Microsoft is serious about stamping out Xbox modding. Modding involves using hardware or software hacks to circumvent the protection technology on a video game console. Modding has some morally ambiguous uses -- such as installing an alternative OS, or playing games/DVDs from outside your zone (both practices are technically illegal according to some sources and/or violate you EULA). However, one less morally ambiguous cause for modding is to allow pirated games to play just like legally purchased discs.
The console makers, including Microsoft, have pushed for international legislation banning modding, which they say is driving piracy. The results were showcased in the recent arrest of a Cal State student by federal agents. The student had been making and selling modded Xboxes, a crime that could earn him 10 years in prison according to authorities.
While Microsoft obviously cannot pursue that kind of legal action against every owner of a modded Xbox, it has just taken a sweeping step to try to punish those who mod. It has just issued a large set of bans disconnecting, according to BBC News, over 600,000 Xbox 360 users from Xbox Live, the company's popular online gaming service. With approximately 20 million current Xbox Live subscribers, this represents as much as a 3 percent cut to Microsoft's total online gaming population.
Banned users can play games offline as if nothing happened. However, when they try to log into their Xbox Live account, they now receive a message stating, "Your console has been banned from Xbox."
Recently, Microsoft has been working hard to keep a tighter grip on its Xbox revenue stream, following in the example of Apple, Inc. and others. Its new update reportedly will lock out third party storage solutions from the console. Third party storage typically retails for much less that Microsoft's offerings. By locking out its competitors, Microsoft likely is hoping to tack on more earnings to its already substantial stream from the Xbox.