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More fallout from Microsoft layoffs announcements came later in the day yesterday, this time with the news that Xbox Entertainment Studios (XES) would be closing. The Studios, headed by ex-CBS exec Nancy Tellem, who was hired in September 2012 to help to help to “expand the Xbox platform beyond games”. In Microsoft’s press release announcing her hiring, she laid out the plans for Xbox as a consumer entertainment hub:

“I am excited to be a part of the continued evolution of Xbox from a gaming console to the hub of every household’s entertainment experience,” Tellem said. “The Xbox is already a consumer favorite, and we now have a tremendous opportunity to transform it into the center of all things entertainment — from games, music and fitness to news, sports, live events, television series and movies — so consumers have one destination for all their entertainment needs. I look forward to building a studio team that embraces the challenges of creating true interactive content that the Xbox platform supports and to work with talent to create content that will change the way entertainment content is experienced and delivered.”

The Xbox One was supposed to be, or at least that’s what we were led to believe at the time, the device that would bridge the gap between hard-core gaming and next generation living room experiences, but for the most part it hasn’t worked out that way. The Xbox One launch was a lesson in how not to launch a product, with customers up in arms about “always on”, “internet connection required”, “Kinect required”, and so forth. Microsoft, in its own sort of bumbling way, backtracked on most of the criticism, up to and including re-packaging the Xbox One without a Kinect, which has dropped the price and boosted sales.

Now, with the closing of Xbox Entertainment Studios, and the potential sell-off of Nokia’s MixRadio (which doesn’t seem to bode well for the future of Xbox Music) Microsoft is coming to realize that producing original content, especially for an audience (Xbox owners) much smaller than the likes of Netflix or HBO, is hard. In fact, according to a post in The Guardian, about MixRadio, Microsoft is rethinking its whole entertainment strategy:

MixRadio’s biggest competition, however, will come from the on-demand streaming services like Spotify, Deezer, Rhapsody/Napster and Beats Music, which all have personal radio features as part of their apps.
The fate of Microsoft’s own Xbox Music streaming service following the company’s cuts remains unclear.
(MixRadio chief Jyrki) Rosenberg said that MixRadio is spinning off because Microsoft’s entertainment strategy is shifting towards working with a variety of external partners rather than running its own services.

At one time, rumors were that Microsoft would be producing an “Xbox Lite” device, with an emphasis on living room entertainment, and at a price closer to a Blu-Ray player than a hard core gaming system. That project was apparently axed, but the Xbox One was supposed to deliver far more than gaming, although at a much higher price. Now, the sands do indeed seem to have shifted, and all we heard from Microsoft this past week was “gaming, gaming, gaming”.

The audience for next generation living room experiences is still there, although to be honest, maybe there simply isn’t a way for Microsoft to make money off it. Providing a cheap set-top box to deliver premium content from Netflix, music from Pandora, and YouTube videos isn’t a moneymaking experience for Microsoft. Creating their own content seemed to make sense at the time, but executing was a different story, according to Re/Code:

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.

So now we’re back to square one. Xbox remains a hardcore gamer platform, Xbox Music won’t gain any of the benefits of integration with MixRadio, and Microsoft is getting out of the 1st party entertainment content business. And yes, we know that the Xbox can be used for lots of entertainment purposes, in addition to hardcore gaming. That’s not the point. Microsoft at one time had big plans to conquer the living room, with one of its “3 screens” being the television. Now, with XES shuttered and Microsoft pulling away from creating its own content, that dream remains elusive.

LiveSide.net