Hulu Plus integration will happen in 2011 with “signature features”.

The battle to provide easily accessible entertainment options for non-gamers in the house goes beyond making the console an omnipresent force in the living room. Both Microsoft and Sony will introduce motion controllers later this year that are specifically meant to bring in the casual players that turned the Nintendo Wii into such a monster hit.

The more options they can offer those players, the more they increase the odds of winning over fence sitters. For Sony, that’s especially important given the retail cost of the PS3. A bundle featuring its PlayStation Move controller will sell for $400 this holiday season, versus $300 for an Xbox 360 bundle featuring Kinect.

This holiday is a pivotal one for the video game industry. Sales were 8 percent lower last year than in 2008 - and are off 9 percent year to date. Both Sony and Microsoft are depending on the successful launch of their new peripherals to extend the life of their current systems by several years.

While Sony is making headway in the fight for non-gaming entertainment, it faces an uphill battle. Microsoft has a one-generation head start, as the company invested heavily in the online space with the original Xbox. While Sony and Nintendo both offered some online functionality with their last generation systems, it was mostly lip-service.

What could work to Sony’s advantage is its diverse lineup of entertainment hardware, including TVs, home theater systems and home video devices.

“Quite a bit of the company’s overall strategy is networking content as well as devices,” notes Pidgeon. “I see the PS3 as the vanguard of that. … I’m not surprised they’re catching up because I think they have to.”

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