Set-top boxes and game consoles: The $99 option

Last week, I wrote about installing my OUYA game console, which lists for $99 (U.S.) OUYA's isn't the only Android game console--there are several available or in development, all of which sell in the $99-$129 price range and all of which run "casual" games. $99 is also the consensus price point for over-the-top (OTT) set-top boxes from Roku, Vizio, Apple and other vendors.

It's very unlikely that hardcore gamers will prefer Android consoles to the Xbox One or Sony's Playstation 4. Even with a Tegra 4 chip set, which some of the newer Android consoles will have this fall, they won't have the performance to be able to compete with Microsoft's or Sony's consoles. On the other hand, while the Xbox One will have features that the $99 set-top boxes don't, such as voice recognition and gesture control, it's equally unlikely that set-top buyers will be willing to spend $400 more to get them. In short, serious gamers want high-end game consoles and are willing to pay for them, while Internet set-top box buyers who aren't gamers are unlikely to pay a high premium in order to get gaming features.

For the OUYA and similar devices to succeed, they have to prove that people want to play the same games that they already play on their smartphones and tablets on their big-screen televisions as well. Despite OUYA's successful Kickstarter campaign, that's still an unproven hypothesis. In addition, the Internet set-top box market is still far from proven--Logitech dropped its Google TV-based STB, Boxee is said to be looking for an acquirer or additional capital, Roku is increasingly emphasizing software licensing to HDTV manufacturers, and Apple TV has graduated from being a "hobby" but still contributes minuscule revenues to the company.

It's still too early to tell if there's a market for either low-cost game consoles or third-party Internet set-top boxes at any price. We may get more clarity by the end of this year's Holiday season.

OUYA: Lots of potential, but not quite ready for prime time

Last week, I got my OUYA game console, in what was one of the last batch of devices to go out to Kickstarter supporters. I've got it connected and working (sometimes,) but the device's potential is considerably greater than what the current console can deliver.

At the outset, let me make clear that I'm not dumping on either OUYA's device or the company itself. I want to see OUYA succeed, but to say that the current device is "rough around the edges" is an understatement:

• The instruction manual that comes with the console explains how to connect and power up the device, but it says nothing about how to add batteries to the controllers. It's easy enough to find information on the Internet on how to take off the side panels in order to add batteries, but users shouldn't have to do that.
• When I first turned the console on, all I got was the "circle U" logo on screen, which stayed there quite a while. I assumed that the console was locked up, so I held down the power button until the console powered down. Then, I powered it back up, and had the same problem, so I pulled the power plug, waited a while, and turned it back on. Same problem. It took several tries before the console successfully booted up and came to the home screen.
• Once in the user interface, OUYA bounces between customized screens and conventional Android menus and dialog boxes. That's not all that confusing for people who are familiar with stock Android, but it's likely to be a problem for novice users. For example, when downloading and installing a game, it looked as though I'd installed the game based on OUYA's prompts, but then I got an Android dialog box which asked if I wanted to install the game. So, I installed it (or installed it again.)
• My console has locked up a variety of times, usually when restarting the console or when searching for a game to install. Lockups require that the power cord be removed for several minutes.
• If you want to purchase a game, you have to first save your credit card information in an OUYA account. There's no way to enter a credit card from within games. At this point, I don't feel comfortable keeping my credit card permanently on file with OUYA, and I don't want to go through the process of first entering and then deleting it every time I want to buy a game or make an in-app purchase.
• There's also no way to manage your account from the OUYA website. It would be much easier to enter credit card information from a web browser, but other than creating an account, everything has to be done from the console.
• I love the fact that OUYA is open to any game developer, but that sometimes results in inconsistent or missing controls. For example, I've been unable to figure out how to completely exit from several games. In one case, the game has a menu with an "Exit" option that's available by pressing the power button on the controller, but all it does it take you back to the game's home page. There's no way to completely exit the game (at least that I've found.)

All of these problems are fixable, but taken together, it's clear that the OUYA console is, or should still be, in beta testing. However, the console is scheduled to go on sale to the general public on June 25th, through Amazon, Best Buy, GameStop and Target. As of today, I can't recommend that you buy an OUYA. If you wait a few months, the most serious bugs should be worked out, and there should be a much better selection of games available. OUYA would probably have been better off by holding off on general retail availability until the fall.

As I said, I'm a big fan of the ideas underlying OUYA, and I think that it will eventually be a great casual gaming console with lots of potential for set-top box applications as well. It's just not there yet.

Thoughts on Microsoft's new Xbox One

Yesterday, Microsoft unveiled its new Xbox One game console to an assembly of press, analysts and Microsoft employees on its Redmond, WA campus. The Xbox One has faster processors and more memory than the Xbox 360. A new version of its Kinect 3D digitizer with a 1080p camera is included as standard equipment. The Xbox Controller has also been redesigned, although the changes are mainly cosmetic. In addition, the Xbox One has an HDMI input, so that selected cable, satellite and IPTV set-top boxes can be connected to and controlled by the Xbox One.

Microsoft spent the first half of the presentation focusing on the Xbox One's TV-related features. For example, the Xbox One will have a built-in Electronic Program Guide (EPG) that supports many video operators. Users will be able to change channels and look for shows to watch by voice. In addition, the Xbox One will enable navigation via Kinect gestures.

The second half of the presentation was devoted to games. Only a handful of game publishers were represented on stage, and none of them showed actual game play; instead, they showed trailers. To my eyes, the most impressive trailer was for Forza Motorsport 5, which is the only game title that's been confirmed to be released day-and-date with the Xbox One. It looked great, with visual elements such as metallic paint and realistic depth-of-field rendering that would have been possible only in pre-rendered cutscenes not long ago. Unfortunately, that wasn't the case with the demos from the other game publishers. Electronic Arts, for example, appears to be using the Xbox One's additional horsepower to add more intelligence to the game play in its sports titles rather than for improving how its games look.

Microsoft is apparently concerned about the future of the Xbox given the falloff in sales of console games and the rise of casual games on smartphones and tablets. As a result, it's trying to position the Xbox One as both a set-top box (one that can both connect directly to content over the Internet and indirectly through cable, satellite and IPTV set-top boxes) and a high-performance game console. The problem is that those are two very different markets, with different use cases and consumer expectations. For example, Google TV provides most of the same non-game functionality as the Xbox One, albeit without voice recognition or gesture control. On the other hand, you can buy a Google TV-based set-top box from Vizio for $99, while I expect the Xbox One to be priced around $399. You can also buy an Apple TV or Roku set-top box for $99 or less. I simply don't see very many people buying the Xbox One for its set-top box features, since they can get most of its functionality from less expensive competitors. That means that most of the Xbox One's buyers will be hard-core or moderate gamers, which won't expand the potential market for the device at all.

I suspect that Microsoft's corporate leadership has fallen victim to Shimmer Syndrome (named after the combination floor wax and dessert topping in the famous Saturday Night Live commercial parody.) As with Windows 8, which works both on tablets and on conventional PCs but is compromised on both platforms, it's trying to make the Xbox One work both as a set-top box and game console. The compromise on the set-top box side is clearly price; we don't yet know what the compromise is on the game side, but it may be lack of attention that opens the door for Sony to offer a superior developer and gaming experience.

Put a Roku in your Cable Set-Top Box

For years, I've doubted the ability of third-party set-top boxes from companies like Apple and Roku to make much market impact. Consumers generally detest adding more boxes and more wiring to their televisions. That's why home theater-in-a-box systems have been so successful, and a big reason why TiVo, which still has the best PVR, has struggled to build a viable business selling hardware. Consumers know that they have to have a set-top box from the cable or satellite company, and they accept two other boxes: DVD players (slowly morphing into Blu-Ray players), and game consoles.

In turn, both Blu-Ray players and game consoles are morphing into Internet digital video players. Netflix's streaming movie service is integrated into many Blu-Ray players, and with Microsoft's XBOX360. Earlier this week, Netflix made official support for Sony's Playstation 3, and support for Nintendo's Wii is right around the corner. However, none of these devices have anywhere near the household penetration of the ubiquitous cable or satellite set-top box.

Cable and satellite set-top boxes have always been closed, monolithic devices--they act as the gateway to the service provider's content, and nothing gets on them or through them without the service provider getting a cut of the action. Even with initiatives like Tru2Way, there's been little progress on opening up service provider STBs. Perhaps now is the time for them to do so.

Network-enabled Blu-Ray Players and game consoles represent the first viable competitors to the service providers' programming hegemony in the living room. The cable and satellite operators can rail against the competition, try to keep their content suppliers from working with them, and try to limit the value of competitor's services with artificial release windows for movies, none of which are likely to work in the long run. Or, they could add network-enabled features to their own set-top boxes and make the competition irrelevant.

Consider a cable or satellite set-top box that allows subscribers to access the same content as Roku. That means Netflix, Amazon, Major League Baseball, and in the near future, YouTube, Hulu, Revision3, Mediafly and a host of other services. You may be thinking, "Netflix? Amazon? Are you out of your mind? Don't the cable and satellite operators have their own Video-on-Demand services that they've spent millions of dollars to build?" Yes they do. But, those VOD systems have limited capacity and are extremely expensive to expand.

According to Comcast, in the first quarter of 2009, over half of its new VOD movies were available the same day as the DVDs. To limit the impact of $1-a-night services like Redbox, the movie studios are pushing to require Netflix and the kiosk operators to get their titles a month or so after the DVDs are shipped to retailers. The way things are going, if you want to see the movie as soon as it's out on DVD, you can buy the DVD or Blu-Ray, or watch it on cable or satellite VOD and pay a premium. If you're willing to wait a month, you can watch it on Netflix.

But, under the model I'm proposing, even if it's from Netflix, you'll still watch it on your cable or satellite set-top box. The service provider will charge Netflix a small fee for access to your set-top box--perhaps pennies per title viewed or a dollar a month. The service provider will get to brand and sell advertising on the interactive program guide and menus that subscribers access in order to find titles. A similar approach would work for other content providers: The cable or satellite operator gets the right to surround the content with advertising, and possibly to even insert advertising directly into the content.

Is the service provider cannibalizing itself? Yes, but it's capturing a chunk of the revenue that it's now losing, and will lose in even greater amounts in the future, from over-the-top (OTT) services that completely bypass the cable or satellite operator's set-top box.

The OTT services also offer leverage that the cable and satellite operators can apply to providers of conventional cable networks. For example, many service providers have long wanted to move ESPN to a premium sports tier, but ESPN demands a fee for every subscriber, even if they have no interest in sports and never watch any ESPN channels. OTT services like Major League Baseball can be integrated into the service providers' offerings to make a premium sports tier more popular and provide negotiating leverage to move ESPN's services into the same tier.

It's time for the service providers to stop trying to prevent the growth of over-the-top services like Netflix, and to start working with them.