PriceSCAN Blog

The Elite has a 120 GB hard drive for expanded media storage, and its HDMI interface allows high-def output. But if they want to play HD-DVDs, consumers still have to shell out an extra $190 or so to purchase a separate Xbox 360 HD-DVD drive – see "So Xbox Has A 1080p HD-DVD – Blu-ray's Still A Cooler Name (You Can Tell By The Dropped Vowel)". However, Microsoft's gamers have another high-definition alternative, as they can simply download HD movies via the Xbox Live Video service. The larger hard drive of the Elite should come in handy for this application since high-def is a disk pig, taking up four to five GB per two-hour movie. Perhaps as or more important, note the Xbox 360 Elite can be used as an IPTV set-top box/digital video recorder, so it's conceivable that phone companies could ally with Redmond to use this Xbox to supply HD content and compete with traditional cable firms.
What does this mean for Toshiba, Sony and Apple? One might think Sony would be pleased to see Toshiba's putative HD-DVD partner eschewing a built-in HD-DVD player, but in doing so Microsoft has backed a technology that could threaten all disk-based distribution, including Blu-ray. With the Elite to be priced at under $480, it's still cheaper than the PS3 line, despite its large hard drive. I've argued in this space that, with the PS3's Blu-ray-driven high price, Sony may be sacrificing video game market share in order to promote its high-def standard ("Blu-ray May Avoid Betamax's Fate…Even If The PS3 Isn't So Lucky"). It would be ironic if Sony blew its video game market position to back a type of HD disk only to see the Xbox help to make all HD disk technology less relevant.
As for Cupertino, to be sure, Apple TV at just under $300 is considerably cheaper than the Elite, but of course it does not double as a top of the line game console. Further, Apple does not currently offer high-def downloads.
Needless to say, there will be a response from Microsoft's rivals. Already there's talk of an 80 GB hard drive version of the PS3, and of course Apple can move to HD content at some point. As for Toshiba, in the face of wide content availability in Blu-ray format press reports have it implementing April 1 price cuts for its line of HD-DVD players, down $100 for the HD-A2 and HD-A20 and $200 for the HD-XA2 (these would then list at $399, $499, and $799, though vendors on PriceSCAN.com are already pricing these models at or below the new lists). But with the Elite, Microsoft has undercut not only the PS3's price but the rationale behind the high def models of both Blu-ray and HD-DVD. It's been apparent for a while that HD downloads could negatively impact the high-def disk market, particularly in a world where DRM restricts the ability to record on disk (see "Blu-ray vs. HD-DVD: Lock-In, Co-Existence, Or Irrelevance?"). I'm not saying Microsoft's move or high-def downloads in general eliminate the logic of portable HD media, but neither of Japan's high-definition powerhouses can be very pleased. And with a high-def march stolen on Apple TV, the release of the Elite is not likely welcome news in Cupertino, either.