MS should drop its video and audio margins to 0
If your company makes on money on A, and your competitor makes money on B, then a good strategy is to offer B for free. (Unless you think you can dominate your competitor.)
- Apple makes money on hardware and content, and are trying to make money on services. Their software is free.
- Google makes money on services, and are trying to make money on hardware and content. Their software is free.
- Amazon makes money on content. Their hardware, software, and services are free/cheap.
Microsoft makes money on software and computing services. Xbox Video and Music aren't gonna beat iTunes, Play, or Amazon. So, the obvious strategy is to let Big Media eat 100% of the profits on music and video sales.