Microsoft shutters Xbox original programming unit, irks advertisers

Less than three months after touting an ambitious original programming slate at its April 29 Newfront presentation, Xbox Entertainment Studios has been shuttered by Microsoft (NASDAQ: MSFT).

The sudden announcement comes amid one of the biggest personnel haircuts in tech history, with the Seattle enterprise software giant saying Thursday that it will cut 18,000 jobs over the next year, primarily in the area of its recent Nokia acquisition.

It was a surprising move, with Xbox Entertainment Studios chief Nancy Tellem recently touting Steven Spielberg as one of her division's new executive producers, while also bringing in somewhat-high-profile TV and digital media executive Jordan Levin as her No. 2 just six months ago.

But perhaps Microsoft's move shouldn't have been such a shock. The executives who recruited Tellem from CBS and launched the division, former Microsoft CEO Steve Ballmer and former Xbox chief Don Mattrick, both left  the company last year.

And as Microsoft has struggled to right sales of its recently introduced product upgrade, the Xbox One--which was introduced with a price tag $100 more expensive than its top competitor, Sony's PlayStation--the corporate focus has clearly been on games of late.

More than anything, nearly two years after Tellem's splashy Sept. 2012 hiring, Xbox Entertainment Studios had failed to surface much in the way of tangible content., failing to fulfill Microsoft's plant to own the living room--and challenge pay TV providers for subscrivber money--through its videogame console.

Notes Re/code's Dawn Chmielewski:  "Sources paint a picture of a disorganized studio that struggled to close deals and lacked a fully fleshed-out business model. This inability to execute has turned off potential studio partners, they say, complicating the process of securing premium content."

In any event, both Tellem and Levin will be kept on to shepherd the original programming projects that are already too far along to scuttle, such as the Atari-focused documentary Signal to Noise and the Halo game franchise extensions, digital feature Halo: Nightfall and the Halo TV series, both co-produced by Spielberg's Amblin Entertainment.

According to the Wall Street Journal, advertising agencies--which were impressed by Tellem's April Newfront presentation--are irked.

"It puts us in a difficult space because we have been pushing Xbox's program [to clients]. It really makes us wonder if the commitment is there," Steve Carbone, managing director and head of digital and analytics at MediaCom, told the Journal.

Vik Kathuria, Global Chief Media Officer at Razorfish, told the paper the move felt short sighted, given Xbox's potential. "It's insane given that's where the media business is headed…with one end focusing on programmatic and the other on original high-end content. Confidence will be hard to earn back after this."

The move is the first major retrenchment in what has been a steady march for original, premium online video content announcements over the last 24 months. With the audience growth of online video's biggest platform, YouTube, now stagnating, will other tech companies making ambitious investments in original content make similar decisions?

For more:
- read this Wall Street Journal story
- read this Re/code story
- read this Deadline Hollywood story

Related links:
Microsoft's Nokia job cuts reflect a shift away from devices
Xbox studio adds former WB Network boss
Microsoft signs NeuLion to stream live sports on Xbox One
Kids sports network The Whistle eyes 2014 launch on Xbox 360

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