During his CES keynote, Bill Gates promoted the high-def aspect of the Xbox 360, with good reason. As the first HD console to market, the Xbox 360 has the unique opportunity to get a foothold in an otherwise deserted market. Right now, HD content is limited to what airs on your television channels. Soon HD-DVD and Blu-ray will come into the picture, and Microsoft is fighting to keep it's position.

Microsoft has stated that in a recent study 9 out of 10 owners of Xbox 360s either have HDTVs or plan on purchasing them. I'm sure they are glad that so many people are that enthusiastic about their hardware, where a new - probably fairly expensive - TV can be considered an Xbox 360 accessory.

One way Microsoft wants to cement their position as a HD content provider is by using the Xbox 360 to read new HD-DVD discs. Gates showed some of the capabilities of HD-DVD, but not combined with the Xbox 360. I would argue this was a fatal flaw, since the announcement of an external add-on drive has already caused a ripple in the 360 community. Some people are wondering if they should wait for a HD-DVD version of the Xbox to come out, or at least wait on an announcement to see how expensive this add-on drive will be. One stand-alone HD-DVD player was quoted at a $499 price, but people are hopeful the add-on drive would be much less.

If I had to take a guess about Microsoft's decision to release the HD-DVD drive as a later add-on, I would bet it came down to price and time. If they waited until the Xbox 360 had a built-in HD-DVD drive, not only would they had to have waited until at least early 2006, missing the technologically-sparse 2005 holidays, the price would have been much higher for even the Core system. If Microsoft set a base price of perhaps $599 in March or April of 2006, interest would have been much lower, and the Xbox 360 would not have a very strong foothold before the PS3 came out. By releasing sooner, Microsoft leaves the HD-DVD option to the consumer, and sets the price point low enough to get into a lot more households. Microsoft's biggest problem so far with the launch of the xbox 360 has been not having enough 360s to sell, which is a problem I'm sure they're not to upset about.

The only area I worry about in Microsoft's strategy is the success of the HD-DVD format itself. People are clamoring for HD content, and the Xbox 360 looks to be a good source. But with so many people rebuilding their movie collections into DVD over the past few years, consumers may be hesitant to upgrade. DVDs look pretty good on HDTVs, and people may not be willing to spend a lot of money just to have something that is a marginally better. I'm confident that price and content will play the biggest factors, just as they did for VHS and Betamax. If the PS3 comes with a Blu-Ray player built in, people may buy that system and abandon HD-DVD altogether. Why spend hundrends of dollars for something just to watch HD movies when I can buy a gaming system and get that capability included for free?

The only other source of HD content I am aware of besides HDTV channels and the Xbox 360 is HD content that has been recorded on an HD PVR. Yes, this is basically the same content as live HD channels, but as people get more technologically savy, live content will not be watched as often. Most people can understand the benefit of watching TV on a PVR after having one for a month. Microsoft recognizes this, and also understands that people will want the easiest way to have a PVR on every TV in the house, so that everyone can watch whatever they want, whenever they want. Right now, that is a Windows Media Center PC with Xbox 360s connected to your other televisions. Microsoft hasn't been pushing this aspect of the Xbox 360, but they will soon. HD-DVDs may provide the source, but the Xbox 360 will be the deliverer.

High-Definition has moved from the geeky videophile to the joe sixpack using the Xbox 360. Microsoft is hoping that HD-DVD will follow the same path. Even more than that, they want 'HD' and 'Microsoft' to be synonymous.