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Game Consoles to Upset the Pay-TV Market

According to a market study by TDG, game consoles such as Microsoft's Xbox 360 and Sony's PS3 are evolving into multimedia gateways with various non-gaming media applications.

Armed with the growing video libraries of Xbox LIVE and the Playstation Network, these consoles can deliver on-demand video services with content similar to local cable, satellite or telco Pay-TV operators.

Though similar efforts have failed -- largely because they relied on consumers to buy yet another set-top box -- the business model and the timing seem to favor the game console-based approach.

"There is a bit of a value vacuum developing around today's Pay-TV offerings," noted Colin Dixon, TDG's practice manager for broadband media and report co-author.

Rising dissatisfaction with service value, the lack of flexibility implicit in tiered strategies, and a growing interest in watching online video on the TV have combined to create a unique opportunity for alternative video services.

Microsoft and Sony know that today's console gamers are perfectly suited for new TV offerings.

The segment is dominated by males between the ages of 18 and 35 -- a prized advertising demographic -- with little sense of loyalty to their local cable or telephone company.

They are also heavy viewers of online video and open to spending money for online digital media. Simply stated, console vendors are well positioned for success in the Over the Top (OTT) media distribution space because (1) their gaming audience already owns the enabling device, and (2) they are highly likely to already have a relationship with the vendor.

Findings from TDG's new report includes:

- By 2012, approximately 190 million households will use a next-generation game console.

- 80 percent of these households, or 148 million, will have this console connected to the Internet.

- 75 percent of connected-console households, more than 110 million, will use game console-based video services at least a couple times each week.

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