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Does the Xbox 720 need Blu-ray to succeed?

If the Xbox 720 comes out in the next few years, it'll be interesting to see what's packed into it. One prediction: no Blu-ray.

The Xbox 360 is still trying to cement itself as one of the leaders in the current generation of gaming, yet there's already talk about its follow-up, the Xbox 720.

Interviewed in the latest Major Nelson podcast, Microsoft Games Studios chief, Phil Spencer explained that the resurgence of the E3 of old means Microsoft will need to step up its game this year and possibly discuss more than its short-term plans.

"The last two E3s at least, if I use that as a proxy for what's coming, we've talked a lot about what is coming in the next five to six months after E3, and we've had some pressure that maybe we want to think a little broader about what we want to say at E3, a little further out in the future," he said in the interview.

"I came out of an E3 planning meeting just about an hour ago, and we were looking at some of the plans for the future and things that we might want to tease, and it's very exciting," he continued. "There's a lot of stuff on the docket, and maybe we'll break the bank a little bit and talk about things that are further out, which will hopefully get the community excited."

What sort of things will Microsoft discuss? The company isn't saying. But you can bet that if it really wants to discuss the future, the Xbox 720 will highlight that discussion.

If it does, what should we expect from Microsoft? Surely, the company won't want to show its hand too early--the next generation is probably at least two years away--but it still wants to lay the gauntlet down and reassure consumers that although the Xbox 360 is a fine product to buy now, the Xbox 720 will be the best console of the next generation.

Great. But what about the Blu-ray issue?

There's no way Microsoft will install a Blu-ray drive into the Xbox 720, and to be quite honest, I don't think there's any reason for it to do so. The reasons are simple. First, Microsoft doesn't want to pay a competitor--Sony, the key backer behind the Blu-ray Disc Association--to use its format. Second, and perhaps most important, Microsoft realizes that Blu-ray isn't an ideal format, given the fact Blu-ray's chance of success is very much in doubt.

The single benefit Blu-ray provides to developers is its capacity. But once another generation rolls around, doesn't it stand to reason that producing DVDs will be even less expensive and that it may yield a more cost-effective approach than using Blu-ray anyway?

Beyond cost, what's so bad with DVD? The games look perfectly fine on the format, most developers haven't had too much trouble developing for DVDs, and even fewer have spent time complaining that it's not as capable as Blu-ray. In fact, I've heard more gripes from developers about Blu-ray than DVD lately.

But we also can't forget that gaming is moving in an entirely different. Over the next few generations, the need for media like DVD or Blu-ray will diminish and games will be purchased over the Web and downloaded to a hard drive on the console. It's already happening now in small amounts. But rest assured that as the industry realizes the benefit of sending games directly to you and Blu-ray loses its fight against streaming, you can bet that all this talk about formats will be just another stepping stone in the storied history of gaming.

Until that happens, though, I simply don't see any reason for Microsoft to offer Blu-ray in the Xbox 720. I see no reason to pay a competitor for the use of its format when it's cheaper to develop for another that's perfectly fine.

The future of gaming has nothing to do with Blu-ray. And although we don't know what Microsoft will include in the Xbox 720, I'm willing to bet it'll feature DVD and a strong online component where buying games through Xbox Live is made simpler.

It's the smart move.

Check out Don's Digital Home podcast, Twitter feed, and FriendFeed.