Microsoft May Be Looking To Sell Xbox Entertainment Studios To Warner Bros.

The recent closure of Xbox Entertainment Studios by Microsoft MSFT +1.19% as an effort to refocus the company signaled that the company’s digital TV ambitions on Xbox was likely coming to an end. Outside of a few existing projects in the works like the high profile Halo: Nightfall, it seemed that Xbox would not focus seriously on TV show content for its players going forward.

But now there’s some interesting news out of THR that says Microsoft is shopping around Xbox Entertainment Studios to Warner Bros. The media giant is reportedly considering merging XES with the video game network it already has a large stake in, Machinima, though reps for both have declined comment on the possible deal as of yet.

Many may not realize that Warner Bros. even owns a large part of Machinima, but as recently as March 2014, Warners led a $18M round of funding for them. Machinima is often viewed as the “only game in town” when it comes to high profile YouTube video game partnerships, allowing their content creators to make videos featuring game content free from many tricky copyright issues that plague the unaffiliated. Though even their partners ran into trouble during a recent YouTube crackdown on content, and many pointed the finger at Machinima for not doing enough to prevent it.

Machinima is no stranger to working with Xbox, and helped to distribute the last Halo web series, Forward Unto Dawn, which ended up being the inspiration for the new Halo: Nightfall. The deal would potentially allow for more collaborations like that, though with Warner Bros. directly involved, they may look to bring much of the digital content to actual broadcast networks. Halo: Nightfall is already in talks to come to Showtime, even ahead of this possible deal.

It should be noted that Sony is still pressing ahead with their PlayStation TV show plans, including the upcoming Powers, based on the Brian Michael Bendis comic. If Sony’s concept of video game-based TV takes off and Microsoft has abandoned those plans completely, they could end up behind the curve.

That said, it’s easy to remain skeptical about the idea. While streaming services like Netflix NFLX +1.84% and Amazon are accessible by anyone across a number of devices, which means original content by those brands makes sense, the same can’t really be said for video game systems. These shows would be restricted to not just video game consoles, but one brand of video game console and only with a specific kind of subscription (Xbox Live Gold or PS Plus). That’s limiting your audience in a pretty huge way, and it may be that Microsoft may have the right idea by partnering with a more traditional media company for possible distribution. In Sony’s case, Powers very well may be an amazing show in the end, but limited to a select audience, it may not find the reach it deserves. And certainly no one is going to pick up a game console to watch even a handful of original shows, so it mostly exists as a fun bonus for existing owners.

An XES partnership with Machinima may worry some, however. The brand isn’t exactly beloved these days in the gaming scene, with many content creators coming forward to tell tales of how they’ve been mistreated in one way or another by a company that feels like something of a monopoly in the YouTube gaming realm. As recently as today, YouTuber Broteam came forward with a lengthy diatribe explaining how his handlers were fired without him knowing, Machinima explicitly told him to change his content from retro to present day, and he wasn’t paid an amount that was initially agreed upon in his contract. The story got worse when Machinima Producer RickyFTW started joking about Broteam’s complaints on stream, and suggested his contract be extended out of spite. Needless to say, Machinima hasn’t won all that many fans as of late, and some would be wary of them partnering with XES this closely in the wake of a possible Warner Bros. deal.

None of this has come to pass yet however, and XES remains in limbo until something official is worked out. One way or another, Halo: Nightfall will at least see the night of day, but Microsoft’s other TV plans may be put on hold indefinitely, or transferred to a more traditional media giant.

Xbox Entertainment Studio shuts, but Halo and Quantum Break are safe

 

Microsoft has shut its Xbox Entertainment Studio, the division set up in February 2013 to create original televisual content for Xbox One and other platforms. The corporation is in the process of a major cost-cutting plan, which will cut 18,000 jobs across the entire company.

In a memo to employees, reported by industry site MCV, Xbox chief Phil Spencer confirmed that the studio would be closing but added that current projects would be completed.

A documentary series named "Signal To Noise" about the history of Atari, a live-action Halo TV series and the Halo: Nightfall web series that accompanies the release of the Halo: Master Chief Collection, will all be completed. It's doubtful, however, whether the Halo television series will go into another season.

Also safe is Quantum Break, a much-anticipated "transmedia" project, which combines an action adventure game from developer Remedy Entertainment with an interconnected TV series.

In a statement released to US news site Polygon, a Microsoft spokesperson said, "[Quantum Break] will be released next year and the game and show both remain on track. The news of Xbox Entertainment Studios has not impacted our progress."

Since Satya Nadella took over as Microsoft CEO in February, there has been consistent speculation that he might jettison the Xbox division in its entirety to cut costs. However, the executive has confirmed in several interviews that the division is safe.

Microsoft has always envisaged Xbox One as a multimedia hub and made live television and video-on-demand services a key focus during its press event to announce the console last May. In his memo Spencer stated, “Xbox will continue to support and deliver interactive sports content like 'NFL on Xbox,' and we will continue to enhance our entertainment offering on console by innovating the TV experience through the monthly console updates."

Increasingly, console manufacturers have been considering the model of developing original TV content, which has been explored successful by Netflix and Amazon. At the E3 games event in June, Sony announced that it would be developing a TV series for PlayStation owners, based around the Marvel comic, Powers.

Xbox Entertainment Studios is reported to have employed 200 staff and had ambitious plans, but according to news site Re/Code, insiders claimed that the business model was not working:

Sources paint a picture of a disorganized studio that struggles to close deals and lacks 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.

Microsoft is due to reveal more details of its ambitious Quantum Break project at the Gamescom gaming exhibition in Cologne in August.

Microsoft To Shut Down Xbox Entertainment Studios

his morning’s announcement byMicrosoft Chief Executive Officer Satya Nadella of one of the largest layoffs in tech history, a plan to cut 18,000 jobs, triggered a whirlwind of speculation about the future of the fledgling Xbox Entertainment Studios. In a memo, Phil Spencer, head of Microsoft’s Xbox division and Microsoft Studios, just confirmed that the company will close the Entertainment Studios in the coming months. Nancy Tellem,Jordan Levin and some of the XES team will stay on for some time to shepherd original programming already in production, including the documentary series about technology Signal to Noise and the Halo game franchise extensions, digital feature Halo: Nightfall and the Halo TV series, which will continue as planned with Microsoft’s 343 Industries and Amblin. Xbox also will continue to support and deliver interactive sports content like ‘NFL on Xbox.’ XBox’s app partnerships are not impacted.

The demise of Xbox Entertainment Studios underscores how hard it is for tech companies, especially of the scale of Microsoft, to get into the content business. The decision appears sudden as just a couple of months ago, Xbox Entertainment Studios unveiled a very extensive first development slate, which included dramas, live-action and animated comedies, unscripted and event series. Levin was brought in as EVP in charge of development only six months ago.

It has been a slow going for the studio the past two years, after Microsoft brought in Tellem, a veteran CBS executive, in September 2012 to crack the entertainment area. Microsoft is a big company where wheels turn slowly, and there didn’t seem to be a strong commitment to the new venture at the top. The company heavily touted its entrance into original programming when it unveiled its next-generation videogame console, the Xbox One, in spring 2013. At that unveiling event, Tellem announced the Halo series with Steven Spielberg executive producing. That project and a number of others faced a lot of hurdles in the deal-making process as the company was creating a new business template for entertainment programming. Meanwhile, XBox rival Sonystepped into the scripted arena for its Sony Playstation Network just a couple of months ago, with its first series, Powers, slated to debut by the end of the year.

XES’ future already seemed a little cloudier after E3 in June, when all the talk about entertainment offerings that had been part of the previous year’s rollout disappeared during Microsoft’s big media presentation. It was games, games, games and nary a mention of XES products to come.

XES also faced a challenge because of the stumbling launch of the Xbox One. The $499 console was stuffed with whiz-bang interactive technologies, but priced $100 more than the competing Sony PS4. Several other Microsoft missteps on policies that gamers considered anti-consumer, a lack of exclusive game titles (other than Titanfall) and the departure of Xbox unit head Don Mattrick months before the One hit store shelves in November didn’t help either. As a result, Sony’s PS4, which launched at almost the same time as the Xbox One, has already built a sizable lead  in sales and consumer momentum nine months in.

Earlier this spring, Microsoft began offering a $399 version of the Xbox One minus the Kinect sensor technologies so it could directly compete on price with the PS4. But now the interactive programming promised with so much fanfare 15 months ago will largely not materialize, and the Xbox team will have to figure out how else to make their machine of interest to an audience beyond hard-core gamers.

Here is Spencer’s memo:

“I hope you have had a chance to read today’s mails from Satya. I wanted to take a moment to share a few thoughts on what this means for our team and some of the changes we are making as a result.

In last week’s mail outlining some of the steps towards creating the culture and organization to bring our ambitions to life, Satya called out the strategic importance of Xbox as a strong consumer brand, a creative center for gaming and a leader in bold innovation. Every member of Team Xbox should be incredibly proud of the impact and reach your work has within the walls of Microsoft, with our developer community and most importantly, with consumers.

Microsoft is the productivity and platform company for a mobile-first and cloud-first world, and games are the single biggest digital life category in a mobile-first world. Success in this category, by growing a robust Xbox business, brings additional value to Microsoft. I have stated this before, but for Xbox to be successful, we must remain committed to being a consumer-driven organization with the mission of meeting the high expectations of a passionate fan base, to create the best games and to drive technical innovation.

As part of the planned reduction to our overall workforce announced today and in light of our organization’s mission, we plan to streamline a handful of portfolio and engineering development efforts across Xbox. One such plan is that, in the coming months, we expect to close Xbox Entertainment Studios. I would like to take this opportunity to recognize the accomplishments from the entire team in XES. They have built an impressive slate of original programming and pioneered interactive entertainment on Xbox, such as the innovative reality series ‘Every Street United’ that succeeded in uniting audiences around the globe during the recent World Cup. I am pleased that Nancy, Jordan and members of the XES team remain committed to new, original programming already in production like the upcoming documentary series ‘Signal to Noise’ whose first installment takes on the rise and fall of gaming icon Atari and of course, the upcoming game franchise series ‘Halo: Nightfall,’ and the ‘Halo’ Television series which will continue as planned with 343 Industries. Xbox will continue to support and deliver interactive sports content like ‘NFL on Xbox,’ and we will continue to enhance our entertainment offering on console by innovating the TV experience through the monthly console updates. Additionally, our app partnerships with world-class content providers bringing entertainment, sports and TV content to Xbox customers around the world are not impacted by this organizational change in any way and remain an important component of our Xbox strategy.

Change is never easy, but I believe the changes announced today help us better align with our long-term goals. We have an incredible opportunity ahead of us to define what the next generation of gaming looks like for the growing Xbox community. I have a great deal of confidence in this team and know that with clarity of focus on our mission and our customers we can accomplish great things together. We already have.