Microsoft May Get Back in the Driver's Seat

This column was originally published on RealMoney on Nov. 7 at 1:45 p.m. EST. It's being republished as a bonus for TheStreet.com readers.

Everybody's talking about the possible deal between YouTube and Verizon (VZ Quote), and it's certainly a significant one. I'll write more about it in my next post.

However, just as important -- at least in terms of monetizing video content and disrupting age-old media business models in the intermediate term -- is the news that Microsoft (MSFT Quote) will start offering on-demand movies and TV shows in high definition to be downloaded over any broadband Internet connection that I can then watch immediately on my TV, using a remote.

To be sure, there won't be enough content immediately available for this offering to become a force before year-end. But the news is a blow to Apple's (AAPL Quote) much-ballyhooed, but not-yet-released, iTV platform, which won't offer even DVD quality, much less HD. Apple's iTV will probably eventually offer such quality, but I'm not sure that Apple is putting much emphasis on video quality in the near term, as evidenced by its current offerings, which aren't even standard TV quality.

Video quality is a relative thing, and on our phones or PCs, it's not necessarily an important differentiator. But in our living rooms, it certainly is, especially for affluent youth who will be the early adopters. And it's exactly those early adopters who establish the marketplace and create positive feedback cycles for technology platforms.

That means suddenly Microsoft, with its Zune video and music player, its Xbox 360 HD downloads and its new Vista OS with video and voice-networking capabilities, just might find itself back in the driver's seat.

You see, Microsoft already has the Xbox 360 in some 4 million homes, and 60% of those homes subscribe to Xbox Live. (Just for some perspective, consider that TiVo (TIVO Quote) has so far sold only about 1.5 million non-DirecTV TiVos.)

Sony (SNE Quote) will eventually offer some similar capabilities, and, of course, Apple's aforementioned iTV platform will also enter the living room.