Worried about selling their new Xbox 360 consoles to early adopters at a loss to themselves, Microsoft is looking into ways to increase the profitibility of their console once it launches later this year.  According to CNET, one option the company is looking at includes introducing a new royalty program that third party accessory/peripheral vendors will have to apply to, in order to sell peripherals for the Xbox 360.  In other words, if they aren't willing to share a slice of their potential Xbox 360 peripheral profits with Microsoft, they cannot sell Xbox 360 acessories/peripherals at all.

How will Microsoft control this?  The article explains that a security mechanism of some sort for the Xbox 360 will prevent "non-authorized" peripherals from working with the console.  Only companies willing to pay the royalties to Microsoft will receive the means to bypass this security.  Mad Catz Interactive suggests this security is a proprietary protocol from Microsoft used to validate "authentic devices" for the Xbox 360 platform.

It should be said that seeking royalties for the "seal of officialdom" is hardly new in the world of console gaming, as game publishers have been forced to do this for years.  Nonetheless, Microsoft's latest decision could still turn away third-party peripheral vendors.  The article notes that while Mad Catz was one of the first to agree to pay the Xbox 360 royalties when required, their contract was limited:

"The Mad Catz license agreement also puts limits on the type of controllers that third parties can make. Most notably, the add-on products can only be of the corded variety, while Microsoft itself is supporting wireless controllers.

In addition to the restrictions on wireless products, the Mad Catz contract excludes light guns, memory units, hard drives and cheat cards. Licensed peripherals include game pads, steering wheels, arcade sticks, flight sticks and dance pads."

It's hard to say whether the security issue could eventually lead to the increase in quality for Xbox 360 third party accessories as one would hope.  There could be many ways that Microsoft can use this to shape the market for Xbox 360 peripherals to their own ends, but we know it's dangerous to speculate in such a sensational manner.  Again, we'll find out later this year.