Sit down, turn on Xbox 360, watch TV

LAS VEGAS -- Microsoft's Xbox 360 video-game console can't pop your popcorn or brew your coffee yet, but the list of what it can do continues to grow as the company seeks to expand its franchise in home entertainment.

When paired with a next-generation television network, still to come in most of the U.S., the console will work as a set-top box for tuning in Internet-delivered TV, recording programs like a TiVo and downloading video on demand.

Microsoft is making the new Xbox technology available to network providers such as phone companies that are using Microsoft software to deliver digital TV in new ways.

The set-top capabilities would add to what Xbox 360 users can already do: play games online or on disc; watch DVDs and listen to music through an iPod, Zune or other player; download TV shows and movies in high definition from the Xbox Live Marketplace; and extend the media functions of their other computers.

Microsoft announced the Xbox's new talents Sunday night as part of Chairman Bill Gates' keynote presentation to the International Consumer Electronics Show. The huge annual event is where firms show off their latest high-tech wares, many of which won't hit stores until next fall.

"It's amazing to see the progress over the course of the year," Gates said. "Truly the digital decade is happening. We see it everywhere we look."

Microsoft is marching out its biggest parade of new products ever, and Gates touted several of them.

He showed off Windows Vista operating system, which goes on sale to consumers at the end of the month, and the Office 2007 suite.

He also unveiled new server software for use in the home. Mass storage devices and servers are making their way into homes as digital photos, videos and music proliferate.

Pushing Microsoft products into another unconquered realm, Gates announced a partnership to put software in Ford Motor vehicles beginning with the 2008 model year.

"It's a real milestone. We're not leaving the car out," he said.

The new features for the Xbox 360, only roughly detailed, could strengthen Microsoft in the battle among consumer-electronics giants to be at the center of our digital lives.

"It's yet another way for Microsoft to get a device in your living room," said Matt Rosoff, an analyst at Directions on Microsoft, an independent research company in Kirkland.

"They're basically trying to expand their presence in the home and earn more money from consumers," Rosoff said.

In search of growth beyond its huge and lucrative PC software business, Microsoft is going head to head with entrenched consumer-electronics companies to build a profitable entertainment business -- "connected entertainment" to use the company's buzzwords.

Two major prongs of this effort have centered on building software and hardware, a shift from Microsoft's traditional software-centric strategy.

The Xbox, introduced in 2001, is now a fierce competitor to market leaders Sony and Nintendo.

Microsoft's Zune portable media player, launched in November, is attempting to challenge Apple's wildly popular iPod line.

"The fact that we are adding connected entertainment experiences is something we've been talking about actually for several years," Robbie Bach, president of Microsoft's Entertainment and Devices Division, said in an interview Friday.

Now, Microsoft is aligning the Xbox 360 with another entertainment push. The company is selling software that allows TV programming -- now transmitted mostly over airwaves or through cable lines -- to be delivered to homes through phone companies' high-speed Internet connections.

The customers using Microsoft's so-called Internet Protocol TV (IPTV) software include AT&T, Deutsche Telekom and three others.

Verizon Communications, another user of Microsoft TV software, is building a fiber-optic network in the Puget Sound area that could provide the service.

This new delivery mechanism for TV would compete with traditional cable and satellite providers.

A Federal Communications Commission ruling last month could make it easier for the telecom companies to begin offering the TV service in more U.S. markets.

Microsoft plans to announce later this year which of its IPTV customers will offer the Xbox 360 as an alternative to the traditional set-top boxes made by Motorola and others.

Bach said the exact business model for the Xbox 360 is still to be determined. He said it will be available by the 2007 holiday season.

Bach, who joined Gates on stage here, said the Xbox 360 is still primarily a game console.

He rattled off its bona fides after a year on the market: 10.4 million consoles sold, exceeding expectations for 2006; 160 game titles, with plans to double that in 2007; 5 million subscribers to Xbox Live, the Microsoft online gaming network and marketplace.

Bach said establishing credibility in the video-game-console business, which the company entered in 2001, gave Microsoft a green light to expand the scope of the Xbox.

Richard Doherty, research director at The Envisioneering Group, a consumer-technology consulting company, said Microsoft risked upsetting retailers by not disclosing all of the Xbox 360's capabilities going into the holiday shopping season.

"Some people would say that it's a Trojan horse strategy with a happy ending," Doherty said. "Others would say why didn't you explain this earlier? ... The retailers don't like to have their salespeople in the dark that much."

Still, even before the Xbox 360 can be widely used to deliver TV, Microsoft and its partners will have to clear several hurdles.

"IPTV still has a very small [audience], particularly in the United States," Rosoff said.

There were about 8 million IPTV subscribers worldwide in 2006, according to a report released by Multimedia Research Group in October.

By 2010, that could grow to 50.5 million.

In addition to growing the IPTV audience, Rosoff said Microsoft will have to expand the capacity of the Xbox 360's hard drive to make it a truly useful TiVo-like device.

Current models have 20 gigabyte hard drives, enough to record only a handful of high-definition movies.

Benjamin J. Romano: 206-464-2149 or bromano@seattletimes.com

What's in the Xbox

Microsoft is expanding uses of its Xbox 360 video-game console, 10.4 million of which have been sold. Here are some of the functions:

Games: Primarily a video-game console, Xbox 360 has 160 games available.

DVDs: It plays regular DVDs and can play back high-definition DVDs with additional hardware.

Downloads: In November, Microsoft started offering downloads of movies and TV shows from Xbox Live.

Music: You can plug a digital-music player into the 360 to play back your song library.

Set-top box: The company said Sunday that Xbox 360 will be able to tune in Internet-delivered television, record TV programs and download other video content.