To do that, it's going to have to face off against Apple, which is rumored to be working on a television that will serve as a hub for entertainment in the living room.
It already has a big head start, thanks to Kinect, its motion-sensing and voice-detecting controller, and a ton of content partnerships.
But it's going to have to pull out all the stops when Apple inevitably makes a play for the living room. To do that, it's laid out a brand new console – dubbed the "Xbox 720" — to ensure its lasting control.
A supposed full presentation on the new device leaked on the web. We saved a copy, which we've included for you.
The Xbox 720 will have an improved Kinect device that will track four players at once and have better voice recognition, and the console will connect to additional sensors — like glasses for a 3D experience — according to this presentation.
This console will cost $299.
By 2015, the Xbox 720 will serve as a hub that will instantly stream any content you want — including the top-level games that normal consoles wouldn't be able to handle — through the Internet.
Here are the most important parts of the presentation: