The company also is producing 15 exclusive games on the console.
At the tech giant's Redmond, Wash., headquarters, interactive entertainment business president Don Mattrick said the new Xbox aims to be a single device that can provide all the entertainment for a living room, and to simplify an entertainment experience that "has become too complex."
The console is controlled by voice and motion with much more sensitive sensors than the existing Xbox console. The device is personalized so when a user says "Xbox One" and turns on the device, it shows a personalized home screen, to browse games, TV, movies and music.
The biggest additions are Xbox One's inclusion of live TV as well as Skype. The technology allows users to easily switch between each of the entertainment options-live TV, games, music, movies, and Internet Explorer. Instead of having to switch inputs, users can instantly switch with a quick oral request to the voice sensor.
And unlike other consoles, two windows can be open at once so users can play games and have music on at the same time. ESPN showcased the ability to watch live basketball on TV and to look up player stats at the same time.
Of course, there was plenty of talk about games, and Electronic Arts joined Microsoft on stage. During the event, Microsoft Studios announced plans to introduce 15 exclusive games in the first year of Xbox One, eight of which are new franchises. Activision Blizzard's Call of Duty will launch exclusively on Xbox One.
But even some of Microsoft's hit games, like Halo, are now entertainment properties as well. Steven Spielberg is partnering with Microsoft to create a live-action TV show. And television veteran Nancy Tellem, now head of Xbox Studios, says the company is working on the next generation of TV, which will be personalized, social and interactive.
The event closed with the unveiling of the new trailer for "Call of Duty," which showcased the new technology enabling multiplayer capability and imagery to make it all look and feel more real. But the real game news will come at the E3 expo in June.
Microsoft did not announce a price tag or an exact release date, just saying "2013," but it is expected to be on sale for the holiday shopping season in the fall.
-By CNBC's Julia Boorstin. Follow her on Twitter: @JBoorstin
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image: © Nils Geylen