The new service is expected to go live on November 22, said Scott Henson, Microsoft's director of platform strategy. The idea is to add the new content--movies like Patriot Games, V for Vendetta and The Matrix, as well as TV shows such as Survivor, South Park and Friends--to existing Xbox Live games.
Some of the content will be available in high-definition format, while the rest will be in standard definition.
And as Microsoft tries to cement its hold on consumers' entire households, the new feature appears to be the company's latest attempt to put significant amounts of high-definition content into users' living rooms in advance of similar offerings on the horizon from Apple Computer and Cisco Systems.
"It's certainly important from the standpoint of being the first mover of this kind of technology into the living room," said Rob Enderle, principal analyst at the Enderle Group. "They're clearly trying to get this out before Apple's launch of iTV next quarter and (right around the time when) Sony gets the PlayStation 3 out."
Henson told CNET News.com that pricing for the new content has not yet been finalized, but that TV shows and movies downloaded via Xbox Live would be "competitive" in the marketplace. HD content will cost somewhat more than that in standard definition.
While he did not say so, the competitive marketplace includes Apple's iTunes music store, Netflix, local video stores and other outlets.
An announcement on pricing will be made prior to November 22, Henson said.
Users will be able to keep TV shows they purchase, while movies downloaded through Xbox Live will be made available in a rental model for two weeks, Henson said.
In the early going, the service will feature movies and TV shows from content providers such as CBS, MTV Networks, Paramount, Turner, UFC and Warner Bros. Of course, MTV and Paramount are both Viacom properties, and CBS was recently spun off by the conglomerate.
Henson said that over time, more content providers are likely to be added to that roster to augment content from existing providers.
"I think as you look at the media landscape and the gaming community and the potential for digital convergence, Xbox users become a great potential audience for movie content," said Thomas Lesinski, president of Paramount Pictures digital entertainment. "This provides us with the opportunity for (video on demand) in a box. The key takeaway in this is there are lots of rabid gamers in this community, and we know they're fully involved in movie consumption. And given the way these consumers multitask, the convergence of movies and Xbox is really a natural."
Enderle said that he was impressed at how quickly Microsoft was able to pull together its roster of content providers, especially given the troubles companies like Microsoft have had aggregating high-definition content.
"Getting high-def content at all has been like pulling teeth," Enderle said. "So the fact that they got any of it at all is important. Everybody's having trouble with this. The content providers are worried about piracy and about cannibalizing their DVD sales."
While impressed with Microsoft's announcement, Enderle did say he thinks it will be vital for the company to quickly integrate the ability to download movies and TV shows via Xbox Live with Windows Media Center and with PlayForSure, Microsoft's device and music compatibility initiative.
Also, he said, Microsoft will have to be wary of competition for the living room from Apple, as well as Cisco, which he said is expected to unveil a digital living room initiative sometime in 2007.