Microsoft’s Missed Opportunity in Hollywood: ‘What a Zero, the Whole Thing’

Analysis: Microsoft wanted to make a splash by producing its own shows, but never got anything off the ground

XBox Nancy Tellem

 Microsoft stormed Hollywood two years ago armed with its Xbox and one of the most powerful executives in the television business. It leaves with nothing to show for it.

Microsoft will close its Xbox Entertainment Studios in the coming months, the company said Thursday, laying off some 200 employees. President Nancy Tellem and lieutenant Jordan Levin will hang around to finish off a couple of shows, but producing TV shows is no longer in Microsoft’s long-term plan.

So ends a fitful two-year experiment with an enterprise that never found its footing. Despite partnerships with Steven Spielberg, Sarah Silverman and Ridley Scott, Xbox struggled to close deals for shows, which had been Tellem’s strength at CBS.

See Video: Nancy Tellem at Wrap Power Women Breakfast: Microsoft Is Aiming for a ‘Game of Thrones’ (Video)

This is a missed opportunity for Microsoft, and yet another reminder that developing and producing great television is hard, something many technology companies do not realize until it’s too late.

“Xbox didn’t ever do anything,” a top agent who declined to be identified told TheWrap. “They didn’t have a clear vision about what they were supposed to be doing. Getting into entertainment is a big jump.”

Some of the blame goes to Microsoft, where Tellem arrived with an illustrious track record. She became one of the industry’s most powerful female executives at CBS, an early advocate of hit shows “CSI” and “ER.” Yet the Microsoft bureaucracy stifled her efforts to close deals.

“She worked in a monarchy and moved to a communist society,” one producer who dealt with Xbox told TheWrap. “She worked for a guy, (CBS chief) Les Moonves, who could make any decision he wanted and it would happen. She went and worked for a company that was a Matrix structure, and she was four levels below the CEO.”

Also read: Les Moonves Talks 24-Hour Digital News Channel Plans; Neil Patrick Harris Late Night Reports (Video)

Tellem is not beyond reproach; producers and agents said she lacked focus.  Tellem often said she wanted to produce her own “Game Of Thrones,” but saying you want a hit is not a strategy.

Xbox wanted programming that appeals to its gamer audience, which helps explain their highest-profile projects, a pair of series based on the popular video game “Halo.” Spielberg’s Amblin TV co-produced one project and Ridley Scott worked on another. While their involvement may have helped get the shows attention from the press, they did not expedite production or distribution.

There is no release plan in place for either show, nor do most of Xbox’s other planned shows have a clear future. Though Xbox is supposed to be talking with Showtime about the Spielberg “Halo” series,” Xbox never communicated a distribution strategy to any partners.

“Xbox didn’t know how to program these shows,” the producer said. “They didn’t know where they were going.”

The closure is part of a larger reset at Microsoft, which will lay off up to 18,000 employees over the next year. Xbox Entertainment Studios is a minor concern to a company of Microsoft’s size, and CEO Satya Nadella wants his Xbox unit to devote all its energy to gaming.

Also read: Microsoft to Lay Off Up to 18,000 Employees

Yet it is still an expensive failure for Microsoft, which launched the studio because it wanted to diversify its Xbox business beyond video games. People used their Xbox to watch all sorts of entertainment, and the device was instrumental in the early success of Netflix’s streaming service.

“Xbox always regretted that they never took equity in Netflix then, and Netflix grew billions through getting on Xbox,” one executive told TheWrap.

Netflix stands out as the one Silicon Valley-based company to get entertainment right, but it began as a company that mailed DVDs, not as a technology company. Other companies, such as Yahoo and Amazon, are still figuring out their strategies.

Amazon, like Microsoft, is a technology giant that produces entertainment to support its core business. In Microsoft’s case, that was gaming. In Amazon’s case, it is shopping. Amazon is still searching for its first big hit, but it has a clear strategy  and talented partners like John Goodman and Jill Soloway.

Also read: Amazon Provides TV-Sized Budgets as ‘Transparent’ Marks Transition From TV to Online

Yahoo’s approach is less apparent. Those close to the company say it is trying to be YouTube and Netflix at the same time, two business models that have little in common. While Netflix operates a subscription business dependent on niche passions, YouTube runs an ad-based business that depends on scale. Yahoo relies on advertising for revenue, but its most recent deal is for “Community,” a show with a small but ardent fan base.

Despite widespread cynicism about Yahoo’s efforts, CEO Marissa Mayer remains adamant about her commitment to the media side of Yahoo’s business, talking up its digital magazines, and declaring video central to its efforts to increase revenue.

Both Yahoo and Amazon have accomplished more than Xbox, which withdrew before it could put any points on the board. That may help the company regain its focus, but those in Hollywood see a missed opportunity.

“The idea was really good,” the producer said. “But what a zero, the whole thing. They just had the wrong people, and spent millions in overhead with no results.”