Xbox: Advertising Game-Changer?

Today’s broadcast network business model is still very reflective of yesterday’s business environment. The business model goes like this: The network charges the advertisers for commercial slots during and between TV shows. The better the show does in the ratings, the more the network can charge in advertising.

But in this day and age the networks need to compete extra hard for the eyeballs it needs to be able to justify the cost of the advertising slots. The competition includes anything from cable channels, licensing channels like Hulu, to even the network’s own alternative channels for content and advertising like their online video players.   

One example of the struggles of the existing business model was exposed when NBC was able to continue production on the critically acclaimed show "Friday Night Lights" only after selling first-run rights to DirectTV--this means that even though the show is an NBC property, it’ll be shown on DirectTV first. Although the critics have consistently given good marks to the show, the ratings have been sub-par and the advertising income on NBC alone wasn’t enough to justify the production costs on the show. This strategy may pay off financially for the individual show and the network in the short-term but I wonder how this will equate to eyeballs back to NBC’s other properties in the long-run. 

A combination of important factors makes Xbox a great contender for helping offer a new world of opportunities for content creators (including the networks) and advertisers. The first big game-changer was the launch of NXE ("New Xbox Experience") which enables users to access a plethora content much easier than ever before and gives advertisers a number of different ways to show their wares. The second big announcement late last year was the drop in the price of the console itself from $279 to $199 ($50 cheaper than the Nintendo Wii). The third factor was the partnership with Netflix that allows users to download Netflix content right to their Xbox. Another important advancement was the integration of the Xbox Live Marketplace online experience with the console which enables users to purchase and download content straight to their Xbox using a browser-based online user face on xbox.com including second-run top-tiered TV content ala iTunes like "Heroes", "Lost",  "The Daily Show" and more.

Last week, I attended the AdClub Seattle luncheon. Chuck Frizelle, Director of Xbox/Games Product Strategy and Planning, was the guest speaker speaking on  "Advertising in the Game Industry". Chuck has been in charge of the Xbox Live advertising business since its inception. Chuck’s main point to the Advertisers in the audience was that Gamers aren’t a niche audience anymore and that games are just a type of entertainment. The topic I don’t think he touched on enough was the opportunities for   everyone in the family--gamer or not--to use the Xbox Live experience to watch and interact with entertainment of all kinds including movies, TV shows, games, and advertainment like the "Doritos ::  Unlock Xbox" game.   

With the convergence of media on one platform and the ability for users to control that media all in one place, we’re seeing a platform that really does change the game of entertainment and advertising. Xbox eases the user into one comfortable platform that allows for active as well as passive entertainment. 

The next logical developments for Xbox Live should be an Interactive TV experience that will enable users to purchase items seen in a TV show or movie immediately and the availability of more casual games in XBLA (Xbox Live Arcade).  The Interactive TV experience on this platform just makes sense since people are comfortable being both active and passive while enjoying entertainment on the Xbox unlike the computer experience which is mostly an active experience and watching regular TV which is mainly as passive experience. The introduction of more casual games in XBLA would also be a good move to help change the perception of the Xbox platform as a "hard-core gamer" console to something more family-friendly, like the Wii. Games like "Guitar Hero" and "Rock Band" have already helped to do just that but those games are best played in groups and Xbox really needs to encourage everyone in the family to be more comfortable interacting with the Xbox even when solo--casual games can help with just that.

Once the Xbox is welcomed into the living room beyond the game room, families will be able to be entertained in a myriad of ways from a single platform.  Advertisers will also have many opportunities to reach their target consumers in ways that are more creative and thus more welcome by their audience.  It could just be that brave-new-world for content and how that content is funded that we’ve all been waiting for.