Microsoft's Xbox 720 Dilemma

In preparation for the next next generation console wars expected to start in 2010 or 2011, Microsoft announced that the third generation of Xbox console will be named Xbox 720. Some of the expected improvements over the Xbox 360 are faster frame rates, Dolby True HD digital surround sound and again the promise of better graphics.

Microsoft faces a dilemma when it comes to the media that games are distribuited on. Currently Xbox 360 games are distribuited on DVD however at 8.7 GB on a dual layer DVD that means Microsoft's competitor Sony's Playstation 3 can already hold more six times the data because it uses BluRay technology which can store 50 GB on a game disc.

Microsoft backed HD-DVD a couple of years ago and got the short end of the stick. Microsoft needs a new option for distribution media for any future generations of Xbox consoles. Somehow selling games on up to 6 discs may not be the best option. The idea of switching discs during installation or during game play only brings only one word to mind, cumbersome. Microsoft may have the option of licensing Blu Ray from Sony but Microsoft has already ruled that out.

Microsoft could try to revive HD-DVD by buying the intellectual property for HD-DVD from Toshiba. This would give Microsoft higher capicity media to sell games for the Xbox 720. Another option would be some kind of read only flash memory. That may banish loading screens to the history books but would add to the overall cost of games. Pumping out games on discs only costs Microsoft about a dollar per copy. Going to a flash memory would cost at least 20 dollars per copy.

Microsoft could forgo distribution media altogether and sell games online only, which would work well for those customers with an upper tier cable broadband connection or a Verizon Fios connection but for those with a 1Mbps DSL downloading 20 or more gigabyte Xbox 720 game would be an overnight download. Not what Microsoft would want to offer to to customers who want to buy now and play now.

There would be another downside to the paid download to sell the games and that would be the resentment that would foster to the retailers who would be expected to sell Xbox 720 consoles. What incentive would Wal-Mart have to sell Xbox 720 consoles if they didn't have the games to sell with consoles.

There is another two to three years before the Xbox 720 hits store shelves the decicion that Microsoft makes on distribution media is critical. The wrong choice would help Microsoft lose the title of console game market leader back to Sony or even back to Nintendo.