Redbox Instant offers subscribers four Redbox DVD rentals as well as unlimited streaming access to around 4,600 movies for $8 a month. An additional 4,000 newer titles are offered as streaming rentals or purchases. After a limited-time free introductory offer, Redbox Instant customers will need an Xbox Live Gold subscription to use the service on Microsoft’s game console, which will set them back another $5 a month.

The company launched its closed beta test at the end of December, and opened up to the public mid-March after convincing tens of thousands of testers to become paying customers, according to Redbox Instant CEO Shawn Strickland.

Strickland told me last week that the launch on Xbox Live would also kick off the company’s first real marketing efforts, and that Redbox Instant would start to specifically target Verizon and Redbox customers soon after. Apps for LG, Google TV and Vizio devices would follow in the next few weeks, he added.

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Entertainment and digital media President Nancy Tellem, who worked for CBS before arriving to head Microsoft’s Los Angeles studios, said she is working on ways to make shows more interactive by tapping into technology like Kinect.

However, the goal wasn’t to use interactivity for interativity’s sake, she said, adding: “It has to be organic and a natural extension of what we are doing.” Examples could include live shows, or children’s programming where kids can interact with the characters on screen.

Tellem declined to specify how much Microsoft is spending on its original content play. “We are certainly looking at a very robust content production schedule,” she said, adding that her studio currently employs 125 people.

Microsoft has been stepping up its engagement in the entertainment space over the last few years, adding more than 110 100 content partners to its Xbox Live platform. Microsoft SVP for Interactive Entertainment Business Yusuf Mehdi said Monday the company now has a total of 46 million Xbox Live subscribers worldwide.

He declined to go into any details about Microsoft’s plans for the Xbox hardware, sidestepping questions about rumors that Microsoft is going to release a more lightweight, entertainment-focused living room device.

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Can Microsoft and RIM succeed where others have failed?

These incumbents — Apple and Google’s Android partners — account for 89.9 percent of smartphone sales as of the third quarter of 2012, per IDC. Some alternative platforms, such as Palm’s webOS and Nokia’s Maemo software, entered the market only to disappointingly disappear: webOS is now an open-source platform and Maemo became MeeGo, which Nokia abandoned when it chose to use Microsoft’s Windows Phone software. Windows Phone has been around for two years but has relatively little in the way of sales to show for it.

With Windows Phone 8, however, Microsoft now has its best chance for success. It appears that Research In Motion’s BlackBerry 10 system, which will be unveiled on Jan. 30, is RIM’s last-ditch effort at relevancy as well. I’ve used, and like using, Windows Phone 8 and I also like what I’ve seen from RIM as it has shared limited details of BlackBerry 10. But I’m unlikely to switch platforms now and based on the timing of these two products, I expect many current smartphone owners to avoid switching as well.

What can a new smartphone platform offer at this point?

There are a few reasons why I think this, with the first being the maturity of the current smartphone platforms. After five years in this current age, all the heavy lifting is done, meaning the biggest platform breakthroughs have already been made. Put another way: All of the recent incremental upgrades to iOS and Android are just that: incremental. The pace of change for a native smartphone operating system has slowed and the changes themselves are mainly small features or minor user interface tweaks.

Of course, it’s always nice to have more options. And in my opinion, some native smartphone features are actually better on Windows Phone than on Android or iOS.

The People hub in Windows Phone, for example, makes it easy to see all of your contacts, their social status, updates and photos. While the approach is sound, and perhaps even better than contact management on alternatives, one could always add Facebook sync to their phone for a similar experience. So the value of the People hub is diminished when making comparisons.

And while RIM employees I’ve spoken with tell me that the BlackBerry fan base is excited by BlackBerry 10, nobody at RIM answers me directly when I ask, “Yes, but what feature(s) will broaden the BlackBerry base?” which has been shrinking over time.

Consumers aren’t buying hardware, they’re investing in platforms

I’ve been saying this for months, if not years: The battle for smartphone dollars is only partially won or lost by the hardware itself. The longer a handset owner sticks with one platform, the more they invest in content and apps that only work with that platform. This lock-in cost — something I mused about over two years ago — is a potential barrier to switching. And for those who invested early in a platform, as much as four or five years, its highly unlikely a switch will occur. Who wants to re-buy premium apps, books, videos and other content?

To Microsoft’s credit, it has more of a platform play than Research in Motion does. Between Windows 8 and its Xbox Live service, Microsoft has a wide range of support for music, videos, games and more. So far, however, that platform strength hasn’t equated to Windows Phone sales. Microsoft’s Xbox 360 has the been the best-selling console for 23 consecutive months and total lifetime unit sales hit 70 million as of Microsoft’s most recent fiscal quarter. Yet, Windows Phone shipments in the third quarter of this year are estimated to be 3.6 million handsets. To put that in perspective: 1.3 million Android devices are activated each day. And Apple just sold 2 million iPhone 5 handsets in China during this past weekend.

Maybe there won’t be a third-horse in this race after all

Barring any major smartphone advances by Microsoft or RIM now, neither appears poised to become a third horse in smartphones, at least when it comes to smartphone switchers. Bad timing and prior consumer investment are sure to hold back both platforms, at least in areas where smartphone penetration has already reached the tipping point. Could either of these do well in other regions, however?

Yes, they can, but the upside appears limited in my opinion. Even in areas where the smartphone population is low, both platforms are competing against low-priced but still capable Android handsets or older, and less expensive, iPhone models. Even so, I think the idea of catering a low-cost device to first-time smartphone buyers — exactly what Nokia is doing with its Lumia 620 — is a smart play at this point. That strategy may not get you or I to switch platforms, but it could rack up sales through first-timers.

Whether you currently own a smartphone or still have an old feature phone, I’d be curious to hear your thoughts: What will it take for you to switch to or initially start with Windows Phone 8 or BlackBerry 10?

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In a complaint filed in Seattle, Ann Talyancich claims that Microsoft wrongfully banned her from Xbox LIVE, a service that lets players interact online. She also says the company confiscated Microsoft credits she had bought. She wants to use the lawsuit to represent every other Xbox user in the same position.

Microsoft has long reserved the right to ban Xbox consoles that violate its terms of services by, say, playing pirated content or using unauthorized software. Talyancich says she was kicked off the service because she used an independent repairman to fix a broken DVD drive on the device. Banned users (there are reportedly at least 1 million) are excluded not only from Xbox’s free LIVE service but also lose any money they have spent for a premium version of LIVE or on “credits.”

The case raises interesting questions about how much companies should be allowed to use terms of service to control how users interact with their machines. But it could also be an important test of the “no class action” policies that are springing up all over.

Companies like Microsoft hate class actions because they let opportunistic lawyers demand millions of dollars over what are often trivial offenses. Defenders of the class action system say it is the only way that consumers can fight back when a company gouges them for a relatively small amount of money.

To short-circuit the class action process, phone giant AT&T introduced clauses into their contracts several years ago that required consumers to address all complaints through arbitration. In a controversial decision last year, the Supreme Court found the phone contracts were legal even though they seemed to shut off the right to go to court. Since then, other companies, including Microsoft, have taken up AT&T’s strategy but with mixed success.

Last week, the publisher Penguin failed to exclude Amazon Kindle owners from a class action over e-book pricing (Penguin argued the Kindle’s terms of service forced them into arbitration.) And earlier this year, an important appeals court refused to let American Express use an arbitration clause to prevent small businesses from suing it over fees.

In the Xbox Live controversy, Microsoft will likely try to shut down the case by declaring that the Xbox owner doesn’t have the right to sue in the first place. Gadget owners may not be the only ones watching the outcome. In the future, as online platforms like Google and Facebook face a growing stack of class actions, the companies may also become tempted to introduce arbitration clauses of their own.

Update: A Microsoft spokesperson said the company does not plan to invoke the arbitration provision against Talyancich because the incident she describes occurred prior to Microsoft’s imposition of the arbitration clause in its terms of service.

Xbox Users v Microsoft

The Microsoft case was first reported by Law 360 (sub req’d).

(Image by Joyce Michaud via Shutterstock)

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Microsoft’s Larry Hryb, also known as Major Nelson to gaming fans, dropped the news on his personal blog Wednesday, saying:

“The free My Xbox LIVE iPhone app update will let you find, learn more about, and control your favorite content from popular entertainment services on Xbox 360. You can control the content on your console with play, pause, fast forward and rewind controls directly from your iPhone. The new Discover section will let you find fresh entertainment through your phone to play on your console. You can also access on your phone a quick list of your most recent console activity.”

All of the updates are nice, but I especially like the remote control feature. As Microsoft adds more content partners, I’m using my Xbox more and more to watch Netflix, ESPN, live TV from Verizon FiOS and now Amazon Instant Video. Using a game controller for this activity isn’t optimal, although it certainly works. Of course, finding where the kids left the controllers — and hoping they have a battery charge — only adds to the challenge. But my iPhone is generally nearby and charged up.

Android users can now get in on the Xbox action as well, but the feature set is limited. Hryb explains that this first Android version of My Xbox Live can be used to:

• View, manage and message friends
• View and compare your achievement progress with friends
• Read and Edit your full LIVE profile (name, bio, motto)
• See your 3-D Avatar and customize it while on-the-go
• Access your recent activity and manage your Beacons
• Stay connected to the Xbox LIVE community via Spotlight

Hopefully, the remote control function soon arrives on Android as well. Hryb made mention of Microsoft’s new Smart Glass project, announced earlier this month at the E3 gaming conference. Smart Glass isn’t a piece of hardware, but instead a software service to watch or hear Xbox Live content — think videos, music and even games —  on a smartphone or tablet.

I assumed these devices would be Microsoft-powered, but Hryb clearly stated other platforms will be supported: “Yes, we do intend to bring Xbox SmartGlass to several platforms over time, but have no details to share right now.”

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While the app catalog is growing, software for Windows Phone doesn’t seem to be boosting sales as much as software did for Android and iOS devices.

What’s happening with Windows Phone sales?

Not much, to be honest, and certainly not as much as I anticipated after using Windows Phone 7.5 in August of last year. I expected that by the end of this year, Windows Phone could eke out 10 percent market share and surpass BlackBerry. It’s still possible, but it’s going to take a massive effort. And Microsoft isn’t heading in the right direction: As of last month, its share of smartphone sales had declined over the prior 12 months.

Research firm Gartner notes that Windows Phone and Windows Mobile combined only held 1.9 percent of the market in the first quarter of 2012, down from 2.6 percent a year ago. There have been some recent reports that Microsoft is doing well in China — better than iOS, with a 7 percent share — but I’m skeptical: Windows Phone devices just launched in China earlier this year, while the iPhone has been sold on multiple carriers there for some time. And as much as I like the usability of Windows Phone myself, I have yet to see others with a Microsoft device. Some of my colleagues have echoed the same.

Apps are important, but there’s more to a phone than apps

Here’s the funny thing and part of the reason that the number of apps really means little, or not as much as it used to. Guess where the most apps are available for Windows Phone devices? According to the data, the U.S. leads the way, with 77,450 of the 100,000 available. Going back to the China example, where the phone is allegedly doing well: There are 33,063 apps available to Windows Phones in China. Something doesn’t add up.

Actually, the app numbers do make sense, but they have less relevance to actual sales than they used to. As long as the top-tier titles are available for a platform, most users ought to be happy. And more of those titles are appearing on Windows Phone. But — and this is key — few, if any, are launching first on Windows Phone, which suggests developers don’t see the platform as the best place to debut their wares.

Microsoft simply hasn’t given developers, or many consumers for that matter, a compelling reason to opt for Windows Phone over Android or iOS. It’s not the apps; it’s a question of what Windows Phone can do for consumers and for developers already invested in Android or iOS. (As an interesting side note, 67 percent of Windows Phone apps are free.) Xbox Live ought to help and so too will Windows 8, which shares the Metro interface, so there’s hope yet.

App growth means less today than it did 4 years ago

A closely watched metric for apps stores of late is the growth rate, but I counter that it’s far less relevant now. In 2008, when Apple launched the iTunes App Store, soon to be followed by the Android Market (now Google Play), such growth was important for two reasons. One: Smartphones running platform-specific apps were a new concept for mainstream consumers. And two: The starting point was zero.

That sounds obvious, and yet today we keep hearing how a service is growing faster than Facebook or Twitter did. So too with the app store. As All About Windows Phone says, “Windows Phone reached the 100,000 milestone faster than Android (24 months), but slower than iOS (16 months).”

The growth-rate comparison simply doesn’t matter: We’re four years past when it mattered. There are many more consumers buying smartphones now than there were in 2008. That’s evidenced by the Windows Phone market share; as noted above, it lost share, but in terms of sales, it actually rose from 2.5 to 2.7 million units for Microsoft in the first quarter. The whole market is rising and gaining users, so you can’t meaningfully compare app growth rates in 2012 to those in 2008.

It’s not over yet for Windows Phone: Here’s what to watch for

Clearly Microsoft is in this for the long haul, and although smartphone sales have boomed over the past few years, only one-fifth of the world’s population owns a smartphone. So there’s time yet. Instead of apps, which are of course important, the maturity of Microsoft’s mobile platform and supporting ecosystem are more important factors to watch than the total number of apps available for Windows Phone.

Later this month, Microsoft will give a sneak peek at the next version of Windows Phone, code-named “Apollo.” And earlier this week at the E3 gaming conference, Microsoft announced SmartGlass, a new way to share Xbox media content with smartphones, tablets and Windows 8 computers. Perhaps with these new developments, Microsoft will finally give more consumers an answer to the question “Why should I buy a Windows Phone over Android or iOS?”

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