It has been recently announced the brilliant move by Microsoft to provide digital distribution of television and motion picture content to the Xbox 360. Now, I love it when I’m right, but in all modesty I was only half right. I had mentioned nearly a year ago that in order for Microsoft to win in Japan, they had to differentiate the Xbox 360 by flexing their muscles with software and content.

In the past two weeks, the world has seen both. But is it enough? And is it too little, too late?

The first point I made was that Microsoft needed to better leverage their integration with Windows Media Center. They did such that, by building Media Sharing into the recently released Windows Media Player 11; and by providing the capability of Windows Media Video playback in the latest Xbox 360 dashboard update. Like chocolate and peanut butter – two great moves that taste great together. The best part is that it supports high definition Windows Media content, which I plan to write more about in detail.

Then yesterday, Microsoft partners with film and television studios to provide standard and high definition content to rent or purchase. Kudos for reading my blog, Microsoft. I had worried about the likelihood of an iTunes-like store for Xbox 360 owners, because I didn’t (and still don’t) know anything about the rumored DirecTV partnership. It’s a great move, enhanced by the fact the Zune will be also using Microsoft points to purchase music and possibly video. It’s a sure thing Zune and Xbox 360 owners will be sharing content and interoperability, much like the PSP will with the PS3.

But as many are wondering, what limits will the 20GB hard drive have on this? As Kotaku editor Brian Crecente writes:

The 101 minute Cradle to the Grave, for instance takes up one gig when downloaded in standard mode and 4.5 gigs when downloaded in high def.. He said that works out to about one gig for every 22 minutes of high-def video. So an hour-long television show (without commercials) will take up about two gigs of your hard drive’s space.

We all know we really don’t have 20GB of available space at our disposal. In reality there’s about 13GB available for downloaded content, with the other 7GB saved for system files and such. And with the plethora of videos, demos and Arcade content already released through the Marketplace, many people would be hard-pressed to fit an installation of Final Fantasy XI, let alone high-definition television shows and movies.

This is my reservation. When the dashboard update was released, I scurried the internet for WMV files in high definition to stream to my Xbox 360. Aside from the excellent HD content available through IGN Insider, there’s not much else unless you can circumvent the DRM. Then I thought, well, why doesn’t Windows Media Player 11 act as the DRM broker, while still able to stream to devices within the network? It makes sense, since the Xbox 360 is really just a Media Center Extender. According to Microsoft, MCEs already have this functionality for audio and video. It’s definitely worth a try and something I’ll be testing in the next week.

So taking that idea and running with it, why doesn’t Microsoft make their content available for purchase both on the web and through the Xbox Live Marketplace? Then I could watch it on my Windows Vista or XP PC, transfer to my Zune (or any other device which supports Windows Media DRM), or stream to my Xbox 360. The last bit is important, as it would remove the limitation of the 20GB hard drive (and perhaps remove the necessity of an Xbox 360 hard drive at all). I’ve tested streaming WMV at 720p to my Xbox 360, over a wireless network, without any hiccups or lag at all. Granted I don’t know much about the technology of streaming video, this content was only a few minutes and at most 300MB in size. I assume it wouldn’t matter if it were 500MB or 5GB, as long as the network can supply constant bandwidth from the PC to the Xbox 360.

I would imagine Microsoft already has this functionality planned out in the product roadmap, as it is not a question of if it can be done, but rather when it will be made available. I think part of it is just getting it finished, but another part is timing against both Sony, from the videogame front; and Apple, from the music front. Undoubtedly this functionality will be released when it makes the most sense from a strategic standpoint.

What ended up being good for Japan ended up being good for all of us. Microsoft does software best, period; and it should leverage this aspect of its business to go up against the gaming gurus (Nintendo) and hardware giants (Sony). With just a few minor tweaks, which it has demonstrated it is capable of doing, Microsoft could create a singular wave of momentum to step, if not leap, forward from its competitors.