The hiring of former CBS chief Nancy Tellem is the latest sign Microsoft will rely on original programming to keep the company competitive in the developing war among new-media giants.
In a newly created role as president of entertainment and digital media, Tellem will oversee the creation of a new studio charged with creating interactive content for the Xbox 360 that has made Microsoft a player in digital video distribution by turning the popular videogame console into a hub for all kinds of entertainment.
In Tellem, Microsoft has a seasoned TV pro who has operated from boardrooms to studios as a key player in CBS chief Leslie Moonves’ turnaround of the conglom. In 1997 she followed him from Warner Bros. to the Eye, where she held various key posts over the years across the network and production before segueing to a role as senior adviser to Moonves in 2010.
“Bringing in Nancy with her wealth of experience and expertise is really going to help us move forward,” said Phil Spencer, corporate VP of Microsoft Studios, to whom Tellem will report.
What exactly constitutes “interactive programming” is a question mark for Tellem, who is still defining the budget, timing and volume of productions that will come out of the yet-to-be-titled studio, to be based in Los Angeles. But she is exploring many possibilities.
“When you look at the content we’re looking to create, it is very premium with high production value, but we’re also looking at a range of things including Web series,” she said. “This content can take a lot of different forms.”
Spencer declined to estimate how much would be spent toward the original programming push, but he pointed to the company’s track record in the production of exclusive tentpole games like its blockbuster “Halo” franchise as illustrative of the depth of Microsoft’s pockets.
In fact, company has ponied up considerable coin on “Halo 4: Forward Unto Dawn,” a live-action Web series it will launch this fall exclusively on male-skewing entertainment website Machinima and online community Halo Waypoint in the weeks leading up to “Halo 4’s” release Nov. 6. Project reps “the largest investment” Microsoft has made in live action to date, the company said.
The hiring of Tellem isn’t entirely surprising given reports earlier this year that Microsoft was looking to bring in a senior executive with Hollywood credentials. The company has kicked the tires of various content opportunities in recent years; even Conan O’Brien reportedly met with Microsoft after departing from NBC before TBS scooped him up.
The formation of a studio will not mean a restructuring of Microsoft’s existing hierarchy, according to Spencer. Blair Westlake, a former Universal Studios exec who has been with Microsoft since 2004. and may have previously been the company’s most Hollywood-facing exec, remains corporate VP of the media and entertainment group. He will continue to spearhead Microsoft’s licensing efforts.
With Tellem staffing up immediately, the opening of the Microsoft studio could mean both a new buyer and seller in the content marketplace. Existing production outfits can potentially get their creative content onto Xbox while Microsoft may well find homes for its own output outside its footprint.
With Tellem onboard and content creation a renewed priority, Microsoft will step further into an already crowded field of companies looking to combine varying mixes of software and hardware including Apple, Google, Facebook and Amazon. Their goal is to get as much market share as possible across the multiscreen environment ranging from the living room to the tablet, where the lion’s share of advertising and subscription revenues await the victor.
Original content is seen as a key ingredient to winning this race because exclusivity is the ultimate differentiator for a platform. To wit, Google has spent at least $200 million over the past year seeding YouTube with channels aimed at luring viewers with content that has limited availability elsewhere on the Internet. That content can also drive value to either devices produced by the company including the Google TV set-top box or its tablet Nexus 7; its cross-platform hub for transactional content, Google Play; and, perhaps in time, its broadband-and-video delivery system Google Fiber, which is about to be tested in two U.S. cities.
However, not all the tech giants at this stage in the game are jumping with both feet in the original content pool. Apple, for instance, has done just fine strictly licensing premium content to feed its growing slate of wildly popular devices, though the company’s ample cash reserves have always held out the possibility that it may yet make a big move.
But the focus on original content is also something of a hedge since this generation of tech firms is finding that Hollywood can license just so much of its programming given that the pay-TV ecosystem — cable, satellite and telcos — forks over nearly $30 billion per year to get the first window on hundreds of TV channels. A tech company creating its own content is perhaps the most cost-effective workaround but also a risk since Hollywood has the most creative expertise.
In recent years, Microsoft and its rivals in the gaming console business, Sony PlayStation and Nintendo Wii, have seen video consumption on their respective platforms skyrocket to the point where defining these devices by their traditional orientation in gaming is beginning to seem anachronistic. Just last week, Nintendo released a new tablet companion to the Wii, TVii, that upped the ante in the category for the integration of entertainment. Sony has done some modest original programming in recent years, including unscripted “The Tester.”
In the myriad so-called over the top solutions in the market attempting to break into providing video content, Xbox is far ahead of a bustling competitive set, from Roku to Boxee. Those pure-play video devices have to catch up to the massive headstart videogame consoles have in the marketplace: Microsoft has sold 67 million Xbox 360s worldwide. While a Harrison Group study conducted for research firm Deloitte in January found that live TV and DVR dominated video consumption, watching Internet content via consoles was twice as popular among millennial-age viewers than in total viewers.
Microsoft has been active in both the content production and distribution spaces in fits and starts, with varying business models. In 2008, it licensed multiple seasons of the independent Web series “The Guild,” which had its first windows across Xbox, MSN and the ill-fated mobile content device Zune. There was a handful of other such productions, but Xbox has been more reliant on outside services like Netflix to generate traffic to its video content.
Microsoft also licensed the unscripted format “1 vs. 100,” which aired on NBC for a few years as an interactive gameshow that allowed users to play along. It lasted two seasons of 14 episodes each on Xbox ending in 2010.But in the years since that “1 vs. 100” experiment, Microsoft has seemed to be more focused on distribution innovation than on creating originals, though it never publicly signaled that it was out of that business, either. Xbox Live has seen an influx of top brands that have contributed content to varying degrees, from modest collections of shortform content to bolder experiments that meld live programming with interactive features, as Microsoft has done with ESPN and UFC.
But with Apple potentially pushing into the space with an improved Apple TV and Google constantly working on Google TV, Microsoft needed to step up its own game.
Microsoft is also reportedly considering deploying a so-called virtual MSO service via Xbox that would allow it to compete directly with existing pay-TV services by licensing the same channels without having to adhere to any geographic boundary. Spencer would not specifically address the prospects of such a venture but described its efforts to program Xbox Live as being “partner-led,” citing alliances with Verizon and Comcast that allow subscribers to access their channel packages via Xbox in lieu of MSO-issued set-top boxes.
(Marc Graser contributed to this report.)