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Microsoft is apparently betting entirely on digital distribution of media content... Blu-ray player prices are actually going up right now because there is no competition. This will drive even more customers to the Sony PS3 as it is still the best deal for a Blu-ray player - affordable and already future proof.
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I think Microsoft is wrong on this one. They tried the integrated home media center idea already, and people weren't ready for it. They still think of it as a game machine that plays DVDs, and the XBox 360 has effectively just become a game machine that
can't play DVDs.
And even for the early adopters, Netflix already does downloadable movie content better anyway. Now, if Microsoft were to buy Netflix... well, I would be very sad.