In my opinion, the biggest Microsoft announcement at E3 today was made after their press conference was over. They announced a new Games on Demand service (coming this August). It has two important features:

1. Full Games Available for Purchase on Demand: Microsoft will start selling full games on-demand via download through the Xbox Live Service starting this fall. Following in the footsteps of Steam (and to some degree Sony), this may be a critical inflection point on the path away from retail game sales. The 30 announced games are all older games (eg: Mass Effect, Assassin’s Creed and Bioshock). Games are to be sold at regular retail prices (no disk-free, Gamespot/E.B.; disintermediation discount). Nothing was said about the future availability of new titles day-and-date with retail releases. With the service in place there is, of course, no technological reason why this couldn’t happen. It’s just a matter of time.
2. A Step Away from Microsoft Points: Anyone who is a regular reader of my blog knows that I am a critic of Microsoft Points (see this post, for example). Games purchased through the Games on Demand service will be purchasable with a credit card. No Microsoft Points required. Amen! Let’s hope this is the beginning of the end for Microsoft Points. 

For details see:

• E3: Microsoft Announces ‘Games on Demand’ at Xbox Live Luncheon (Gamasutra)
• Games on Demand Bringing Digital Retail to Xbox 360 (1Up.com)
• Good-bye Games in boxes? Xbox 360 to get full game downloads (CNet)

Despite Canadian dollar parity, as usual Canadians will pay more per rental ($4.99 for new releases, $3.99 for older titles) than our American friends who pay $3.99 and $2.99 respectively. In both countries ‘high-def’* versions cost $1.00 more when available.

Canadians will have 48 hours to view iTunes movies after pressing play. This is surprising because Americans have only 24 hours to finish watching iTunes movies. I expect the U.S. service to follow suit shortly.  As in America, Canadians have 30 days after downloading to start watching their rented movie before it is deleted.

I took a quick look at the iTunes Canada movie offerings. There seems to be a good selection of new and older movies. Unlike in the U.S., there are no current prime-time T.V. shows available for download through the service. The available TV shows are either shows you never heard of or older TV shows. I expect that to change over time too. Participating studios include Disney, Paramount , Warner Bros, 20th Century Fox, Universal, MGM, Sony, Lionsgate and Maple Pictures.

Below I discuss your iTunes movie play-back options and compare the iTunes movie service to Bell’s recently announced video download store, the Xbox 360 movie download service, the Amazon Unbox-to-TiVo video download service and the pending PS3 movie download service.

Supported Devices

Canadians can watch iTunes rented movies on their Macs/PCs, on Apple TV units connected to their TVs, on video iPods like the iPod Classic, on the iPod Touch and on the ’soon’ to be released Rogers iPhone.

The best way to watch these movies, however, will be on your TV through an Apple TV device. It retails in Canada for $249 (40GB unit) and and $349 (160GB unit).  Again, Canadians pay more despite dollar parity. The U.S. price for these units is $229 and $329 respectively.

With the latest Apple TV software update, Canadians will be able to order movies directly from their TVs through the Apple TV device. They won’t have to get off the couch to order from their PC as was the case in the past.

Compared to Xbox 360 Movie Downloads in Canada

Microsoft launched its Canadian Xbox 360 movie rental service on December 11, 2007 with just over 30 titles. As of today there are only 90 titles available (compared to about 400 in the U.S.).   When the arcane Microsoft Points system is translated into Canadian currency(Cdn $1.42 per 100 Microsoft Points if you buy in bulk at Best Buy), movies rented through the Xbox 360 Marketplace cost:

• $6.25 for new SD releases (440 MS Points)
• $8.25 for new HD releases (580 MS Points)
• $4.26 for older SD releases (300 MS Points)
• ?? for older HD releases (none currently available)

They cost even more if you buy your Microsoft Points through the Xbox Live Marketplace (currently $1.55 per 100 points compared to $1.25 in the U.S.).

A month or so ago I rented the high-def version of Blade Runner (Director’s Cut) through the Xbox 360 service. I was very satisfied with the quality and functionality of the service. The movie started playing approximately 7 minutes after I initiated the download. But, as I wrote here, I dislike their points-based payment system and look forward to its abolition.

More Info:  Joystiq: U.S. Xbox Live v. Apple TV Movie Downloads

Compared to Bell’s Video Download Service

On May 21, 2008, Bell Canada launched the Bell Video Store movie download service (see ). They advertise 1,500 movie and TV shows. But the movie selection was very poor when I looked at it and, predictably the TV shows were only made-in-Canada TV shows, most of which you’ve never heard of. (click picture for larger view)

Bell’s movie rental fees range from $1.99 to $4.99.

Out of the gate, the service was crippled because: (i) it only works on the PC platform (no Mac’s allowed); (ii) does not work with any video iPod, iPod touch or iPhone; (iii) can’t be accessed through Apple TV; and (iii) the only supported portable devices are Archos portable devices – which few Canadians have heard of much less own.

There is no way to get the videos to your TV unless you are one of the 100 Canadians that have figured out how to connect your Xbox 360 as a media extender to Windows Media Center. I tried for two hours to get this to work before I gave up. I will try again and will post my results here on The Daleisphere in the future.

Bell Video Store Reviews:  Globe & Mail |  Digital Home Canada

Compared to TiVo’s-Amazon’s Unbox Movie Download Service

I include this for reference only because Amazon and TiVo do not yet make their Amazon Unbox to TiVo movie/download service available in Canada. The service, which started on March 7, 2006, makes approximately 20,000 movies and TV shows available for Americans to rent at prices between $1.99 to 3.99. TV shows cost $1.99 per episode to rent. A good number of those movies/TV shows can be ordered directly from the TiVo (others can be ordered from your PC) and watched from an Internet-connected TiVo.  The rental viewing window is 24 hours after you press play. Depending on your broadband connection, you can generally start watching shows quickly after initiating the download. No HD content is available yet but On May 10, 2008 TiVo announced that HD content will be available in the ‘not to distant future’.

Watch a demo: here.

TiVo also supports playback of video podcasts on your TV through the TiVo Desktop software. See my review here.

More details: from TiVo here, Amazon here,  here, PVRblog here.

Compared to Sony’s PS3 Movie Download Service in Canada

In April 2008, Sony announced a pending PS3 movie download service (see here, here and here) to be made available through its revamped PS3 Playstation Store. The service is not available yet but I expect it to be available to Canadians this year.

Conclusion

The iTunes movie download service looks like it may be a winner.  It works with all the popular Apple video products including the Apple TV device which is easy to use with your TV. While movie rental fees are more expensive compared to U.S. prices (aren’t they always), the prices are comparable or less than competing online video download services and cable-provided video-on-demand services and not too much more that what you’d pay for a Blockbuster/Rogers movie rental. The selection is good for a newly launched service. As with their competition, I expect the selection will grow dramatically over time. And you can’t beat the convenience.

Given how fond I am of TiVo I would much prefer the Amazon-TiVo Unbox service if it were available. But, the Canadian iTunes movie download service looks like it will be the Canadian download movie rental market leader for now and for the foreseeable future.

I will post my results here on  The Daleisphere once I’ve had a chance to test out the iTunes movie rental service.  I may even be able to cancel my over-priced Rogers movie channel service soon!

* I put ‘high-def’ in quotes because, as with all the services discussed in this post, none of the offerings are true high-def videos. They would more accurately be called "higher-def’ videos. But for most consumers, at slightly better than DVD quality, the quality will be acceptable .

[Update: June 1, 2009: Today Microsoft announced ‘Games on Demand’. A feature to be launched in fall 2009 where full games can be purchased with credit cards. Finally, one small step away from Microsoft Points! See Gamasutra article.]

Reading several articles today on Sony’s pending PS3 on-demand service (see here, here and here) and Sony’s pending Playstation cards, to be denominated in local currency (here), it occurred to me that Microsoft’s use of points alone is going to become increasingly untenable as Microsoft’s key game/movie/TV show download competitors all offer competing products denominated and purchasable in local currencies.

Below I discuss Aaron’s arguments for Microsoft Points and what, to me, are overwhelming competitive arguments against them.

A. Aaron’s Arguments For Microsoft Points:

1. Minimizing Credit Card Transaction Fees: Microsoft doesn’t want to ‘burden’ consumers with credit card transaction fees. Credit card companies charge transaction fees on low and high value purchases. Forcing the consumer to make bigger purchases lowers the relative transaction fee. Microsoft passes the savings on to consumers.

Comment: Amazon and Apple manage to individually charge consumers 99 cents per downloaded song. PS3 owners can purchase downloaded content in their local currency with their credit card through the PS3’s Playstation Store. Surely Microsoft can similarly find a way of charging consumers $2.00 to $20 per content download. Give consumers a choice. If some (arguably most) consumers wish to be burdened, then give them the option to choose between points, cash card or credit card purchase options. My guess is only a small minority would choose the point system.

2. Enabling People Without Credit Cards to Purchase Content: A point system makes it possible for people, especially children, without credit cards to purchase content on XBLM.

Comment: Good point. But gift cards and cash cards achieve the same goal. These are not new. I use my Starbucks card to purchase my $1.55 coffee each day. As mentioned above, Sony will soon be offering offering Playstation cards denominated in local currencies (see here) that can be purchased from retailers nation wide.

3. Points Pricing Permits Unified Global Pricing: Microsoft believes consumers prefer a unified global points-based pricing system whereby everyone in the world is charged ‘the same’ points price.

Comment: Unified points pricing is a fiction. Consumers purchase Microsoft Points in local currency. The price Microsoft charges for points is different in every jurisdiction (see chart). Consumers understand this and know that despite the unity of Microsoft Points, the price they pay out of their pocket is different from the price paid by others in other countries. In our Internet-connected world, consumers see through the fiction. It is especially exacerbated because Microsoft does not adjust the price of Microsoft Points to take into consideration fluctuating currency markets (see below).

Garnett suggested a system whereby Microsoft post a Microsoft Points price on XBLM with the local currency quoted in parenthesis beside. Presumably this would be tied with an ability to purchase the content in that currency. Aaron thought this was a good idea and was going to bring it back to the team.

B. Non-Spoken Reasons:

While Aaron didn’t mention the following reasons, common sense tells us that the following are also reasons why Microsoft has chosen to use Microsoft Points.

• It’s Profitable: Microsoft is a business. Clearly they came to the conclusion that this would, all things considered, be the most profitable payment system for the Xbox Live marketplace, for the Zune marketplace etc.
• Confusion May Lead to Sales: Points keep consumers from knowing exactly what they are spending. 500 Microsoft Points sounds cheaper than $7.75. If a product seems cheaper it probably leads to higher sales.
• Forces Consumers to Carry a Float / Interest Free Loan: The system does not allow the consumer to purchase the exact number of points needed for a given download. So whenever a consumer wishes to purchase an item, they must, by definition, buy more points (and spend more) than they wish. This amounts to both: (i) more unearned cash on Microsoft’s balance sheet; and (ii) an interest free loan to Microsoft.
• Unused Points Means Higher Profits: It’s commonly known in the gift-card industry that a significant portion of gift cards are never redeemed. Undoubtedly a significant proportion of both: (i) Microsoft Points purchased and retained as a float balance (see above); and (ii) purchased/gifted Microsoft Points cards will never be redeemed. This is pure profit for Microsoft that wouldn’t exist if consumers purchased downloads with cash or cash equivalents.
• Technical and Extensibility Reasons: It was probably technologically easier to go this route and possibly more easily extensible to multiple markets than a currency-based payment system.

C. Arguments Against a Points System:

• Points are a Hassle & Confusing: Consumers don’t like them. Consumers do not like not knowing how much they are spending. Consumers don’t want the conversion hassles. Consumers don’t want to be forced to purchase more points than they need.
• Multi-step Purchase Process: Having to maintain a balance of points, or worse, having to stop mid-transaction to recharge a points balance, causes friction and lowers the likelihood of a consumer purchase. This frustrates consumers and lowers possible sales. It’s much easier to purchase items with a 1-click credit card system (witness Amazon’s 1-click successes). Several times I’ve chosen not to purchase an item from the Xbox Live Marketplace for no other reason than I couldn’t be bothered to recharge my points.
• Currency Fluctuation Inequities: The Canadian dollar has been at par with the U.S. dollar for about six months now (much of that time it has been above the U .S. $). Yet the price per Microsoft Point charged by Microsoft still assumes the Canadian dollar is worth 24% less than the U.S. dollar.  This angers consumers. It’s simply not fair to charge Canadians 24% more for the same product when Microsoft chooses not to (or can’t for technical reasons) price Microsoft Points in line with currency fluctuations.
• Points Price Variations Within the Same Currency: I was at Best Buy a few days ago. They were charging $39.95 for a 2800 Microsoft Points card. That works out to $1.42 Cdn per 100 points (by comparison Microsoft charges $1.25 per 100 points in the U.S. (see chart).  When the Halo 3 Legendary Map Pack came out the next day I needed more points because, as usual, the number of Microsoft Points floating in my account were just a few hundred short of what I needed to purchase the map pack. Microsoft was charging $1.55 Cdn per 100 points to purchase the points through Xbox Live Marketplace. Why the 13 cent difference per 100 points from Best Buy’s price? XBLM did not offer similar discounts for bulk points purchases. Had it been anything other than the Halo 3 Map pack, for that reason alone I would have forgone the purchase.
• Competitors Sell in Cash: The PS3’s Playstation Store, Apple TV, Amazon Unbox via TiVo are all direct competitors to Microsoft’s download marketplace business. They all price their offerings in local currencies and let consumers pay with credit cards or with cash cards/gift cards. All else equal (and purchasing identical movies/TV show via downloads are pretty much equal) when given a choice I believe most consumers will use the system that prices downloads in their currency and allows them to pay in cash or cash equivalents. I have three of these devices under my TV. That will be how I decide which service to use.

D. Conclusion

When Microsoft was the only video game/movie/TV show download game in town, they could afford to impose a points-system on consumers. But as competitors (Sony PS3, Apple TV, TiVo/Amazon Unbox/Blockbuster etc.) enter the race, offering a more consumer-friendly transaction system, I believe most consumers will choose the alternative.

I think the writing is on the wall. Microsoft will either have to abandon the points system, or, at least, offer cash-cards and credit card-payment alternatives, to compete.

[April 8, 2009 Update: In a step in the right direction, gamers can now purchase Xbox Live games, add-ons for cash through Amazon.com. See stories: Kotaku | Gizmodo | Ars Technica]