Microsoft courting Sky to sell Xbox One as set-top-box?

UPDATE: Sky has responded to this story.

Xbox is going to great lengths to win the next-gen games hardware battle, and a new deal with Sky could clinch it.

Sources familiar with the situation tell us that Microsoft is in talks with the broadcaster to sell Xbox One with Sky subscriptions. The device could work as a set-top-box or companion device – but most importantly the console could be sold at a hugely reduced cost.

The move may already have been signed off. We could even get official confirmation as soon as Monday night, when Xbox opens E3 with its yearly press conference.

Xbox declined to comment when asked by MCV, saying it does not comment on rumour and speculation.

But this kind of deal would be a huge boost to Xbox One, and would ram home its all-in-one entertainment credentials.

Sky is the leading non-terrestrial UK TV broadcaster, reaching over 10m subscribers via satellite broadcast. Subscriptions to its service start at 21.50 a month with over 4.5m paying more than that for HD channels, sports and movies. Its owned channels have exclusive rights to a raft of sporting events and TV shows like The Simpsons, Game of Thrones, Mad Men.

Xbox has been a close ally of Sky already.

In 2009 Xbox 360 added a Sky app so that subscribers could watch live events and TV or on demand programming through their console. These apps were built in the UK by Xbox’s central London development team. Although this route requires both a Sky subscription and Xbox Live Gold subscription, it has proven a fruitful relationship, with Sky’s app gaining Kinect functionality in 2011, and then the firm adding pay-as-you-go sports packages on the console last year.

Currently, Sky offers a range of set top boxes to new and existing subscribers. Basic subscribers have to pay around 50 for the basic PVR and receiver, but pay higher subscriptions to HD channels to get a more capable box for free, or they can pay from 50 to 150 for versions with 2TB hard drives for more recordings.

An Xbox One deal could see the console added amongst that. The Xbox One’s announced specifications mean it currently only records gameplay footage – but Microsoft has gone on record to say it will work with broadcasters to add TV recording. Sky too has said it wants to "explore any future opportunities offered by Xbox One".

So the Xbox One doesn’t necessarily need to act as a PVR or Satellite receiver from the off – this latest deal could see the console and a subscription to Sky’s NowTV online service sold together to begin with.

Microsoft has already experimented with selling the Xbox 360 on a subscription basis – with US consumers invited to buy a box for $99 provided they agree to pay for a $14.99 Xbox Live subscription for for two years. It has gone on record to say this offer could be used in the UKand says the model is "pivotal" to reaching more consumers.

When the Xbox One was unveiled last month, Microsoft opened its unveiling by demonstrating the device’s TV functionality, including the ability to switch between live TV and gameplay via voice controls, a TVR function and adding social Xbox Live features to show what shows are popular and what friends are watching.

Microsoft has promised the trade a games-centric showcase next week at E3 after focusing so hard on entertainment – but it might not be able to resist showcasing more entertainment partners in a bid to quell excitement in the Sony camp. Xbox’s rival PlayStation will be unveiling the final look and feel of its PS4 at a press conference just hours after Microsoft’s Monday event.