Xbox Vs. PlayStation With Netflix Caught In The Middle


It's a big day for Netflix with the service going live on Microsoft's Xbox 360 platform. But there's one big thing lacking and you can thank the heated rivalry between Sony and Microsoft for it and I'm getting an earful from some of you.

First, some background: Microsoft ended up on the wrong end of the HD-DVD/Blu-ray, next-generation DVD format wars, offering an external HD-DVD drive so game-players could also turn their Xbox 360 into a DVD player. It was Microsoft's answer to Sony's decision to include a Blu-ray DVD player inside of each of its Playstation 3's. Turns out Microsoft at least made the right choice by making the HD-DVD player an external drive so all those poor consumers who ended up buying one can swap it out for the Blu-ray player.

Sony, the PlayStation maker, also backs Blu-ray. That's not the issue here. Sony also owns Sony Pictures and Columbia Pictures, home to blockbusters like the new "Quantum of Solace" Bond movie, the upcoming "The Green Hornet," "Superbad," and the Will Smith feature "Seven Pounds." Columbia Pictures is everything from "Spider-Man to "Men in Black."

But don't look for any of those titles to stream to Microsoft's Xbox anytime soon. Gotta love the gaming business. Sony pulled out as one of Netflix's partners as the video rental company goes digital, and starts streaming content direct to your TV and bypassing those pesky DVDs. Sony makes its content available to Netflix on DVDs, and it also has similar arrangements for TiVo's DVR, a Blu-ray player from Samsung and the Roku Wi-Fi set-top box. But you see, none of them makes a video game player that also plays movies, like Xbox from Microsoft. And you thought HD-DVD vs. Blu-ray was a fun rivalry to watch?

Sony's decision to turn its back on Netflix's arrangement might be frustrating for Xbox users, but who can blame Sony? Why in the world would the company give a competitive leg up to an arch rival for the sake of a few extra royalty dollars? It might seem like Sony's playing games here, but there's nothing fun-and-games about its battle with Microsoft for gaming dominance. Bold move by Sony. Who can blame them? The question for investors though is whether Sony is cutting off its nose despite its face. Royalty dollars from video streaming might seem paltry today, but the funny thing about technology: it has the tendency to grow explosively. About 11 percent of Netflix's 100,000 titles are available through online streaming today. That number will soar and quickly.

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I think cooler heads will prevail and Sony will realize that the competitive advantage it thinks it's gaining by not offering its movies to Netflix/Microsoft will pale in comparison to the revenue it stands to gain down the road. And there's something kinda cool about getting a revenue licensing check generated on the back of your biggest competitor.

Questions? Comments?