Today Microsoft released a major update to the X-Box 360 dashboard as well as Windows Media Player 11. In concert, these upgrades allow you to stream video to your X-Box 360 from your PC, flash drive, CD/DVD, or soon-to-be Zune! The 360 dashboard upgrade is rather exhaustive, but the video sharing features are the most compelling.

The 3DO, and the CD-i before it dreamt of transcending label of “game console” and providing multimedia entertainment beyond the traditional video game. Enter 2006, and Microsoft is among the companies best poised to finally package gaming, video, music, and communication in a convenient set-top package. Microsoft’s in-house audio/video formats and DRM standards will become more formidable when joined with partnerships, the 360, and the Zune.

Windows Media Center edition was previously necessary to stream video to the 360, but the new dashboard and the sharing features of Windows Media Player 11 obviate the need for MCE. Now WMP11 can stream Microsoft’s video formats as old as WMV7 and as new as VC-1. Just go to the Media tab in the dashboard to browse videos a flat list of videos on your computer. This would quickly become unwieldy with enough videos, but it’s functional. Strike two is that non-Microsoft formats are not supported, but it’s easy enough to convert to WMV9 using Windows Media Encoder.

My first attempt at a WMV9 720p conversion worked flawlessly. For another WMV quick fix, I tried some content from Microsoft’s old WMV HD Content Showcase, and a couple of trailers from gametrailers.com — aside from occasional studders, all of the content I tried worked flawlessly. On a side-note, I’m curious if the short-lived WMV HD DVD “standard” will work on the 360.

Microsoft’s media arsenal offers a potential alternative to the next-generation DVD formats. While HD-DVD and Blu-Ray basically upgrade the existing DVD sales/rental model, Microsoft’s hardware/software is a candidate for a successful next-generation approach that is more portable, and more convenient for both content consumers and providers.

Traditional media tends to offer package deals. Television networks, magazines, albums, … — each of them aggregates content in wholesale manner that, when done successfully, offers the consumer more than they want. But why should consumers pay for the excess bundled content that they don’t want?

Physical constraints make it impractical to distribute individual magazine articles, or stock music singles for every song. However, electronic distribution makes it possible to provide such atomic content. At face value, this might seem like this is a win for consumer and distributor alike. However, Daniel Ask’s New York Times editorial Unbundles of Joy (via Rough Type) points out a down side:

“Theoretically, all this unbundling will make everyone better off. But one consequence may be to force worthy cultural products to support themselves somehow – without being subsidized by commercial junk.”

Ironically, the article itself is available unbundled for $4.95… but I embrace and extend Daniel’s big-picture assessment — bundled distribution subsidizes alternative content with revenue mainstream content. If users could arbitrarily define their own cable packages, fledgling networks, which once included MTV and CNN, may never be successful enough to evolve into the mainstream. And consumers will never hear the B-side gem if they only purchase the hit singles.