But what is really putting Microsoft executives on the defensive is that Sony ( SNE), its chief industry rival, has said users of its PlayStation 4 console will not face the same restrictions. At this stage, it is clear that these two companies are focused on owning the living room, with devices that are capable of supporting video chat and premium cable television, in addition to interactive gaming. The ultimate winner in these areas will be the company that is able to guide the consumer seamlessly into an interconnected, digitally controlled marketplace. Microsoft's latest policy changes fail to make these transitions in a way that many of its core users do not like, leaving the door open for competitors to take market share from an already vulnerable company.
Microsoft's battles are already being fought (and possibly lost) on a number of fronts, and PR difficulties in one of its strongest areas is no doubt a cause for concern at the company's strategic levels. As Sony and Microsoft move ahead, each on its own path to owning the living room, key challenges in defining the parameters for owning content lie ahead. Early signs suggest that Microsoft is already on the defensive, so the next question Is whether we will see policy changes in an effort to stem the rising signs of customer discontent. At the time of publication, the author had no positions in stocks mentioned. This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.