Ah, gaming console wars. They heat up every few months, and then die down again. In recent cycles, Nintendo, Sony and Microsoft (News - Alert) have been laser-focused on capturing a key differentiator: mastery over television and video.

The overall goal with this may seem to be to edge out each other, but recent developments point to signs that this contretemps hides a Cold War-era-like, not-so-secret agenda – to usurp the pay-TV operator’s brand dominance in the living room. To control the so-called “input one” for the consumer.

To become the center of a connected home-based digital lifestyle.

Microsoft has never in the past looked to spark cord-cutting; it has long wooed both media and pay-TV operators successfully by positioning itself as a TV Everywhere extension—users can leverage the Xbox as a second STB within the house. The company has long teamed with operators and content providers like AT&T, BBC, Comcast, HBO, Rogers, Telefonica (News - Alert), Televisa and Verizon to populate the service with content, and certify the Xbox as a set-top console.

"Our XFinity TV app essentially acts as an additional cable box for your existing cable service," Comcast (News - Alert) noted when it launched the Xbox Xfinity app.

Microsoft has, however, been very vocal about the importance of ‘video to Xbox’ future. To that end, as we reported previously, Microsoft is in talks to sell its MediaRoom IPTV middleware business to Ericsson (News - Alert), in a move that effectively kicks it out of bed with the traditional TV distributors’ STB strategies. That will allow it to focus more on the Xbox’s role in the living room.

MediaRoom has become the de facto, behind-the-scenes platform for delivering IPTV, in use at AT&T, DT, Telus, Telefonica and others globally. It enables IPTV itself, program guide integration and app development, but also underpins multiscreen integration strategies.

As of the middle of last year, Microsoft’s Mediaroom platform was installed in 23 percent of deployed IPTV set-top boxes, according to ABI Research.

Bloomberg broke the news that the Swedish behemoth is interested in buying the business, which brings in $350 million in annual sales and could be valued at $1 billion or more, the news service noted.

It’s a big business to let go, but now, if reports are to be believed, we’re about to get a new wrinkle in the living room game from the Xbox 360 gaming platform on May 21. Microsoft is supposedly introducing what is being dubbed the Xbox 760, which the Verge reports will be, as the name suggests, a super-uper-duper version of its existing device, with more options for capturing the live video experience—options that edge out pay-TV as being the center of the live TV user experience.

It will most notably offer an HDMI pass-through for existing video, sources told the tech site, so that it can provide a unique user interface (possibly using the Kinect motion sensor) and programming guide around existing cable/IPTV/satellite subscription content. In other words, it sounds like it’ll be a bit like Google (News - Alert) TV, which provides an interface that wraps in search and aggregation functions for content discovery across subscription content (including pay-TV and over-the-top options like Netflix et al), and free Internet sources. Pay-TV operators and content owners alike have been historically less than enthused with that approach – thanks to piracy and revenue cannibalization concerns – but Microsoft is surely banking on its existing role in the living room to make a difference on that score.

The Verge also quoted unnamed sources as confirming that Microsoft also will soon introduce its own low-cost Xbox TV set-top box, dubbed the Xbox Mini. That Windows 8 machine will focus on casual games and entertainment services, perhaps a la Apple TV, with a cloud-based, always-on content strategy. Sounds a little like OTT.

The software giant is already embracing the cloud in many ways. For instance, it recently announced that Flixster has launched a free application for Xbox 360. Available via Xbox LIVE, Flixster lets consumers buy and rent movie titles and access their UltraViolet movie collections directly through their Xbox. Used by more than 12 million consumers so far, UltraViolet is a cloud-based digital locker system that gives consumers the ability to access their digital movie collections via application such as Flixster, across devices that include Xbox 360, iPhones, iPads, Android devices, PCs and Macs.

"The mission of UltraViolet is to allow consumers to enjoy their content on any device and platform they desire," said Joe Greenstein, cofounder and president of Flixster. "Launching Flixster on Xbox is an exciting step forward for us as it's one of the most popular platforms for consumers to enjoy entertainment in their living room."

But the next growth area may be to go off the grid. “The television industry is drifting towards the Internet,” said Seeking Alpha, in a blog analyzing the Ericsson deal. “Traditional broadcasting is being replaced by a number of other means including digital TV, Internet Protocol television (IPTV) and mobile TV. The demand for high-definition TV channels creates a huge opportunity for companies to address the rapid change in customers' needs.”

And Microsoft has an edge in capturing that opportunity thanks to its install base and existing connected Xbox LIVE strategy. According to NPD DisplaySearch, the devices most often used to connect TVs to the Internet are gaming consoles (19 percent), followed by Roku, Apple TV, PPTV Live and other media center boxes (17 percent). Behavior varies by country: for example, in China connected flat-panel-TV households most often connect through media center boxes (23 percent); while in the U.K., the favored connection is via gaming consoles (20 percent).

“Despite an increase in the availability of TVs with internal connectivity options, consumers still primarily access online content using game consoles, media center boxes, and other devices connected to their existing TVs,” said Riddhi Patel, research director at NPD DisplaySearch.

The analyst also noted that companies like Microsoft should be mindful of the future; “As consumers become more comfortable using the connectivity features of smart TVs, and as the navigation and search capabilities on those devices become more intuitive and user friendly, we can expect to see more consumers accessing the Internet directly from smart TVs,” Patel added.