Over the years, the Xbox 360 has morphed from a gaming console to a full entertainment experience thanks to the addition of streaming video and other apps.
According to The Verge, Microsoft plans to spin off the entertainment component of the console and introduce a set-top box that is basically an Xbox 360 without the more serious gaming option - a further addition to an already clogged Xbox rumour mill.
Instead, it would focus on film and TV show streaming, as well as casual gaming and other apps supported by the platform.
This "Xbox TV" device will be introduced next year, the site said, and might include deals with TV manufacturers to add the Xbox software to web-connected TVs. Presumably, consumers could pick up an Xbox TV for a price that's cheaper than the full Xbox 360 console.
In line with Microsoft's current move for a total Windows experience, The Verge said the effort might allow for the full Xbox experience on a Windows Phone.
Microsoft would not confirm the report, telling The Verge only that it is "always thinking about what is next."
The news comes amidst reports that Apple is working on a similar service.
In a note to investors, Jefferies analyst James Kisner cited a source within an unnamed, North American cable provider who told him that the cable firm was "working to estimate how much additional capacity may be needed for a new Apple device on their broadband data network."
A Piper Jaffray analyst, meanwhile, thinks Apple will introduce an actual TV set next year.