Cable and CE have had a famously bad relationship for years, but their interests are beginning to align.

CED's Brian SantoGame consoles have been serving double duty as over-the-top boxes for years, but what about a game console as an official cable set-top? The next major iteration of the Xbox that Microsoft comes out with, the Xbox 720, is likely to have all of the functionality of a set-top, enabling cable operators to supply it directly to those customers who opt for it.

Microsoft has said virtually nothing about it, but Michael Pachter, a respected game systems analyst working for Wedbush Securities, told the magazine X360, “It’s pretty clear to me that Microsoft intends to allow the Xbox 720 to function as a cable TV box, allowing cable television service providers to broadcast over the Internet through the box, with SmartGlass as the remote controller, and with the Xbox 720 using Windows 8 to split the TV signal into multiple feeds, allowing consumers to divert different channel feeds to different displays within the home.”

The move would make sense for everyone involved. Cable companies and consumer electronics (CE) manufacturers have had a famously bad relationship for years, but their interests are beginning to become ever-more closely aligned.

Companies like AT&T, Comcast and Verizon are already providing broadband services through the Xbox; providing their video services directly through the console is a logical next step.

Microsoft, meanwhile, has been trying to break into the TV business for years; it’s not going to happen, and this would be the next best opportunity.

As Pachter notes, Microsoft could end up placing millions of Xbox 720 set-tops and is looking at a lovely windfall if even half of the users of those boxes sign up for a $5 monthly Xbox Gold membership.

Now it will be interesting to see what Sony and Nintendo do. Sony is already in the Google camp, making Google TV devices. And who knows what might happen once Google gets its service up and running in Kansas City. …