In a move that looks poised to compete with Apple TV, and further stretch the Xbox brand, Microsoft are reportedly preparing to launch a new set-top device, as a low-cost alternative to a full games console that will be able to stream video and play performance-friendly social games and such. (via The Verge):

We're told that the set-top box is part of a two-SKU strategy for Microsoft's next-generation of Xbox hardware that will be unveiled in 2013, with a release date ahead of the holiday shopping season. The device will run on the core components of Windows 8 and support casual gaming titles rather than full Xbox games typically found on a dedicated console. Although hardware specifications aren't fully locked down, we understand Microsoft will use a chipset to enable an "always on" device that boots quickly and resumes to provide near-instant access to TV and entertainment services.

Microsoft's Xbox set-top box work is said to be part of a broader effort to ensure its core architecture for the next-generation Xbox is scalable enough to be put together to run on a number of devices. We understand that the company could opt to combine its core system for the next Xbox with a phone stack to deliver a phone capable of running a full version of Microsoft's Xbox Live services. It has also investigated providing this functionality to TV OEMs, who could include the core services as part of a licensed Xbox television set.

Microsoft has not confirmed the plans, but rather than their usual line not to "comment on rumour and speculation", instead noted that "We are always thinking about what is next for our platform and how to continue to defy the lifecycle convention".