Is Microsoft Taking On iTunes?

They're still hard to find, and, for some, even harder to get working properly, but Microsoft thinks its Xbox 360 will nevertheless dominate living rooms across the globe -- and it's putting its money where its mouth is.

Last week, Microsoft announced a deal with Epic Records to bring free, downloadable music videos to Xbox Live subscribers -- Xbox's online service where gamers can download games and compete and compare their skills.

But that's just the tip of the digital download iceberg as it plays into the company's broader plans to offer subscribers an increasing wealth of downloadable entertainment like music and movies.

Not Just for Video Games

"Our ambitious goal here is to build Xbox Live into an online entertainment network," said Aaron Greenberg, group marketing manager for Xbox Live. "The announcement of our deal with Epic Records is a big step in that direction."

The Xbox 360's creators have said from day one that the console is more than just a toy.

The machine's ability to connect to the Internet, to other players, and to stream music, movies and television to other Windows computers was not only a key selling point, but a strategic move by Microsoft to gain a foothold in America's living rooms.

"They've really gone beyond just the hard-core gamer in the family with the Xbox 360," said Michael Gartenberg, vice president and research director with Jupiter Research.

Gartenberg agreed with the Microsoft strategy, saying entertainment downloads were a perfect fit for Xbox Live thanks to the demographics of its owners and the pervasiveness of Windows-based PCs.

"We've been in talks with movie studios and record labels, and they know, we've got this great primarily male, 18- to 34-year-old demographic, which is highly sought after for them," Greenberg said.

Will Anyone Use It?

The question of whether or not people are interested in downloading music online was answered by Apple's hugely successful iTunes Music Store last month, when it celebrated its 1 billionth download.

In its first week alone, iTunes sold 1 million songs, and has since added television programs, movies and podcasts.

Brit pop star Natasha Bedingfield will kick off Xbox Live's Artist of the Month Program. Bedingfield is the first of 12 artists to be featured on Xbox Live this year. A new artist and a new music video will be featured each month. Subscribers can download them for free.

Because the move to bring downloadable entertainment to Xbox Live was expected by industry experts, the announcement didn't live up to some expectations.

"I really expected to hear of a full music downloading service," said Anita Frazier, an analyst with NPD group. "They're testing the waters a little bit, but also offering Xbox Live subscribers something unique, something they maybe can't get anywhere else."

Obstacles to Success

Frazier said the big hurdle for an Xbox Live music store might also be one of its greatest assets: the ubiquity of Windows-based computers that are already capable of downloading and playing music and video.

Despite Microsoft's claim that it's still on pace to have 4.5 million to 5.5 million Xbox 360s in homes worldwide by the end of June, the competition is coming on quick.

Although Nintendo's next-generation console, "Revolution," is due out this spring, it's Sony's PlayStation 3 that will feature a similar online service to Xbox Live.

Frazier said that this was a sign of the times. She said that video game consoles would no longer just be gaming machines, but would bring together many forms of entertainment.

"There isn't any turning back at this point," she said.

As for Xbox Live, Greenberg said this was only the beginning.

"We've been in talks with our partners in the entertainment industry about bringing other types of experiences like this to subscribers," he said. "Definitely stay tuned."