Henson told us that the files would indeed be stored locally on the 360's optional hard drive unit; there would not be an option to stream videos from your Windows computer (after all, there are already ways to do that). The files will (predictably) be in Microsoft's proprietary WMV format, which has already proven to be a reliable delivery mechanism for HD content. Using this codec, they estimate a 22 minute high-definition television program (sans commercials) will weigh in at approximately 1GB, while the standard definition variant (which you will automatically own as well) will top out around 300MB. Due to bandwidth considerations, storage realities, and their insistence that 720p is the "sweet spot" for high-definition content, all Marketplace movies and television shows (like the existing trailers) will max out at 720p.
While you won't be able to stream content to your 'box, they have employed queuing technology to expedite the download wait. While a 22 minute television show may take as little as 30 minutes to download over a 6mb/s cable connection, you'll be able to start watching the high-definition version after just 2 minutes, and the standard definition version immediately.
But what if you're not sitting in front of the box, watching the download meter inch along? Henson said you'll have two weeks to start that downloaded movie rental and, once you have, you'll have 24 hours to finish it. Inside that 24 hour window, you'll be allowed to watch the rental as many times as you like. The television shows are download to own, similar to the iTunes Store. If you get a new hard drive, you'll be able to download them over again, as many times as you like. If you're not sure which episode you want to download, there's a text and video preview to refresh that failing memory.
Of course, several major components of this announcement are still unclear. Most notably, the cost (payable in Microsoft Points of course) and the future availability of a larger hard drive. Henson did advise that the cost of the SD television downloads would be commensurate with other offerings in the space (read: iTunes $2 television downloads) but that the HD downloads would command a premium (we're similarly unsure of that price delta). Another unclear aspect is Zune integration. While the Fall update added the ability to watch movies stored on the Zune, you'll be unable to move them the other way. When asked, Henson said this functionality "made sense," but there were no plans to announce anything specific.
As a a strategic move, the decision to offer downloadable movies and television shows dovetails neatly with Microsoft's strategy to weaken Blu-ray. If you believe that they want HD-DVD to fail, then this is a harbinger of a larger push to deliver content directly to consumers. With rumors still rumbling of DirecTV and IPTV integration, this may be the beginning of a format war much larger than Blu-ray versus HD-DVD. The question now is, will Sony offer a competitive service using their considerable Hollywood leverage (they do own a movie studio after all), and their HDD-equipped PS3s?
For more pics of the service, due to launch on November 22nd, check out Engadget.