Is Microsoft’s new Xbox Music service a Spotify or an iTunes killer? Actually, that’s the wrong question entirely. Xbox Music is more than just another standalone digital music service. It represents the wider battle for the living room that’s developing between some of the world’s biggest consumer technology companies.

Xbox Music itself sounds impressive, especially given the background of Microsoft’s struggles to make its Zune service and devices a success. The company appears to have all the bases covered: a free, ad-supported on-demand streaming service on Windows 8 tablets and PCs, with a $9.99 monthly subscription extending it to Windows Phone smartphones and the Xbox 360 console. Personal radio and cloud locker features are thrown in for good measure – albeit without scan-and-match functionality for the latter until 2013 – and there will be iOS and Android apps released “eventually” too. Microsoft is talking up its jack-of-all-trades approach, too.

“There are a lot of individual services that do a good job, but today there isn’t a service which can pull together the benefits of download-to-own, music subscription, or free streaming services,” said Yusuf Mehdi (the company’s corporate VP of interactive entertainment business marketing and strategy) as Xbox Music launched. “With Xbox Music, what we wanted to do is bring all of that value in one simple, easy-to-use service, then build some additional value on top — make it really beautiful, and have it work across all of your devices.”

It’s a beguiling pitch, and early indications are that the apps – across console, PCs and smartphones – are impressively slick. That “eventually” point requires clarification though: with Windows Phones selling in the low millions, Xbox Music needs iOS and Android apps before it can even hope for meaningful subscription revenues from the service. Xbox Music’s potential is all about its scale, and specifically the number of devices running it that Microsoft can get into people’s living rooms, offices and pockets. Some 70m Xbox 360 consoles have been sold so far, a few million ahead of Sony’s PlayStation 3.

But it’s Windows 8 where the real opportunity – but also the most potential controversy – lies. Earlier this year, Microsoft CEO Steve Ballmer claimed that 500m people would have Windows 8 devices in 2013, buoyed by the fact that the new operating system will ship on a host of PCs, laptops and tablets. Xbox Music “comes pre-installed and is the default music player for the new Windows 8 operating system” according to Mehdi. That’s a huge opportunity for the music industry: remember, the service is free and ad-supported on these devices. It’s also a can of worms waiting to be opened – or rather opened again, given Microsoft’s past antitrust battles over whether it could bundle its Internet Explorer browser with the Windows OS.

It remains to be seen whether other digital music companies will seek regulatory views on Xbox Music in this regard. One mitigating factor is that Windows 8 device makers are free to also preload their own services or those of partners – witness the deal struck this week between Rara and Lenovo. The wider context here is important though, and while it may not kill standalone digital music services like Spotify, Deezer, Rara and the rest, it’s certainly a threat. That context is the perception in the consumer technology industry that the keys to success going forward will be devices plus software PLUS entertainment and content. Or, to put it another way: the devices providing the route to the living room for the standalone digital music services – not to mention those in the TV/film vertical like Netflix and Hulu – are being made by companies who see their own music services as a key selling point for those devices. TVs, set-top boxes, consoles, tablets, smartphones.

Think about Apple with its iPhone, iPad and Apple TV box; Microsoft with its Xbox 360, Windows 8 computers and tablets and Windows Phone smartphones; Sony with its PS3, smart TVs and Blu-ray players and its tablets and smartphones; and Samsung with the same device set as Sony, bar the console. Google is slightly different, relying on other manufacturers running its Android and Google TV software for its route to the living room, but the principle is the same. These companies want to do everything.

Here’s another quote from Microsoft’s Mehdi: “Xbox will be a gateway to the best in movies, TV shows, music, sports, your favorite games and instant access to your friends, wherever you are.” Microsoft isn’t trying to compete with Spotify: it’s trying to make Xbox a catchall entertainment brand. And while for now it charges a standalone subscription for Xbox Music, one wonders how far off an umbrella ‘entertainment’ bundle is for the company and its rivals.

Pay once, get music, TV, films, books and magazines on mobile devices. It will be initially tortuous in terms of licensing and apportioning payouts, but the flipside is the potential for better recommendations across all these entertainment categories. This is why Xbox Music’s significance is much more than just another digital music service piped through a games console. But it’s still very early to gauge how this situation might spin out. There are bright spots for the standalone music services.

Such as? Well, telcos don’t want to be squeezed out of this battle for the living room, and they’re doing deals with the likes of Spotify and Deezer around the world. Independent set-top box makers like Roku and Boxee are also adopting service-neutral strategies. Then there’s the question of the devices people play music on: hi-fis. Sonos has led the way in partnering with a range of streaming services and letting its customers choose which to subscribe to, although rival Pure has opted to launch its own streaming service. There’s no one single way to access music in the home, and there never will be – with many of the devices remaining open to all services rather than tied to one. But if the consumer tech firms are right in their belief that people will increasingly expect their devices to be bundled with digital entertainment including music, the hardware partnerships for pure digital music services will be more important than ever.

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