I dont htink we will ever see Digital Distribution have a market share like that of DVD's people like having hard copys to lone to friends take with them to watch. also you have to get more broadband user's which right now is not happening 70% of americans still have dial up.

Well thats the point of it, to have some kind of media distribution you need a close link to the customer. If you see that youtube has low quality, is still in start-up phase and is already 5-10% of all internet transit then it's clear that you'll need a backbone close to the client. A backbone that should be easy to implement and to maintain and should preferably be compatible with Vista.
You guessed it, Microsoft's wet dream is that all telecom providers will install a server in you streets, one for each neighbourhood, city... All running Microsoft software.

Digital media only needs some plastic and metal, a kind of format and some codec to decrypt it. And if you see that Sony had to sacrifice it's Playstation brand to get Blue-Ray back in the rat-race you'll understand how hard it is to just get a format out there.
Besides i don't think that there actually is a next-gen format. They tried the same with a kind of super audioCD and then getting audio onto dvd's but both failed. I don't really see the point of those. And CD-DVD-HD is 0.8-8-25 GB, as you can see the HD format has no real advantage point in storage neither.

There was a recent survey of the numbers of consoles owners who even realized they could play DVD's (much less digital download), and the numbers were shockingly low.
Sorry, but I can't find the link, it was fairly prevalent last friday.

My question is: if media playback on a console is so important, how come almost nobody knows about it?

I've been saying Digital Distribution is the future for months. Ever since Microsoft and Sony lost the format war. Trust me they both lost. Microsoft spent too much developing HD-DVD, and Sony sacrificed a ton of PS3 business for Bluray.

I am of the type that would not leave my house to rent a movie if it was available on Pay Per View. Unfortunately there are a lot of movies I want to see that are not available on PPV or Xbox live.

The transistion from CD to MP3 took about 1 year flat. Only because of convenience. When movies become convenient to download online, it's all over for the disc.

Microsofts strategy: Cock Block Sony's gaming income.

Notice how Microsoft has made little to no attempt to compete with Nintendo, they only try to disrupt Sony market. Sony is one of their international competitors in many areas and gaming was one market that Sony had free reign over to saturate their income beyond all other markets. Strategy: Impeed Sony's gaming income to prevent them from being stronger in other markets where Microsoft competes with them directly. As we said in convo here, what does Microsoft have to gain in gaming? Disc formats? Or HD? Did it ever occur to anyone here that there only goal in gaming was to impeed Sony's income? Why didn't they make a portable? Because Nintendo was already beating Sony there. Nintendo wasn't beating Sony at console though. Maybe they make a portable now since that is only market Sony is still floating in (a high graphic portable that would cut PSP sales in half or by a third but leave DS relatively untouched), but back then during PS2, it was not even an issue wheing comparing to PS2 success vs PSP success. Microsoft was backing Sega originally as an early mean to combat PlayStation's success but when Dreamcast died they had to take action.

Don't let Bill Gate fool you. Microsoft not want to be king of gaming, they just want Sony capped and limited if not out of the game altogether.

I remember reading something (I think it was by JohnLucas?) that was saying that they're (Microsoft) only in it (gaming market)  to try and avert Sony's dominances of the gaming market. As Microsoft saw that sony was trying to take it towards more of a media centre, rather than just a console, and if that happened, there would be no need for media centre PCs (which ironically Sony sell), you'd just have your games console, especially as there's no need for an expensive monitor, you just use your existing TV.

And of course if that happened, then that would mean less income for Microsoft, as less PCs would be being sold. And so they're after Sony (and Nintendo now to an extent) to prevent that. Ever wonder why the 360 is the only console without a web-browser, when people are enjoying browsing on their Wii or PS3? Yes, they're making sure that anyone who has a 360, still needs a PC in their living room to a certain extent. And with the Wii now having internal storage, a web-browser, and possible DVD playback in the future, the Wii and PS3 have practically eliminated the need for a media PC, especially when the Wii is a lot cheaper, and the PS3 is on average slightly cheaper, plus they are games consoles, unlike the media PC you'd get for that price (even the PS3's), which would be pretty awful for playing games.

Well, I kind of think that Microsoft tries to use that same strategy in many of its platforms. First find something someone does well, (Apple OS, Netscape) and use your massive resources to do it better and get it out into the market. Eventually it will either be a worldwide success or a worldwide failure.
Sony is good with hardware, Microsoft is good with software. If Microsoft can create their own hardware, they can create their own killer apps and keep most of the money.

I actually believe that Microsoft has decided to improve Xbox live because they see it as a killer app that makes a lot of money now, and will be a model for Digi Dist in te future.

Some other companies do see this, of course, including the current king of digital delivery:  Apple. 

·         Cable companies offer movies "On Demand"

·         TiVo and Amazon have teamed up.  You can now order a movie on Amazon and it 'magically' appears on your Tivo in minutes ready to view.

·         Apple has AppleTV and video on both the iPod and the new iPhone.

·         Netflix now offers digital downloads

·         New Online movie services have started, such as "Vongo"

·         Google acquires U-Tube

·         Xbox Live brings HD movies and TV shows to your living room

Microsoft is not involved in some huge conspiracy to somehow destroy Blu-Ray or HD-DVD. They just don't think they are the real future.  I'm not sure how anyone really can believe that unless you are totally ignoring the music industry.

I'm convinced the ONLY reason for a 360 HD-DVD drive was a me-too effort by MS just to have the option for folks who REALLY wanted a hi-def DVD option on a console.   The reason it is not core to the system is that they believe it is an interim step between DVD (now) and the utopia idea of digitally distributed video (near future).

Unfortunately Blu-Ray and HD-DVD may force Digital Distritubtion to be used in place of their failures as or lack of accessability as disc formats. I would like to see DVD9 just keep the pace and continue to improve (possible HD improvements), its far more economical and sound than investing in massive disc formats that may never justify their stay. However companies like Nintendo may be forced to use digital distribution when formats like Blu-Ray and HD-DVD both fail or are unaccessable and they need an HD format. Perhaps this was Sony intention though all along with Blu-Ray, not to make Blu-Ray succeed but make Digital Distribution succeed to better control their own media distribution. Why else would they be acting like Blu-Ray is a god send this generation then make the PS4 do Digital Distribution?

This article just out in the NY Times on this very subject!!

http://www.nytimes.com/2007/07/02/technology/02xbox.html?_r=2&oref=slogin&oref=slogin