's closure of Xbox Entertainment Studios appeared to be the end
of the company's ambitious efforts to bring original video
content to the Xbox One.
The 200-person studio, headed by ex-
executive Nancy Tellum, was founded in 2012 by former CEO Steve
Ballmer. The business was shuttered as part of the company's
layoff of 18,000 employees in July. With the exception of
, most of the projects were presumed dead.
. Source: Microsoft.
However, a recent report from
The Hollywood Reporter
indicates that Microsoft could sell the business to
instead. The report claims that Xbox Entertainment Studios could
merge with Machinima, the gaming-centered YouTube channel which
Time Warner invested $18 million in. If Warner saves Xbox
previously planned projects
Age of Empires
Gears of War
could still see the light of day.
If Microsoft were to sell Xbox Entertainment Studios to Time
Warner, what would both companies gain from the deal?
Why Microsoft should sell Xbox Entertainment Studios
Microsoft's biggest mistake with the Xbox One was to position it
as an all-in-one media center for the living room. The strategy,
which initially centered around the Kinect, caused the console to
debut at $499 -- $100 more than
's PS4. Microsoft eventually removed the Kinect to match the
PS4's price, but it was too late -- Sony gained the early lead,
that it sold 10 million consoles compared to Microsoft's 5
million Xbox Ones.
Xbox Entertainment Studios was a big part of that misguided
strategy. Sony can easily afford to add original content to the
PS3 and PS4, since it owns record labels, TV stations, and film
studios. Microsoft started from scratch in hopes of matching the
original content that Sony could easily churn out at its TV and
Microsoft's strategy made sense on paper -- it would produce
original content which tied into its games.
, produced by Ridley Scott, would introduce gamers to Agent
Locke, a playable character in
Halo 5: Guardians
would be the first game to interact with a companion TV show,
although the exact methods have yet to be revealed. These plans
were ambitious, but the shows would have gained more exposure on
network or cable TV instead of the Xbox One.
Quantum Break. Source: Remedy.
Microsoft isn't a media company
Satya Nadella has repeatedly emphasized the company's "One
Windows" philosophy to unite smartphones, tablets, laptops,
desktops, and the Xbox One.
This means that all of these devices might eventually run on a
single Windows operating system, similar to Android. But for now,
it means tethering all of these systems to a single ecosystem
with services like OneDrive and Bing. That's why
the Nokia Android phone, Asha, and S40 devices -- they didn't
advance the One Windows strategy in any way.
Xbox Entertainment Studios doesn't fit into the One Windows
philosophy either -- it's simply an extension of the Xbox
business that makes the struggling segment even more top heavy.
The Xbox division generated $8.6 billion in revenue in fiscal
2014, a 22% increase from 2013, but it's unclear how much money
the business actually loses. Nomura Securities analyst Rick
Sherlund suggested last November that Microsoft actually loses
around $2 billion annually on the Xbox, but the losses are hidden
behind patent royalties from Android devices.
An IHS iSuppli teardown revealed that the Xbox One, minus the
Kinect, costs about $396 to manufacture. This means Microsoft
takes big losses with new bundles, like the $400
which will arrive on October 28. Microsoft needs to sell more
consoles to recoup those losses with its cut of software
Xbox Entertainment Studios doesn't help expand the Windows
ecosystem, and it doesn't help sell consoles. Therefore, it was a
smart move to scrap the business before it got out of hand.
What if Time Warner buys Xbox Entertainment Studios?
Of course, it would be smarter to sell the division instead of
simply shutting it down. If Time Warner buys the business and
integrates it into Machinima, it could help the YouTube channel
evolve to the next level with exclusive content like
Since both the Xbox One and PS4 can play YouTube out of the
box, console gamers can still watch the programs on their
consoles. Microsoft gets cross-platform exposure, possible
licensing fees, and lets Warner Bros., with its more extensive
studio operations, develop the shows and films.
Since Time Warner also owns HBO, the Turner cable networks,
and CW (a joint venture with CBS), it could launch a
series on primetime TV as well -- something that Microsoft
reportedly considered with the second Steven Spielberg-produced
series. We might even get an epic,
Game of Thrones
The deal would be a win-win situation for both parties --
Microsoft takes some weight off the Xbox division's bottom line
and gains better exposure for its franchises, while Time Warner
gains new IPs to make new shows and films.
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Should Microsoft Sell Xbox Entertainment
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