Microsoft announced today at the E3 Expo that Xbox 360 Gold members will be able to download movies from Netflix to their game console (and hence their TV) for no additional charge. Subscribers also have to be Netflix subscribers. Netflix makes about 10,000 titles, which includes movies and television shows, available for direct download. The move continues the trend by Microsoft to position the Xbox 360 game console as an entertainment gateway, featuring gaming, video downloading, music, and social networking applications. The new Netflix feature will be available this fall. Microsoft competitor, Sony announced earlier this month that they are bringing video download options to the Playstation 3.

CES has started, so expect to see a flurry of these types of announcements during the week. The first noteworthy one is that Microsoft has secured some significant content licensing deals from MGM, ABC, and Disney. Microsoft will make more than 500 hours of ABC and Disney content available to Xbox Live users, in both standard definition and high definition. Some of the most popular content around will be available, including ABC’s Lost, Grey’s Anatomy, Ugly Betty and Desperate Housewives and Disney Channel’s Hannah Montana and High School Musical. Many of the television programs will not be available until after the day they air on television. Microsoft says when this new content is added to its existing library, its 10 million Xbox Live subscribers will have access to 3,500 hours of on demand content. This development contributes to the trend of premium content availability outside of the traditional pay subscription TV model.

Makes you wonder how consumers will begin to interact with these broadband based on demand content offerings. Are we approaching a tipping point where some consumers begin to say there is enough content available through these types of sources that I no longer need a cable/DBS/IPTV subscription? I suspect that current triple play providers may be most vulnerable to this possibility with the population represented by Xbox Live subscribers. Young, engaged, and technically savvy. We may soon see this demographic leading the charge away from traditional video providers, much the same way they led the charge away from traditional telecom providers using wireless as their substitution method of choice. Is video next? Stay tuned.

Microsoft and Disney announced this week that Disney films will be available for VOD download on the Xbox Live service. Movie titles in both standard and high definition from Walt Disney Pictures, Touchstone Pictures, Hollywood Pictures and Miramax Films are all part of the deal. Movies are ‘rented’ for a 14 day period (or 24 hours from the initial start) and cannot be ported to any other device. Movies are paid for using the Microsoft Xbox Live points system, with HD movies costing 480 points and standard definition rentals costing 320. Points are sold in bulk at about $20 for 1600.

This announcement confirms the expanding role of the Xbox 360 way beyond a gaming console. In fact, the Xbox is an entertainment gateway, which could easily be mistaken for an alternative to subscription video service. According to Microsoft, the Xbox Live network has 2,350 hours of entertainment content from 15 partners, and has experienced close to 10 million downloads of entertainment content since launching 7 months ago. Xbox Live has over 7 million members and 5.6 million Xbox 360 consoles have been sold in the U.S. At the recent E3 gaming conference, Microsoft announced that Xbox Live Video Marketplace has taken in more than $125 million in revenue, and is bigger than any cable providers' VOD offerings. Microsoft announced earlier this year at International CES that future Xbox consoles will be able to act as IPTV set top boxes. The writing is clearly on the wall. Xbox consoles may someday soon be seen as a viable replacement for a subscription video service. One could make the argument that that day is already here.