Insight on Supply Problems, Larger Hard Drive and Movies on Xbox 360

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The biggest issue that I've had with the idea if paying for downloading movies rentals via the Xbox Live Marketplace is that they are competing with "gray market" p2p sources of digital movies such as BitTorrent. That and the fact that I don't have enough space left on my 20 gig Xbox 360 hard drive and I get a lot of movies off Netflix. But Microsoft's biggest competition for digital movie distribution on Xbox Live is not Sony but BitTorrent.

I have had a theory is that the rise of popularity of sharing Divx and MP4 format movies via P2P networks was one of the reasons why Microsoft added playback support of both Divx and MP4 on the Xbox 360. They wanted to make sure that the Hollywood source is covered movies is covered on the Xbox 360 and the "gray" market P2P sources is also covered. If there was no demand for people wanting to play these formats they wouldn't spend the software engineering resources in making sure they worked on the 360 and the main source for people wanting to play these formats was getting movies from "gray" sources. On one hand Microsoft has deals with Hollywood to sell expensive rental movies with DRM (Digital Restriction Management) that expires in a day and on the other hand they support playback of video files that include the most popular formats on "gray" market video file distribution for those folks that know how to run p2p software and have the bandwidth. They wanted to tap into the demand that users had to play that content and they didn't want them using other systems and to keep them using Xbox 360. They didn't want for there to be a Divx/mp4 gap with the Playstation 3 and to loose customers because they were not supporting those popular but "gray" market video file formats.

That one of my favorite little Xbox conspiracies.

One of my sources on Xbox technical issues Xboxfounder has posted some interesting insightful comments about the supply issue problems, larger hard drives and a possible digital movie strategy on the Xbox 360. I've added some help for the abbreviations.

Xboxfounder writes:

360 capacity at Flextronics and Celestica (Manufacturing partners in Asia ) is 180k units per week. What did they sell last month, 230k? That's less than 1.5 weeks worth of production. If they have the capacity, and no quality or supply chain problems, they surely would have air shipped to meet demand. At this stage of the game, that's a given. Also, who lowers price when they can't meet demand? Or is the shortage just in NA (North America), not EU where the price was cut?

"I have to wonder what the real reasons are that they couldn't ship enough units. They might have converted production capacity for repair. This quarter is traditionally the peak load for returns, which lags peak holiday sales. They may have had supply chain problems of some type. Yield issues with the new CPU. Other quality issues, like a new high fail rate defect that limited how many they could make. Etc. "

As for larger HD's (hard drives), that was always the plan for later in the life cycle. But size was always TBD (to be determined). One consideration you didn't mention regarding the decision of BR (Blu-Ray) vs. downloaded content is streaming speed. I don't know about you guys, but I have BB (broadband) cable to my PC, and 802.1b/g wireless to my 360. It's pretty damn slow to get anything of size onto the 360. I can drive to the video store and back in less time than I could download an HD movie. That would seem to push them towards BR as the HD source for customer satisfaction.

But from MS's perspective, they want users to download content because that makes the money per view flow through them. Since they have only sold about 300k HD (HD-DVD) players so far, demand for add on drives isn't that high for 360. If they did a BR (Blu-Ray) add on, it would only be for customer satisfaction. They probably wouldn't ever do a built-in for that same reason, not enough demand. Even if they did, at that level of demand, it shouldn't hurt their download revenues if they can fix the slow load problems. They are staffing up in that area right now, so you never know.

It's the download revenues they really want, plus the user standardization on the MS digital entertainment platform. It all works together, and supports MS's monopolies. That's why they can and will sink billions of dollars into Xbox, when they will never break even on that business unit. Because Xbox is a defensive product that protects and extends MS's reach into the home. So that by using the 360 as an entertainment hub, you are likely also a customer of Windows, Office and other very high profit margin products.

The internal distribution of reports in the xbox unit has been severely restricted since I started posting in Feb. That was predictable. There have also been emails from top management about "serious" concerns regarding leaks. So information has become a little harder to come by.

But not impossible. I've been told that the supply constraints are due to supply chain issues regarding the quality of ODDs (optical disc drive) and GPUs (graphics chips). It didn't help that no one in China works for 2 weeks during CNY (Chinese New Year).

And it's confirmed 100% that the HD (hard drive) is moving to 60g standard. Those configurations are in design verification testing right now. I'd bet that this changeover also contributed to the lack of units. When MS changes major sub-assemblies like this, they try not to over produce the old configurations.

So this is a case of poor planning, supply chain and quality issues restricting production. Not demand out stripping capacity (supply).

"It seems we have a failure to execute"

Posted by at March 17, 2008 1:14 a.m.
Category: Game Articles

Comments

#108712

Posted by unregistered user at 3/17/08 8:13 a.m.

You must be a either a complete idiot or somebody who has never downloaded anything over Xbox Live. If you think you can drive to the video store faster than you can start watching a video on Xbox Live you must live next to the blockbuster. Movies and TV shows usualy begin playing within five minutes of starting the download.

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