Sony Corp.'s (NYSE: SNE) PlayStation 3 has rung up over 3 million gaming console sales since its introduction last November, but those numbers pale in comparison to the 8+ million Microsoft's (NASDAQ: MSFT) xBox 360 and 9+ million Nintendo, Ltd.'s (OTC: NTDOY) Wii consoles that have been sold. Microsoft is busy turning the xbox 360 into a central entertainment piece in the living room, with movie downloads and global gaming, and while Nintendo sits back with its smash, video-less Wii (for the casual, mass consumer), Sony has decided to try and pump up the PlayStation 3 with an introduction into the video download market.

Now, Sony must have known that the PlayStation 3 would have a hard time finding the sales numbers that many analysts expected, since the thing cost $600 upon debut and has barely fallen since. The PlayStation 3 is a supercomputer more than a gaming console (with a price to match), and Sony needs some ancillary services to get the interest level to a point where it can start selling more consoles. Sony's (important) gimmick: it does not plan to charge for its own video-based service that should be available soon from the Sony PlayStation Network video download service. Why? Well, Sony will be using the multitude of content from inside the company instead of going to outside vendors like Time Warner, NBC or any other media outlet.

Sony has a full catalog in-house, and it's willing to bet that by offering free access to those services, more customers will be inclined to buy a PlayStation 3 above the competitor's gaming consoles. Still $500 to have access to free Sony video entertainment? Although Sony execs admit these services won't come in 2007, they do say it's in the realm of the "platform life-cycle" of the PlayStation 3. So, Sony will launch these services on the downward slope of the PlayStation 3's life-cycle in the market? Very odd. Microsoft already has a solid offering here and is beating Sony all over the map with sales to its console. Will some late-entry video offering -- even free -- be enough to gain paying PlayStation 3 gaming console customers? Nope.

At least initially, it appears that Microsoft's (NASDAQ: MSFT) deal with Disney (NYSE: DIS) to sell downloads of Disney feature films through Microsoft's Xbox Live does not represent an immediate, substantive threat to dominant DVD outlets, including Blockbuster (NYSE: BBI) and Netflix (NASDAQ: NFLX), but as is the case with most technological volleys in the digital age, more time is needed to see if consumers are willing to make a purchasing shift.

Blockbuster, Netflix, and DVD sellers like Best Buy (NYSE: BBY) can feel confident that their respective market shares will not evaporate overnight, due to their primary advantage: reach. Currently there are about 11.6 million Xbox 360 consoles in use, including 5.6 million in the U.S. In comparison, penetration of DVD players in U.S. households exceeds 50%.

Microsoft Corp.'s (NASDAQ:MSFT) venerable Xbox Live service, which I've used before and found highly entertaining and very solid for an online gaming service, is getting beefed up in a huge way by Microsoft. The world's largest software maker is trying to get entrenched as best it can into the entire consumer entertainment arena -- centering around the living-room TV and sound system -- before rivals like the Apple Computer, Inc. (NASDAQ:AAPL) iTV get there.

Although technical details aren't available, from what I could find, the new Xbox Live features will include both high-definition and standard-definition content. With all that content being pushed down to millions of Xboxes, there's going to be some data bandwidth crunch. This is an area where I agree very much with Mr. Blog Maverick. The datapipes are going to have some stress issues once all this video content starts getting pumped en masse to millions.

Xbox Live users will actually "own" the TV shows they purchase through the service, while movies downloaded through Xbox Live will be "rented" for a period of two weeks. Initially, television shows and movies from CBS, MTV Networks, Paramount, Turner, UFC and Warner Brothers will be available, with more studios and content providers being added later.

Will customers bite? This looks very promising, and if the success of Xbox Live continues into this new uncharted territory for Microsoft, the company may have a winner of sorts on its hands.

[Disclosure: I own MSFT shares as of 11-7-06]