"With an Xbox LIVE Gold Membership, take your Xbox 360 online to play Kinect and controller games with friends wherever they are. Instantly watch HD movies, TV shows and sports, and with Kinect, discover more entertainment options for you. Just say what you want to watch, and Xbox finds it. Plus, friends and family are never far away when you can video chat face-to-face on the biggest screen in the house." That's from the Xbox site. I've used it to rent a movie (you have to have Microsoft points for that), I've downloaded game demos, some free Web/TV content, I've added friends, updated Facebook, etc. I love it! I haven't tried the video chat yet though.
With the free account you can't do much other than have your games update and buy extra content and games in the games marketplace. For the other features like netflix, multiplayer games etc. you need to buy a Gold account - which costs a monthly subscription.
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